G7 at Schloss Elmau. Lots of lovely pictures of this luxury, five star mountain retreat and wellness (who introduced that word to the English language?) resort in a hidden valley above Garmisch in the Bavarian Alps. I have been there. I attended the wedding of a German former desk partner who worked his way through the City, who made his pile as an ABS salesman in London but who is now in a senior sales role back in the Fatherland.
It must be fifteen or more years ago when Elmau was still a very basic sort of place, all collective dining rooms, iron framed beds and with a strong residual feeing of the spirit of KdF and of groups of happy Germans marching through the hills in shorts singing marching songs learnt at school and not from a Broadway musical about a family of Austrian émigrés.
(Just for the record, Rogers and Hammerstein’s song “Edelweiss” has about as much to do with traditional pre-Alpine culture as “Conan the Barbarian ” has with early European geopolitical power-broking. I’m also sure the current guests will not have been told that it was originally developed as a recovery sanatorium for the wounded of World War One.)
A propos power-broking: if anyone is looking for the end of what in 1990 George HW Bush, then president, termed the “New World Order”, look no further. The G7 became the G8 and is now once again, very clearly, a G7. Russia has been locked out and I find it hard to imagine it being part of that cabal of the great and the good for quite a long time to come. The irony is, however, that the USA and Russia have a very common interest which is the price of oil. Both of their oil industries are under pressure from the low returns. Sure, at around US$60.00 pbb, the situation is less dire than it was at US$50.00 or even US$45.00 but it is in no way pretty either for Russian extraction in the wilderness or for American fracking.
Last year, the US Energy Information Administration published a list of break-even prices for oil. This is not the cost of extraction but the price which needs to be achieved for a country to balance its budget. For Russia, this number was US$78.00pbb. Below that, it must have been assumed, Moscow would be under severe budgetary pressure. That can only be true to a limited extent for there was no number given for the USA.
If America doesn’t need to use its oil revenues to balance its budget, why should Russia? I know, I know; it’s an incomplete argument – as everything is when one begins to apply budgetary metrics commonly applied to most other countries to the US too – but although parts of Russia might be hurting from the Western sanctions, they are not having sufficient an effect to cause a shift in policy.
President O’Bama gave a briefing in Elmau in which he called for President Putin to go back to the Minsk agreement. He asked of Putin: “Does he continue to wreck his country’s economy and continue Russia’s isolation in pursuit of a wrong-headed desire to recreate the glories of the Soviet empire? Or does he recognise that Russia’s greatness does not depend on violating the territorial integrity and sovereignty of other countries?”
O’Bama was born in August 1961 and was all of 14 months old during the Cuban Missile Crisis and had just turned 30 when the Soviet Empire collapsed. Vladimir Putin is nine year older and clearly has a deeper understanding of how far he can go, having been a seasoned senior intelligence officer at the time while O’Bama was still a bright eyed and bushy tailed young attorney in Chicago, having only in that year emerged from Harvard with his J.D. Perhaps one should note, incidentally, that the Russians have always had a better grasp of the Americans than the Americans have of the Russians and that the USA’s failure to make headway in applying pressure on Moscow is not in the slightest O’Bama specific.
I read of a declared commitment to wean the world off fossil fuels by the end of the 21st century. The fact that the leaders of the seven of the world’s most powerful economies can think of nothing better than that to focus on given all the uncertainties in the world, proves that, as a collective, the G7 is most probably now a busted flush. Fly home and move on!
Running out of bridge
Meanwhile, the Muppet in Chief, the President of the European Commission, Jean-Claude Juncker, is showing some fine form. His frustration with the Greeks was reiterated when he stated that “one can’t endlessly lengthen the EU or Eurogroup part of the bridge…” It might be that the Syriza government will gradually be fearing a Grexit more than the rest of the Eurozone – 73% of Greeks don’t want to leave – and that Athens might be prepared for more compromise. Fact is that they will most likely not be able to keep what they promise, irrespective.
I recall the response of one of my American readers of March 12th which read “Euro politicians need to grow some ovaries and tell Greece the bad news: ’Our marriage is over. It was lousy for both of us. The divorce will be horrifically expensive and the courts will dig up some embarrassments we neither of us want to face. In the end, though, we will both be happier for it. (Well, I will, and I’m damned tired of dragging you through life.’).” Three months on not much has changed.
Meanwhile, risk markets are looking soft. Whether that is because things are too good and the fear of imminently rising rates is tugging at their coat tails or whether it is because things are bad and people want to de-risk is your guess as good as it is mine. Most larger investors are picking at the pockets of liquidity in order to trade the momentum. Fundamental views and big strategic position taking remains thin on the ground and apparently more for the foolhardy than the cerebral.
