Tag Archives: Putin

Ukraine Crisis Hits Soccer

Amid the political tensions between Ukraine and Russia, which have also involved most Western countries on Ukraine’s side, there are many economic and social repercussions to consider. As has been discussed on this blog, the economic implications of the crisis are vast, especially when looking within Ukraine. However, this period has been very tense business-wise between Russian companies and Western countries. A very unexpected implication of the crisis, at least for me, is that with the popular German soccer team Schalke. According to an article from the Wall Street Journal, Russian state-owned gas giant OAO Gazprom pays around $20 million a year to sponsor Germany’s Schalke soccer club. The problem here is not that Gazprom will halt its sponsorship, it is in fact very content with the market results of the sponsorship. However, out of this Russian-German connection, Russian President Vladimir Putin extended an invitation for the team to visit the Kremlin.

The article notes that “new complications for German business leaders who have been trying to maintain normal ties to Russia amid the mounting crisis in Ukraine. German companies trying to take a business-as-usual stance with Russia increasingly find themselves under political pressure at home to avoid appearing to be part of Moscow’s propaganda efforts.” Earlier this week, the team seemed inclined to accept the invitation. But today the backed down and declined it. Apparently, Schalke’s chairman, Clemens Tönnies, has serious business ties with Russia; besides the sponsorship of the team, him and his partners are investing over $800 million in pork factories in Russia. His initial response in an interview was that “the team would love to see the Kremlin and is interested in Moscow…and the Russian president is interested in Schalke and invited us.” But after political outrage on the behalf of German Chancellor Angela Merkel’s allies, today Mr. Tönnies took back his comment: “there was never and there is no commitment to such a visit…this would not be appropriate in light of the current political situation.”

It’s interesting to see the repercussions of the political tensions in Ukraine. And it is unexpected to see it manifested in areas like soccer. Luckily for German soccer lovers, the team says its fans are widely unaffected by the situation. With respect to the sponsor, they say most people just see the sponsor as a source of capital, and not a national flag. Personally, I think this is the right approach to the situation. Though it is more complicated when considering the Putin himself invited the team to Russia, it is important to remember that the Russian government’s actions do not represent every Russian’s views and wishes. In general, it is unfair and economically-illogical to punish Russian businesses for the actions of its government.

Russia’s Capital Outflow Problem

The United States’ sanctions against Russia may actually benefit Putin and the Russian economy as a whole, argues Politico magazine. The article outlines a problem that has hurt Russia economically over the last two few decades. As in many countries, there is an incentive for the wealthiest Russians to place their assets in offshore accounts. Since a little over 100 Russians hold over 35 percent of the country’s wealth, the money that these oligarchs send offshore accounts for massive capital outflows.

While some Russians laughed the sanctions off, including one of Putin’s aides who said that the only thing he needed from America was Tupac’s music, which he could download online, the sanctions make holding assets abroad risky for these wealthy Russians. If they are forced into bringing their wealth back to the Russia, they will have to invest in Russian businesses and other projects. This kind of action strengthens Russian’s economy and also reinforces Putin’s power. If the Russian wealthy can hide their money offshore, Putin cannot control their money nor them. With all of this money back home, Putin assures that these oligarchs won’t do anything that would put them in jail and have the government confiscate their assets. This kind of effect would be much needed as Putin’s Russia is facing a lot of economic difficulties, including a very weak Ruble.

While all of the ongoings with the Crimea have shaken the Russian markets (which was down about two and a half percent today), Putin seemed eager to defy the United States’ sanctions against Russia. These sanctions were criticized for being too weak, but if Putin thought that he stood to gain from defying them anyways, it didn’t matter how strong the sanctions were; it will benefit him anyways.

While Russia’s capital outflows may be turning around, the European economy may be harmed in all of this, as the Wall Street Journal argues. This would stem from European reliance on Russia’s energy exports and over $150 billion in European bank claims in Russia.

Whatever the collateral damage on the European economy, Putin clearly was eager to march into the Crimean peninsula, heightening tensions with the United States and other countries. With Putin’s dominating control over Russia, it would be surprising to me if he didn’t see a benefit to doing this, lending credence to the opinion of the Politico article; that Putin stands to gain by bringing Russian money back to Russia: mostly in his control over the Russian elite. There is a reason that some think he is the most powerful man in the world.