Pedestrians walk under a board listing foreign currency rates against the Russian ruble outside an exchange office in central Moscow, on December 17, 2014. Photo: Getty Images
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Rouble trouble: oil's plunge has given Putin a serious headache

The fall in oil's price is being felt keenly in Moscow, where the Putin government is struggling to cope with the knock-on effects.

In June a barrel of Brent crude oil cost $115. On Wednesday it cost less than $59. The plunge is a result of higher global production  mainly due to shale drilling in the US  as well as weaker demand from large economies such as China and Germany.

For most of us lower petroleum prices are a good thing. It is cheaper to fill up our cars and the falling cost of producing goods can spur economic growth. But for some oil-producing countries crude’s tumble is a major headache. Ask Vladimir Putin.

Since the start of his campaign of irredentism in Ukraine in February, Russia’s president has shrugged off the strong criticism of his policies by European and North American leaders. When sanctions were imposed he retaliated by restricting food imports from the West. Thanks partly to the state-controlled media, but also to the rise in living standards and the financial stability under his rule, Putin’s domestic approval ratings remain high.

But the fall in the price of oil, which together with natural gas accounts for more than two-thirds of Russia’s total exports, now threatens Putin’s standing at home. It has already put huge pressure on the Russian rouble, which traded at less than 40 to the US dollar as recently as October. This week the rouble slid to 80 to the dollar – and that was after the central bank raised interest rates by 6.5 percentage points, to 17 per cent, on Monday night. The rouble has since recovered to around 63 to the dollar, but only after aggressive central bank intervention.

The bank’s deputy governor, Sergey Shvetsov, said on Tuesday that the rouble situation was “critical”, the stuff of his “worst nightmares”. Some Russians agreed, rushing to purchase foreign currency and goods before prices increased further. Apple stopped selling iPhones and computers online in Russia because the currency’s volatility made it too difficult to set prices.

Despite the signs of panic, a major financial crisis in Russia may be averted, unlike in 1998 when the currency last collapsed. In recent years the country’s fiscal policy has been relatively prudent, and high commodity prices have enabled the government to amass $400bn in foreign exchange reserves. Sovereign borrowings are modest.

Even so, the mild recession that seemed inevitable even before this week now seems likely to be severe; the central bank has forecast a 4.5 per cent contraction in GDP in Russia in 2015 if oil prices stay at around $60 a barrel. 

And that will make like harder for Putin. Writing in the Financial Times on Wednesday, Sergei Guriev, a former head of the New Economic School in Moscow, said that the Russian authorities had shown little understanding of how to deal with the financial predicament. International markets were witnessing "a gathering storm but no captain", Guriev added, leaving only two certainties: “First, unless sanctions are lifted and the oil price rebounds, the Russian economy will grow much worse in 2015. Second, we can predict that Moscow’s response — in both economic and foreign policy — will be unpredictable.”

Xan Rice is Features Editor at the New Statesman.

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After Article 50 is triggered, what happens next?

Theresa May says Article 50 will be triggered on 29 March. The UK must prepare for years, if not decades, of negotiating. 

Back in June, when Europe woke to the news of Brexit, the response was muted. “When I first emerged from my haze to go to the European Parliament there was a big sign saying ‘We will miss you’, which was sweet,” Labour MEP Seb Dance remembered at a European Parliament event in London. “The German car industry said we don’t want any disruption of trade.”

But according to Dance – best known for holding up a “He’s Lying” sign behind Nigel Farage’s head – the mood has hardened with the passing months.

The UK is seen as demanding. The Prime Minister’s repeated refusal to guarantee EU citizens’ rights is viewed as toxic. The German car manufacturers now say the EU is more important than British trade. “I am afraid that bonhomie has evaporated,” Dance said. 

On Wednesday 29 March the UK will trigger Article 50. Doing so will end our period of national soul-searching and begin the formal process of divorce. So what next?

The European Parliament will have its say

In the EU, just as in the UK, the European Parliament will not be the lead negotiator. But it is nevertheless very powerful, because MEPs can vote on the final Brexit deal, and wield, in effect, a veto.

The Parliament’s chief negotiator is Guy Verhofstadt, a committed European who has previously given Remoaners hope with a plan to offer them EU passports. Expect them to tune in en masse to watch when this idea is revived in April (it’s unlikely to succeed, but MEPs want to discuss the principle). 

After Article 50 is triggered, Dance expects MEPs to draw up a resolution setting out its red lines in the Brexit negotiations, and present this to the European Commission.

The European Commission will spearhead negotiations

Although the Parliament may provide the most drama, it is the European Commission, which manages the day-to-day business of the EU, which will lead negotiations. The EU’s chief negotiator is Michel Barnier. 

Barnier is a member of the pan-EU European People’s Party, like Jean-Claude Juncker and German Chancellor Angela Merkel. He has said of the negotiations: “We are ready. Keep calm and negotiate.”

This will be a “deal” of two halves

The Brexit divorce is expected to take 16 to 18 months from March (although this is simply guesswork), which could mean Britain officially Brexits at the start of 2019.

But here’s the thing. The divorce is likely to focus on settling up bills and – hopefully – agreeing a transitional arrangement. This is because the real deal that will shape Britain’s future outside the EU is the trade deal. And there’s no deadline on that. 

As Dance put it: “The duration of that trade agreement will exceed the life of the current Parliament, and might exceed the life of the next as well.”

The trade agreement may look a bit like Ceta

The European Parliament has just approved the Comprehensive Economic and Trade Agreement (Ceta) with Canada, a mammoth trade deal which has taken eight years to negotiate. 

One of the main stumbling points in trade deals is agreeing on similar regulatory standards. The UK currently shares regulations with the rest of the UK, so this should speed up the process.

But another obstacle is that national or regional parliaments can vote against a trade deal. In October, the rebellious Belgian region of Wallonia nearly destroyed Ceta. An EU-UK deal would be far more politically sensitive. 

The only way is forward

Lawyers working for the campaign group The People’s Challenge have argued that it will legally be possible for the UK Parliament to revoke Article 50 if the choice is between a terrible deal and no deal at all. 

But other constitutional experts think this is highly unlikely to work – unless a penitent Britain can persuade the rest of the EU to agree to turn back the clock. 

Davor Jancic, who lectures on EU law at Queen Mary University of London, believes Article 50 is irrevocable. 

Jeff King, a professor of law at University College London, is also doubtful, but has this kernel of hope for all the Remainers out there:

“No EU law scholar has suggested that with the agreement of the other 27 member states you cannot allow a member state to withdraw its notice.”

Good luck chanting that at a march. 

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.