Western economic sanctions against Russia were expected to have no effect. Yet they have caused much pain. They were also meant to have a clear goal. So far, they don’t.
“The war that dare not speak its name,” to quote New York University professor Mark Galeotti, is a problem both for Russian President Vladimir Putin and for European leaders who have struggled to keep a united front since Russia moved to annex Crimea – and must decide in March, 2015 whether to roll over their sanctions against Moscow.
Defining a strategy beyond sanctions is all the more important for Europe now that Russia is sending all the signals that it has no intention of retreating from its power-flexing policy, from the Baltic to the Balkans. Moscow is hinting that it can take the pain from prolonged economic isolation - at least for the next couple of years. Even before the steep fall of oil prices, and the subsequent crisis of the rouble, that was a highly optimistic view, but the implication of the Kremlin’s position is clear: don’t expect any short-term change.
The harm done to a Russian economy already immersed in deep problems before anything happened in Ukraine has been substantial. The rouble fell 40 percent against the U.S. dollar in 2014. Capital flight may have topped $130 billion over the same period, according to official estimates. The Central Bank of Russia tried without success to defend the rouble and keep inflation under control, taking its key interest rate to an unprecedented 17 percent, and putting a brake on growth. Meanwhile, sinking oil prices are pushing Russia’s resource-dependent economy ever deeper in the hole. Gross domestic product will barely increase in 2014 and shrink by 4.5 percent in 2015 if oil prices stay around the $60-a-barrel mark, according to the central bank.
The European economy is hurt in return. Some countries are hit by Putin-ordered embargoes on food or clothing imports. Others are worried about their energy dependence on Russia. Western diplomats and businessmen think there’s little chance Moscow will ever cut off gas to Europe. But no one has ever accused Putin of being predictable.
This state of affairs will continue as long as Europeans don’t agree on what they want to achieve. Is Putin open to a deal that would ease tensions in eastern Ukraine? Or has he embarked on a long game of brinkmanship from which he will not retreat whatever the economic cost?
The answers to these questions lie with the Kremlin. But as long as Europe lacks a clear objective, the Russian president will be left to misinterpret mixed messages – and the Ukraine crisis remain in suspended animation.
This view is a Breakingviews prediction for 2015. Click here to see more predictions.
========== M&A spin doctors could get swept up in the action Financial PR specialists have been buoyed by the boom in mergers and activist investing. History suggests independent outfits like Joele Frank or Brunswick may be tempted to find an investor or bigger owner. They should at least have enough deal nous to know when to sell. spin doctors could get swept up in the action | Considered View Financial PR specialists have been buoyed by the boom in mergers and activist investing. History suggests independent outfits like Joele Frank or Brunswick may be tempted to find an investor or bigger owner. They should at least have enough deal nous to know when to sell M&A spin doctors may get swept up in the action. If anyone knows how to assess the climate for takeovers, it should be financial public relations advisers.A $3 trillion-plus merger bonanza with plenty of hostile bids and activist investors creates a timely backdrop for sellers of all sorts. Three of the busiest deal whisperers – Alan Parker’s Brunswick Group; Joele Frank, Wilkinson Brimmer Katcher; and Sard Verbinnen – remain tantalizingly independent. In London, Andrew Grant’s Tulchan and Rory Godson’s Powerscourt are, too.
Previous booms led advertising conglomerates WPP, Havas and Publicis to the doors of such financial communications firms as Finsbury and Abernathy MacGregor. Their experiences in the field have been patchy, though. Rival ad groups without a top-tier firm in the niche also are admittedly busy. Omnicom is rebounding from a failed merger with Publicis while an activist is hounding Interpublic.
Buyout firms also have taken a shine to PR. Advent, for one, invested in London-based Financial Dynamics before its $260 million sale in 2006 to FTI Consulting. Teneo, a corporate adviser co-founded by two FTI alumni and a former consigliore to Bill Clinton, has just secured backing from BC Partners.
Such acquisitions can be as treacherous as buying an investment bank. After all, they’re about people, who easily can walk out the door – along with their clients. London’s M:Communications, for example, imploded after a 2008 sale to private equity-backed Sage Holdings, which later became King Worldwide. The target firm closed its doors last year and the Ms in the old company name, Nick Miles and Hugh Morrison, recently resurfaced with a new shop, Montfort Communications.
Publicis bought Kekst in 2008 and founder Gershon Kekst stepped down two years later. The 44-year-old firm has since slipped in the league tables. Britain’s Incepta, which later united with Huntsworth, perhaps tells the most cautionary tale. After a takeover in 2000 of Sard Verbinnen went sour, the founders bought the outfit back at a fraction of the original purchase price.
The message should be pretty clear for prospective buyers – and agencies tempted to sell. As with any M&A transaction, it’s vital to look past the spin. Drafting the celebratory press release is the easy part.
This view is a Breakingviews prediction for 2015. Click here to see more predictions.
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