Summary

Wolfgang calculates Russia can recoup its frozen foreign reserves in 12 to 18 months through the sale of fossil fuels and therefore will be able to continue to finance the war in Ukraine. Currently, Germany and Italy are blocking the EU from freezing Russia oil imports as the US and Britain have done. If this were to change, there would be a large economic shock in these economies. German industry is clearly worried about its competitiveness. If Germany were to stop oil, gas and coal imports overnight, the competitive gains German industry made over the last 20 years would be wiped out. The German Economic Ministry, which is under leadership of the Green Party, does not wish to embargo Russian energy imports as it would threaten the transition to renewables by giving life to nuclear energy to which they are violently opposed. The swift sanctions only cut of 30% of Russian banking sector and did not touch energy trade. Wolfgang expects energy sanctions to remain off the table this week at the European summit. They will agree a medium term strategy to reduce dependence on Russian gas. If the politics shifts because of an escalation in Ukraine, such that energy sanctions are imposed, then Wolfgang expects a significant explosion in energy prices far beyond what the market expects. Price shocks could become persistent rather than a series of one-off shocks as in the 70’s forcing central banks to act. The likely scenario is a recession and inflation – stagflation. Wolfgang is not predicting a repeat of the eurozone sovereign debt crisis but expects stresses to develop in the system with questions on the Euro, and he does not believe the recovery fund will result in productivity gains in Italy. Wolfgang spoke to the Central bank sanctions which are subject to government decisions making money political. Clearly this brings into question the value of Fiat currency and will lead to some people concluding its safer to transact in crypto than dollars, which will impair the dollar as the global reserve currency and will encourage the use of different payment systems. Wolfgang does not believe this will be commodity backed due to the nature progression and not moving backwards. Crypto will most likely be the source of any fiat currency backing. With regards to China, they are no fan of economic sanctions as they are a target of them themselves. Sanctions do not have the best record and the recent trigger-happy approach with may have costs - potentially it will be harder to use sanctions in the future.

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