Economy

The New Cold War Will Be Fought With Finance

Credit cards, ratings agencies and currency supremacy are some of the battlegrounds where Beijing and Moscow are teaming up to take on the West.

Are Putin and Jinping trying to weaken the supremacy of the dollar?
Are Putin and Jinping trying to weaken the supremacy of the dollar?
Holger Zschäpitz

BERLIN — Russia and China are working on a powerful weapon to stand up to the West. This isn't a new rocket system or a cyber-espionage satellite — the two nations have launched a frontal attack on Western financial might to achieve equal power on the markets.

Until now, the two countries had been powerless against Western countries on this front. From the leading currency (dollar) and global monetary transactions of Visa and Mastercard to the all-powerful rating agencies, the financial markets tick entirely to Western time. Countering those markets is part and parcel of becoming political and military superpowers.

So Russia and China plan to change the status quo by forming their own rating agency. The two countries have signed an agreement to that effect. In a first step, the new institution will evaluate joint investment projects, Russian Finance Minister Anton Siluanov announced during a recent visit to China. The agency will be built based on existing models.

"Our idea is for ratings to be completely apolitical," a statement released by the Ministry of Finance read.

Russia and China have been jolted by the three big established American credit rating agencies, Standard & Poor's (S&P), Moody's and Fitch, whose ratings currently dominate financial markets. The agencies rate credit worthiness of both states and companies. Their grades play a decisive role in determining the conditions under which money can be borrowed on the markets.

Moscow recently discovered just how expensive a negative rating can be. The leading agencies S&P and Moody's downgraded Russia because of the Crimea crisis, and Fitch threatened to do the same. According to S&P, the country with the biggest surface in the world is rated just one grade above junk, and the situation isn't much better with the other two agencies.

The bond market reacted strongly to the downgrades. Interest rates shot so far up that Moscow had to scrub plans to issue new government bonds. The downgrades also damaged the ruble and stocks on the Moscow exchange. After the S&P downgrade at the end of April, the Central Bank of Russia was forced to intervene and hiked its key interest rate to stop the exodus of investors from the country.

Moscow has alluded to politically motivated ratings by the Western agencies, and now appears to be hitting back with this new cooperation with Beijing. Indeed, China had also been dissatisfied with its treatment by the big Western rating agencies and had created its own agency, Dagong, which is now slated to be incorporated into the new Russo-Chinese entity.

There is a marked difference between Western and Dagong credit ratings. Whereas Moody's, Fitch & Co. give the United States on average the top AAA grade, Dagong rates it A-, i.e. six grades lower.

Different standards

Russia and China fare a great deal better with Dagong: Beijing gets AAA, and Russia gets an A, which puts it two grades higher than the United States. The Western agencies rate Russia three grades below the U.S., and China two grades below it.

Dagong bases its ratings more strongly on fundamental data such as debt ratio, where both China and Russia are in considerably better positions than the United States. Measured against economic performance, Moscow's liabilities don't even add up to 13%. That's as far as gross debt is concerned. If you include reserve assets from the sovereign wealth fund into which part of energy proceeds flow, then Russia is debt-free. China's debt ratio is a good 20% as compared to the world's largest economic power, where it's over 100%.

But the U.S. has the leading currency and can print fresh dollars at any time to pay its debts. And the land of unlimited opportunity has a good credit history, whereas Russia had its 1998 state bankruptcy. In addition, under Russian President Vladimir Putin capital flight from the country has increased considerably. In the first quarter of this year alone, the equivalent of $50 billion has left the country.

The Western credit rating agencies use entirely different criteria for their ratings than the Chinese Dagong. The way Moody's & Co. operate has also caused irritation in Europe, and the Old Continent wanted to create its own agency too. But so far nothing has come of the plan.

Other weapons

Building a new rating agency is one thing, but acceptance on the part of the major economic players is another. As long as the finance world hangs on the every word of the three leading Western agencies, any competition will have a hard time of it. Dagong has yet to get a foot in the door — and that's something that both Russia and China clearly want to change.

Creating their own rating agency is just another step of the two powers in the fight against the West's financial primacy. The two countries announced other measures in recent weeks.

One of these is the creation of their own development bank to compete with the International Monetary Fund (IMF) whose power structure still reflects the Western post-war world and in which developing countries have little say.

In addition, the two countries wish to weaken the supremacy of the dollar. Russia is planning the Eurasian Economic Union in which the ruble will be the main trading currency. And China wants a bigger role for its yuan (RMB) in foreign trade.

All financial transactions in dollars are generally handled by U.S. banks, and thus become a part of the Western sphere of influence. That also applies to the payment systems run by U.S. giants Visa and Mastercard. During the Crimea crisis, the credit card firms stopped payments for clients of the Rossiya Bank and other credit institutions.

Here too the Kremlin has reacted. Putin announced the creation of a national company for credit cards that aims to build up a national payment system. "We should definitely do it and we will do it," he said.

The various actions are somewhat reminiscent of the arms build-up during the Cold War: Russia and China appear to be feverishly working at building up their counterattack capacity in the event of "total" financial war with the West.

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Society

What It Means When The Jews Of Germany No Longer Feel Safe

A neo-Nazi has been buried in the former grave of a Jewish musicologist Max Friedlaender – not an oversight, but a deliberate provocation. This is just one more example of antisemitism on the rise in Germany, and society's inability to respond.

At a protest against antisemitism in Berlin

Eva Marie Kogel

-Essay-

BERLIN — If you want to check the state of your society, there's a simple test: as the U.S. High Commissioner for Germany, John Jay McCloy, said in 1949, the touchstone for a democracy is the well-being of Jews. This litmus test is still relevant today. And it seems Germany would not pass.


Incidents are piling up. Most recently, groups of neo-Nazis from across the country traveled to a church near Berlin for the funeral of a well-known far-right figure. He was buried in the former grave of Jewish musicologist Max Friedlaender, a gravesite chosen deliberately by the right-wing extremists.

The incident at the cemetery

They intentionally chose a Jewish grave as an act of provocation, trying to gain maximum publicity for this act of desecration. And the cemetery authorities at the graveyard in Stahnsdorf fell for it. The church issued an immediate apology, calling it a "terrible mistake" and saying they "must immediately see whether and what we can undo."

There are so many incidents that get little to no media attention.

It's unfathomable that this burial was allowed to take place at all, but now the cemetery authorities need to make a decision quickly about how to put things right. Otherwise, the grave may well become a pilgrimage site for Holocaust deniers and antisemites.

The incident has garnered attention in the international press and it will live long in the memory. Like the case of singer-songwriter Gil Ofarim, who recently claimed he was subjected to antisemitic abuse at a hotel in Leipzig. Details of the crime are still being investigated. But there are so many other incidents that get little to no media attention.

Photo of the grave of Jewish musicologist Max Friedlaender

The grave of Jewish musicologist Max Friedlaender

Jens Kalaene/dpa/ZUMA

Crimes against Jews are rising

Across all parts of society, antisemitism is on the rise. Until a few years ago, Jewish life was seen as an accepted part of German society. Since the attack on the synagogue in Halle in 2019, the picture has changed: it was a bitter reminder that right-wing terror against Jewish people has a long, unbroken history in Germany.

Stories have abounded about the coronavirus crisis being a Jewish conspiracy; meanwhile, Muslim antisemitism is becoming louder and more forceful. The anti-Israel boycott movement BDS rears its head in every debate on antisemitism, just as left-wing or post-colonial thinking are part of every discussion.

Jewish life needs to be allowed to step out of the shadows.

Since 2015, the number of antisemitic crimes recorded has risen by about a third, to 2,350. But victims only report around 20% of cases. Some choose not to because they've had bad experiences with the police, others because they're afraid of the perpetrators, and still others because they just want to put it behind them. Victims clearly hold out little hope of useful reaction from the state – so crimes go unreported.

And the reality of Jewish life in Germany is a dark one. Sociologists say that Jewish children are living out their "identity under siege." What impact does it have on them when they can only go to nursery under police protection? Or when they hear Holocaust jokes at school?

Germany needs to take its antisemitism seriously

This shows that the country of commemorative services and "stumbling blocks" placed in sidewalks as a memorial to victims of the Nazis has lost its moral compass. To make it point true north again, antisemitism needs to be documented from the perspective of those affected, making it visible to the non-Jewish population. And Jewish life needs to be allowed to step out of the shadows.

That is the first thing. The second is that we need to talk about specifically German forms of antisemitism. For example, the fact that in no other EU country are Jewish people so often confronted about the Israeli government's policies (according to a survey, 41% of German Jews have experienced this, while the EU average is 28%). Projecting the old antisemitism onto the state of Israel offers people a more comfortable target for their arguments.

Our society needs to have more conversations about antisemitism. The test of German democracy, as McCloy called it, starts with taking these concerns seriously and talking about them. We need to have these conversations because it affects all of us. It's about saving our democracy. Before it's too late.

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