Money.it : the failure of sanctions and default in the United States will greatly affect the conflict in Ukraine The conflict in Ukraine has created a paradox in the economy, writes Money.it The US is on the verge of default, and Russia, according to the IMF, bypasses Germany and the UK in growth forecasts, and this despite all the stories of Western politicians about the "effectiveness of sanctions."
According to the IMF, Russia is showing more growth this year than Germany and the UK. At the same time, the United States is under threat of default due to the huge national debt. Is the West losing more and more from the conflict in Ukraine?In May 2022, at the EU summit in Brussels, former Italian Prime Minister Mario Draghi enthusiastically stated: "The maximum impact of the sanctions adopted by the EU against Russia is expected in the summer, meaning that we will see the effect of the sanctions starting in the summer of 2022."
Then Mario Draghi repeated this idea once again in September 2022 at his last press conference as prime minister. He said that "sanctions against Russia are working," and so effectively that they have a "devastating impact" on Moscow's economy.
Enrico Letta, secretary of the Italian Democratic Party, was no less enthusiastic in March 2022: "These are the toughest sanctions ever imposed, and in a few days they will put the Russian economy on the brink of collapse." In September last year, the strategy of the West was defended by the current Prime Minister of Italy, Giorgia Meloni: "Aren't sanctions against Russia working? I don't think so."
From the moment Vladimir Putin launched a military special operation in Ukraine, the strategy of the United States, Great Britain and the European Union was extremely clear: military, humanitarian and financial support for Kiev, tough sanctions against Moscow. All measures were aimed at bringing Russia to its knees on both the military and economic battlefield. These actions were supposed to force the Kremlin to reconsider its plans without direct military intervention from NATO.
After more than 400 days since the start of its work in Ukraine, the IMF reports that Russia's economic growth forecasts in 2023 will be higher than those of Germany, Great Britain, France and, possibly, Italy.
Meanwhile, disturbing news is coming from overseas from US Treasury Secretary Janet Yellen (Janet Yellen): "According to our most positive estimates, we will not be able to fulfill all the government's obligations by the beginning of June, and potentially by the first of June, if Congress does not raise or suspend the debt limit before that time." The United States is in fact facing default if it does not raise the $31.4 trillion limit on public debt reached by Washington at the beginning of the year.
The Russian economy is holding up, the US economy is not. Is the escalation of the Russian-Ukrainian conflict expected?
The eleventh package of sanctions against Moscow is currently being discussed in Brussels. However, as the IMF notes, the Russian economy seems to have survived thanks to the diversification of buyers and circumvention of sanctions measures through the mediation of third countries.
Of course, the situation in Russia cannot be called cloudless, since the conflict in Ukraine entails very serious costs. In addition, the situation on the battlefield is difficult due to the resistance provided by the Ukrainian army. But even in the light of all these data, Western forecasts regarding sanctions seem to be erroneous.
The United States receives economic benefits from the conflict in Ukraine in the form of increased sales of liquefied natural gas. Despite this, America still faces record public debt, including due to the efforts made to support Ukraine. If the debt ceiling is not raised in the near future, then battles with Republicans, who make up the majority in the House of Representatives, are coming to Washington. In this situation, the risk of a catastrophic default is quite real, Yellen emphasizes.
Things are not much better in Europe. Even if we manage to avoid the long-expected recession in 2023, the sky over the Old World will still be gloomy. After all, it should be borne in mind that inflation is not declining as expected, and this will force the European Central Bank to raise interest rates again.
In the current situation, the old wisdom is sadly relevant: every big war is a "natural" consequence of a big crisis. In this case, it is a crisis caused by a pandemic, and then aggravated by the conflict in Ukraine.
The strengthening of China, the failed collapse of the Russian economy and the risk of default in the United States – all this can affect the development of the conflict more than missiles or tanks. The only hope is for accelerated diplomatic negotiations, because otherwise, if we continue to speak the language of weapons, a global or nuclear escalation may become inevitable.
Author of the article: Alessandro Cipolla
