German banks, which have made significant gains from the boom of Russian oil companies, as well as the Eurozone, are expected to be hit hard in the event of Bankruptcy of Russiasays Marcel Fratzer, President of the German Institute for Economic Research DIW.
Due to Western sanctions against Russia for the military invasion of Ukraine, Mr. Fraser believes that Russia risks in the coming months to be unable to service its debt to international creditors, causing great turmoil in the financial markets.
“The Russian state has a very small foreign debt. By exporting oil and gas, Russia has achieved large trade surpluses and managed to significantly reduce its debt. However, due to sanctions, there is no longer free access to cash reserves “, explains the German economist and expresses his concern that the conflict will spread to the global financial system,” where Russia and its partners will seek to cause unrest in order to the economy of the West “.
In such a case, Fratzer continues, German investors, including some banks, will suffer from possible Russian bankruptcy.
He points out, however, that German financial institutions have consciously taken on these risks in recent years and have benefited greatly from them. “The German state should not, therefore, compensate them in the event of damage,” he said.
Marcel Fraser’s biggest concern is the money market in the Eurozone, where Russia’s central bank and Russian private banks have played a key role in liquidity. “I expect the ECB to expand its liquidity distribution and improve its financing conditions again, in order to avoid unrest. “Because of the war, a more expansionary monetary policy is expected – especially in Europe.”
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