European Commission President Ursula von der Leyen arrives for the EU leaders’ summit as EU leaders try to agree on Russian oil sanctions in response to the Russian invasion of Ukraine, Brussels, Belgium, May 30, 2022. REUTERS / Johanna Geron // File Photo
Register now for FREE unlimited access to Reuters.com
I’m registering
LONDON, June 27 (Reuters) – Russia’s first major international debt in more than a century, which Washington said became a reality Monday, was after months of coordinated Western sanctions that left Moscow with money but no access to international law. financial network. Read more
Below is a summary of the key points that have led to this point.
THE “BIG PACKAGE”
At around 11.30pm (22:30 GMT) on 25 February, the day after Russian troops entered Ukraine, European Union experts in Brussels said that a set of sanctions they had been working on for days, or the “Big Pack”, as call it, is ready.
Register now for FREE unlimited access to Reuters.com
I’m registering
Shortly before midnight, the European Commission announced the measures.
While the extraordinary meetings of the Group of Seven and the EU earlier showed that a response was coming, the package, which was personally addressed to Vladimir Putin and his top diplomat Sergei Lavrov, and, as it became clear later, froze about $ 300 billion from reserves of the Russian Central Bank.
“It really was the moment we said, well, well, we did,” a European source told Reuters. “I think it was a very important moment for a lot of people around a table.
QUICK ACTION
Days later, on March 2, the EU struck again, banning seven Russian banks from SWIFT, an international financial communications system that is crucial for cross-border transactions. Read more
The launch of Russian creditors from SWIFT has long been considered a “nuclear option”, but the invasion put it on the table and when the EU decided to activate it, those at SWIFT’s headquarters just outside Brussels were ready.
The only question was how long did they have to implement the move, “five days or five minutes?” said another source. In the end it was 10-12 days.
FIRST CUT, BUT NOT THE DEEPEST
The credit rating agency S&P Global has already deprived Moscow of the desired investment rating on February 26 and Russian bonds fell, but a heavier blow followed on March 15, when the EU told leading credit agencies to suspend the rating of the Russian department or risk losing their licenses for activity in the block. Read more
“We were caught with flat feet, we were certainly not given a warning in advance,” said a senior analyst at the rating agency. “In principle, the question was, does this mean that we can no longer evaluate Russia?” It turned out that the answer was yes.
DEFAULT DEADLINE FIRST
With so many obstacles raised, expectations were raised that Russia would not repay its first bonds after the sanctions, either on March 16 or a month later at the end of the 30-day “grace period.” Read more
However, a special “release” of US sanctions, provided by the Treasury Department’s Office of Foreign Assets Control, allowed payments to pass.
UNEXPECTED CONSEQUENCES
On April 8, a week before the EU’s ban on Russian ratings took effect, S&P declared Russia a “selective default” after Moscow said it planned to make upcoming payments on rubles, not dollars, their issue currency. . Read more
On May 3, however, shortly before the payment, the Kremlin turned around and paid in dollars.
SYSTEM SHOCK
Days later, however, Russia stumbled.
On May 11, insightful creditors noted that Moscow had failed to add $ 1.9 million in additional interest accrued on bonds that had been repaid only during their grace periods, not on time. They contacted the clearing house Euroclear and then the equivalent of an arbitrator for insurance payments in the bond market – the Credit Derivatives Committee, which ruled that a “credit event” had occurred.
The amount was too small to trigger default clauses in all of Russia’s international bonds, but that meant some investors were expected to receive default insurance payments.
But when the US Treasury Department clarified on its website that buying Russian bonds on the open or “secondary” market was banned, this process of credit default swap insurance (CDS) had to be stopped because it was no longer clear what to do with participating bonds.
“It’s a bit like if your house burns down and the insurance company turns around and says it’s the wrong kind of fire,” said Joe Delvo, an emerging market debt portfolio manager at Europe’s largest fund manager, Amundi. “The reality is that these sanctions are a shock to the system.”
EXPECTED CONSEQUENCES
The move that made Russia’s bankruptcy inevitable was Washington’s decision on May 24 to expire, which allowed US bondholders to receive payments from Russia.
A week later, the EU also sanctioned Russia’s domestic paying agent, its national settlement depository (NSD), which it used to make payments.
Moscow has accused the West of imposing “artificial default.” read more, as Finance Minister Anton Siluanov called the situation a “farce”.
However, veteran global politicians involved in the process say the sanctions are unprecedented but fully justified.
“These were very significant actions that corresponded to the scale of the actions taken by Russia,” said Agustin Carstens, head of the World Bank’s body, the Bank for International Settlements.
(This story is corrected to correct a typo in paragraph 1)
Register now for FREE unlimited access to Reuters.com
I’m registering
Additional reports by John O’Donnell in Frankfurt, Francesco Guaraschio in Brussels, Andrew Makaskil, Karin Strohecker and Vincent Flasser in London and Gavin Jones in Milan Edited by Tomasz Janowski
Our standards: Thomson Reuters’ principles of trust.
Add Comment