Russia’s economy is on a slippery slope as the country pours more of its resources into border wars and takes a go-it-alone approach to its economy. The government has run out of funds it can use to prop up the affected sectors, so an abrupt contraction is likely to hit in the coming months. Already a relatively isolated economy, Russia can rely on inflation to keep its economy relatively in balance as it declines. This is an effect that is already being seen in the currency markets, with Russia’s currency losing 1 percent of its value just this week. Russian inflation will mean that past foreign investments are no longer worth much. It is a scenario a little worse than investors had made contingency plans for earlier this year, and banks with a large exposure in Russia, particularly banks in Austria, will be facing a financial squeeze. Russia provides only 3 percent of Austria’s foreign trade, so Austria should be able to make the necessary adjustments to weather any financial crisis in Russia.
Scotland is expected to vote next week to secede from the United Kingdom. The Yes vote, should it occur, will be followed by an extended nation-building exercise that will include the need to rebuild the region’s banking system. Two international banks with operations nominally based in Scotland, Royal Bank of Scotland (RBS) and Lloyds Bank, have signaled their intention to move out after the independence vote in Scotland, putting more pressure on the banking sector. Though they are the two largest banks in Scotland, both are already in fact run from London, so it wouldn’t be as big a change as it sounds. Besides the needs for retail banking and transaction clearing, Scotland will need to create its own currency and central bank, details that remain to be worked out in the 18 months or perhaps much longer between the independence vote and the date that the new nation becomes effective.
Changes are inevitable after the death this week of Emilio Botin, the patriarch of Santander, but we probably won’t see any immediate shift in strategy. Santander is the largest bank in Spain and the euro zone, and a banking giant in the United Kingdom, Poland, United States, Brazil, Argentina, and Chile.