Impact of the Russia-Ukraine conflict The conflict between Russia and Ukraine has been going on for a long time, and many believe that this conflict will not end easily, but will turn into a protracted war. Because neither Russia, nor Europe and the United States, nor even Ukraine, have shown sincerity for a ceasefire. Russia wants to take advantage of the winter weather to put pressure on Europe, while Europe and the United States want to put Russia in economic trouble by stalling for time. As for Ukraine, its voice seems to have been ignored.
In this case, the conflict will enter a relatively controllable state, and both sides will not let the conflict escalate to the point of getting out of control, but will fight for their own interests within an acceptable range. This way of playing is to wait for the opportunity to see how the external environment will change, and then make adjustments accordingly.
From a global perspective, on Eurasia, there are three important strategic buffer zones: Eastern Europe, East Asia and the Middle East. The Russia-Ukraine conflict is on the buffer zone of Eastern Europe, triggering a prelude to a redivision of spheres of influence. And now, this prologue has come to an end and we have moved on to the next stage.
The main feature of this stage is that Europe, having experienced the losses of the first stage, began to come to an agreement with the United States. This unanimity is mainly reflected in the financial sector, which is no longer fighting internally, but has turned to the outside world, targeting the vast number of developing countries.
They're going to start working together.
Financial Coordination in Europe and the United States Many of the decisions made in the United States, from a financial point of view, are the easiest. For example, if the United States began to raise interest rates for the first time in March, the biggest competitor for the dollar is the euro within the financial bloc of Western countries.
Therefore, before raising interest rates, the United States made Ukraine constantly challenge Russia through constant provocations, which is the strategy of the United States. By triggering the Russia-Ukraine conflict, it is a very perfect logic to let the dollars in Europe flow back in large quantities. There were probably many other factors to consider at the time, but it turned out that a financial perspective, with the interests of the dollar at its core, was probably the most effective.
If we continue to look at Europe from this perspective, then after August, the problems on the European side may gradually subside.
This is because before July, the United States has been raising interest rates since March, while the tightening policy in Europe has not been implemented, so that interest rates in the United States are getting higher and higher, while Europe is still maintaining zero interest rates, and the interest rate differential between the United States and Europe is getting wider and wider. In this case, capital will choose to flow to the United States in pursuit of profits.
At this time, coupled with the provocation of the United States, the conflict between Russia and Ukraine is becoming more and more intense, and European capital will also choose to go to the United States for security. In terms of income and security, if the United States encircles and suppresses European capital at the same time, then as the capital center second only to the United States, European capital will flow to the United States in large quantities.
But as the expectation of the Russia-Ukraine conflict stabilizes, from a security point of view, all the money that should go to the United States should have gone, and the rest cannot be driven away. At this time, it mainly depends on the impact of interest rate differentials, but interest rate differentials will be gradually fixed at the end of July, because Europe has also raised interest rates.
On the 21st local time, the European Central Bank decided to moderately tighten monetary policy at the meeting of the Governing Council held in Frankfurt, Germany, and the three main interest rates were raised. The refinancing rate rises to 050% with a marginal lending rate of 075%, the deposit rate is 0%, effective from the 27th of this month. It is also the first time the ECB has raised interest rates since 2011.
This is the first rate hike in Europe to start a rate hike cycle, and it has been increased by 50 basis points, which is a large amount. Although it is still far from the 75 basis points in the United States, the first rate hike in the United States was only increased by 25 basis points. Europe is in a bit of a hurry right now.
Because as long as Europe starts to raise interest rates for the first time and raises interest rates later, the magnitude can be consistent with that of the United States, so that the interest rate differential between Europe and the United States will not widen from the end of July. After that, the spread will remain stable, around 2%. Once interest rate differentials no longer widen, capital flows will gradually slow down.
And the interest rate hike in Europe was finally implemented in July, what are the considerations at this point in time, and is there any coordination between the United States and Europe?I think there should be. From a financial point of view, the United States has created a buffer period of almost five months for itself to harvest Europe.
In this way, from the end of July, interest rate differentials on the European side and the security problems caused by the Russia-Ukraine conflict will enter a period of stability. In other words, on the European side, all kinds of conflicts and turmoil will gradually subside. This corresponds to the completion of the first phase of US taxation to Europe.
However, as an apparent ally, the United States will have to cooperate with Europe in the future, and it is obvious that it cannot go all at once. And giving Europe some benefits in terms of interests may be the basis for the next step of cooperation between the United States and Europe. And where this benefit comes from, it is likely that the United States and Europe are ready to jointly raise interest rates and draw further.