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Europe needs to be ‘assertive’ with Russia, says Estonia’s president

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The Baltic states are safer and better defended than they were when Russia annexed Crimea in 2014 as Europe has woken up to the need for it to be “assertive” in dealing with Moscow, according to Estonia’s president.

Kersti Kaljulaid told the Financial Times: “European countries are collectively realising that while, during the cold war, our regional risk was everyone’s global worry, which is Russia, [now] Russia is an economy which looks smaller and smaller, its demographics are bad — we need to be assertive and able to deal with our regional risks ourselves. Of course, always supported by our transatlantic bond.”

Ms Kaljulaid argued that in recent decades “times have moved on”, and that the US was rightly keeping more of an eye on China and how “it plans to use its economic might in geopolitical games”.

She said European countries had “woken up” to this trend and credited them — and US president Donald Trump — with helping to lift military spending by $100bn inside Nato.

She added that having 1,000 Nato troops in Estonia and another 4,000 in Latvia, Lithuania and Poland had made all members of the military alliance more aware of the security situation in the Baltics and what would happen in the event of any aggression.

“Having boots on the ground has made all Nato allies think more carefully about their possible reaction, so we’re much better [trained] even in our political thinking about the security of the north-eastern flank of Nato . . . Frankly speaking, we feel safer,” Ms Kaljulaid said in an interview while on a state visit to Norway.

Her comments come amid increasing jitters in some Baltic Sea neighbours, such as Sweden, as to Russia’s intention and as part of a wider European debate about how best to defend the continent as the US increasingly deals with China.

French president Emmanuel Macron has pushed the idea that Europe needs to aim for sovereignty in defence matters, whereas others have stressed that the US as the main military power in Nato is still crucial for the continent’s security.

The biggest move by Nato itself has been the Enhanced Forward Presence set of four battle groups led by the UK, Canada, Germany and the US in the four Baltic countries and Poland as a sign of their commitment to the alliance’s collective defence pledge.

Sweden recently raised eyebrows in the Baltic region by raising its military readiness to its highest level since the 1991 failed coup against the then Soviet president Mikhail Gorbachev as the Nordic country’s armed forces warned of activity in the Baltic Sea “the likes of which have not been seen since the cold war”.

Estonia, together with Latvia and Lithuania, has repeatedly warned other western countries about possible Russian aggression since Russia attacked Georgia in 2008. Its international reputation has been bolstered by its digital governance and some of the best education results in Europe, allowing the country of just 1.3m people to punch above its weight.

But in the past 18 months that reputation has been tested by the entry of the far-right party Ekre into Estonia’s coalition government and insults by its ministers against the prime minister of Finland, gay people and women. Most recently, Estonia’s interior minister from Ekre was forced to resign after he and his son — who is still the country’s finance minister — called US president-elect Joe Biden corrupt.

Ms Kaljulaid said Estonia was having a “conflict of values” and that she did not appreciate the way Ekre ministers spoke about women or minorities as well as liberal democratic values.

“We cannot dissociate [ourselves from] it. It’s not only words, it’s the way they think. We need to argue it out, as ugly as it looks from the outside. We shouldn’t try to hide away . . . Personally I can’t change the government because we have a parliamentary democracy. This doesn’t mean I need to keep quiet,” she added.

Ms Kaljulaid said that populist parties offered “simple but wrong solutions” but added she did not blame the voters of such groups because they were not being served by the current economic model under which there were growing intergenerational hopelessness and inequality.

“Are these parties really interested in overcoming this break in the society? That I have my own doubts about,” she said. But Ms Kaljulaid added: “You need to calmly analyse what has caused it, and not to blame populism. You have not been serving parts of societies and you should accept it.”



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Emerging Markets

Bond sell-off roils markets, ex-Petrobras chief hits back, Ghana’s first Covax vaccines

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The yield on the benchmark 10-year Treasury exceeded 1.5 per cent for the first time in a year and the outgoing head of Petrobras warns Brazil’s President Jair Bolsonaro against state controlled fuel prices. Plus, the FT’s Africa editor, David Pilling, discusses the Covax vaccine rollout in low-income countries. 

Wall Street stocks sell off as government bond rout accelerates

https://www.ft.com/content/ea46ee81-89a2-4f23-aeff-2a099c02432c

Ousted Petrobras chief hits back at Bolsonaro 

https://www.ft.com/content/1cd6c9fb-3201-4815-9f4f-61a4f0881856?

Africa will pay more for Russian Covid vaccine than ‘western’ jabs

https://www.ft.com/content/ffe40c7d-c418-4a93-a202-5ee996434de7


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Petrobras/Bolsonaro: bossa boots | Financial Times

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“Brazil is not for beginners.” Composer Tom Jobim’s remark about his homeland stands as a warning to gung-ho foreign investors. Shares in Petrobras have fallen almost a fifth since President Jair Bolsonaro said he would replace the widely respected chief executive of the oil giant.

Firebrand Bolsonaro campaigned on a free-market platform. Now he is reverting to the interventionism of leftist predecessors. It is the latest reminder that a country with huge potential has big political and social problems.

Bolsonaro reacted to fuel protests by pushing for a retired army general to supplant chief executive Roberto Castello Branco, who had refused to lower prices. This is politically advantageous but economically short-sighted.

Fourth-quarter ebitda beat expectations at R$60bn (US$11bn), announced late on Wednesday, a 47 per cent increase on the previous quarter. This partly reflected the reversal of a R$13bn charge for healthcare costs. Investors now have to factor the cost of possible fuel subsidies into forecasts. The last time Petrobras was leaned on, it set the company back about R$60bn (US$24bn at the time). That equates to 40 per cent of forecast ebitda for 2021.

At just over 8 times forward earnings, shares trade at a sharp discount to global peers. Forcing Petrobras to cut fuel prices will make sales of underperforming assets harder to pull off and debt reduction less certain. Bidders may fear the obligation to cap prices will apply to them too.

A booming local stock market, rock bottom interest rates and low levels of foreign debt are giving Bolsonaro scope to spend his way out of the Covid-19 crisis. But the economy remains precarious. Public debt stands at 90 per cent of gross domestic product. The real — at R$5.40 per US dollar — remains near record lows. Brazil’s credit is rated junk by big agencies.

Rising developed market yields will make financings costlier for developing nations such as Brazil. So will high-handed treatment of minority investors. It sends a dire signal when a government with an economic stake of just over a third uses its voting majority to deliver a boardroom coup.

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South Africa’s economy is ‘dangerously overstretched’, officials warn

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South Africa is pushing ahead with plans to shore up its precarious public finances as officials warn the economy is “dangerously overstretched” despite the recent boom in commodity prices.

Finance minister Tito Mboweni hailed “significant improvement” as he delivered the annual budget on Wednesday and said that state debts that will hit 80 per cent of GDP this year will peak below 90 per cent by 2025, lower than initially feared.

But Mboweni warned that President Cyril Ramaphosa’s government was not “swimming in cash” despite a major recent tax windfall. The Treasury now expects to collect almost 100bn rand ($6.8bn) more tax than expected this year after a surge in earnings for miners. This compares with a projected overall tax shortfall of more than 200bn rand. Still, the finance minister made clear that spending cutbacks would be necessary.

“Continuing on the path of fiscal consolidation during the economic fallout was a difficult decision. However, on this, we are resolute,” Mboweni said. “We remain adamant that fiscal prudence is the best way forward. We cannot allow our economy to have feet of clay.”

The pandemic has hit South Africa hardest on the continent, with 1.5m cases recorded despite a tough lockdown. An intense second wave is receding and the first vaccinations of health workers started this month. More than 10bn rand will be allocated to vaccines over the next two years, Mboweni said.

‘We remain adamant that fiscal prudence is the best way forward’ – South African finance minister Tito Mboweni © Sumaya Hisham/Reuters

Even before the pandemic’s economic hit, a decade of stagnant growth, corruption and bailouts for indebted state companies such as the Eskom electricity monopoly rotted away what was once a prudent fiscus compared with its emerging market peers. 

Government spending has grown four per cent a year since 2008, versus 1.5 per cent annual growth in real GDP. The country’s credit rating was cut to junk status last year. Despite this year’s cash boost, the state expects to borrow well over 500bn rand per year over the next few years. The cost to service state debts is set to rise from 232bn rand this year to 338bn rand by 2023, or about 20 cents of every rand in tax.

The fiscal belt-tightening will have implications for South Africa’s spending on health and social services. On Wednesday Mboweni announced below-inflation increases in the social grants that form a safety net for millions of South Africans. “We are actually seeing, for the first time that I can recall, cuts in the social welfare budget,” said Geordin Hill-Lewis, Mboweni’s shadow in the opposition Democratic Alliance.

The finance minister is also facing a battle with union allies of the ruling African National Congress over a plan to cap growth in public sector wages. South Africa lost 1.4m jobs over the past year, according to statistics released this week. The jobless rate — including those discouraged from looking for work — was nearly 43 per cent in the closing months of 2020.

The South African treasury expects the economy to rebound 3.3 per cent this year, after a 7.2 per cent drop last year, and to expand 2.2 per cent and 1.6 per cent next year and in 2023 — growth rates that are widely seen as too low in the long run to sustain healthy public finances.

“The key challenges for South Africa do however persist, clever funding decisions aside,” Razia Khan, chief Middle East and Africa economist for Standard Chartered, said. “Weak structural growth and the Eskom debt overhang must still be addressed.” 



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