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The UK government’s bid to scrap parts of post-Brexit trade arrangements in Northern Ireland cleared its first hurdle on Monday, despite EU warnings it is illegal and could spark a trade war.

MPs in the House of Commons voted through the controversial Northern Ireland Protocol Bill by 295 votes to 221 after a debate, allowing it to progress to the next stage of scrutiny in parliament.

Prime Minister Boris Johnson, in Germany for a G7 leaders meeting, earlier insisted the legislation was needed to remove “unnecessary barriers to trade from Great Britain to Northern Ireland.

“All we’re saying is that you can get rid of those, whilst not in any way endangering the EU single market,” he told reporters.

MPs voted as Johnson socialised at the G7 with top EU leaders, including European Commission chief Ursula von der Leyen, German Chancellor Olaf Scholz and French President Emmanuel Macron.

Irish premier Micheal Martin rejected Johnson’s attempts to play down the planned changes to the protocol, which was agreed as part of the UK’s Brexit withdrawal from the European Union.

Martin said “any unilateral decision to breach international law is a major, serious development.

“There can be no getting out of that,” he said in Dublin, also warning against another government bill to revamp human rights in the UK that could affect a 1998 peace deal for Northern Ireland.

In parliament, Johnson’s predecessor as prime minister Theresa May, who quit after failing to get parliamentary backing for her own Brexit divorce deal, said she could not back the bill.

It was “not legal… will not achieve its aims and… will diminish the standing of the United Kingdom in the eyes of the world”, she told MPs.

– ‘Legal and necessary’ –

The UK government unveiled its plan to unilaterally change trading terms for the politically fraught British province earlier this month, prompting the EU to pledge legal action.

Brussels says overriding the deal it struck in 2019 with Johnson’s government breaches international law, and has warned of trade reprisals, which Britain can ill-afford as prices surge on the back of the war in Ukraine.

Days of further scrutiny and subsequent votes now loom, and despite winning the vote, Johnson is facing criticism among some of his own Conservatives after he only narrowly survived a no-confidence vote this month.

Launching the debate, Foreign Secretary Liz Truss said problems were “baked in” to the protocol and wholesale change was needed to entice pro-UK unionists back to a power-sharing government in Belfast.

“It is both legal and necessary,” she said, denying the UK was breaching international law and stressing the need to prioritise the peace process.

“We continue to raise the issues of concern with our European partners, but we simply cannot allow the situation to drift,” Truss added.

– ‘Unrealistic’ –

There was no immediate response from Brussels.

But on Sunday, the bloc’s ambassador to Britain, Joao Vale de Almeida, said the legislation did break international, EU and UK law, and was “unrealistic”.

“We are committed to find the practical solutions on implementation, but we cannot start talking if the baseline is to say everything we have agreed before is to be put aside,” he added.

The protocol requires checks on goods arriving into Northern Ireland from England, Scotland and Wales, to track products that could be potentially headed to the bloc via the Republic of Ireland.

This creates a customs border down the Irish Sea, keeping Northern Ireland in the EU’s customs orbit to avoid a politically sensitive hard border between the territory and EU member Ireland.

Unionist parties and the UK government argue the protocol is threatening the 1998 Good Friday Agreement that ended three decades of violence over British rule in Northern Ireland.

They want checks to be removed on goods, and animal and plant products, travelling from Great Britain through the creation of a “green channel” for goods intended to stay in Northern Ireland.

Oil prices bounced and Wall Street stocks declined Monday, reversing the most recent trends as markets eye the end of a bruising second quarter.

After positive sessions for several leading European and Asian bourses, Wall Street stocks were in the red most of the day, and finished modestly lower.

The broad-based S&P 500, which has fallen about 14 percent since the end of the first quarter, shed 0.3 percent on Monday.

Wall Street last week enjoyed a rare positive performance amid talk that weakening economic data may have set the stage for central banks to tighten less aggressively than they have been suggesting.

But the first session of the week also revealed angst over the current macroeconomic backdrop.

Economists are increasingly pessimistic about the potential for US policymakers to engineer a “soft landing” as central banks tighten monetary policy, reversing a after a long period of rock-bottom borrowing rates due to surging inflation.

The yield on the 10-year US Treasury note, a proxy for interest rate expectations, climbed to around 3.20 percent.

Beth Ann Bovino, chief economist for S&P Global Ratings, said she remained relatively hopeful about the 2022 outlook but that 2023 “is the bigger worry.” 

Earlier, Asia continued a rally on Monday while London and Frankfurt closed higher and Paris retreated.

Hong Kong led gainers, climbing more than two percent thanks to a strong performance in Chinese tech firms. 

Indications that China’s crackdown on the sector could be coming to an end added to the upbeat mood in the city.

Oil prices rose after sharp falls last week, with analysts pointing to limited crude supply as a continued worried in spite of the uncertain oil demand outlook. 

“The world is increasingly vulnerable to disruptions in energy output given critically low inventories and spare capacity,” said commodities analysts at TD Securities.

“We think that oil prices are on a runaway train, and expect that the state of the world’s energy supply is so constrained that even in a recession, oil prices could remain elevated.” 

– Key figures at around 2040 GMT –

New York – Dow: DOWN 0.2 percent at 31,438.26 (close)

New York – S&P 500: DOWN 0.3 percent at 3,900.11 (close)

New York – Nasdaq: DOWN 0.7 percent at 11,523.83 (close)

London – FTSE 100: UP 0.7 percent at 7,258.32 (close) 

Frankfurt – DAX: UP 0.5 percent at 13,186.07 (close)

Paris – CAC 40: DOWN 0.4 percent at 6,047.31 (close)

EURO STOXX 50: UP 0.2 percent at 3,538.88 (close)

Tokyo – Nikkei 225: UP 1.4 percent at 26,871.27 (close)

Hong Kong – Hang Seng Index: UP 2.4 percent at 22,229.52 (close)

Shanghai – Composite: UP 0.9 percent at 3,379.19 (close)

Euro/dollar: UP at $1.0583 from $1.0553 Friday

Pound/dollar: FLAT at $1.2268

Euro/pound: UP at 86.24 pence from 86.02 pence

Dollar/yen: UP at 135.48 yen from 135.23 yen

Brent North Sea crude: UP 1.7 percent at $115.09 per barrel

West Texas Intermediate: UP 1.8 percent at $109.57 per barrel

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Five emerging powers have become the object of the G7 industrialised powers’ charm offensive, as the club of rich nations seeks broader support in their backing for Kyiv.

German Chancellor Olaf Scholz, who is hosting the G7 summit of advanced economies in the Bavarian Alps, said the invitation to Argentina, India, Indonesia, Senegal and South Africa signalled that the community of democracies is not limited to the West or to countries in the northern hemisphere.

“The democracies of the future are to be found in Asia and Africa,” said the German leader.

On the eve of the guest nations joining the summit, the G7 rolled out a $600-billion global infrastructure programme for the developing world.

But belying the invitation and the altruistic programme are fears that a blowback over the West’s support for Ukraine is building around the globe.

Western allies are battling to counter the rhetoric fanned by Moscow that it is the sanctions against Russia rather than Vladimir Putin’s invasion of Ukraine that are causing the multitude of crises rocking the world.

“Russia is responsible for this dramatic crisis, not international sanctions,” German Foreign Minister Annalena Baerbock insisted at a recent international food security conference.

“We know about indirect negative sanctions effects and we acknowledge them. However, they are much smaller than the brutal actions of Russia, which uses hunger as a weapon,” she said.

– Sceptical –

Three of the five guest countries — India, Senegal and South Africa — failed to condemn Russia over its assault of Ukraine, although Argentina and Indonesia did.

All five have been hit hard by the economic fallout from the war.

Thorsten Brenner, director of the Global Public Policy Institute, noted that “a crucial task” facing the G7 “is convincing many non-Western countries who are sceptical of sanctions that the West is mindful of their concern about rising energy prices when designing sanctions”.

The emerging powers have underlined the hunger crisis threatening their countries as Russia’s blockade of Ukrainian grain exports sends wheat prices soaring.

But other essentials such as sunflower oil and fertilisers essential for planting were also becoming scarcer, as both Ukraine and Russia are large producers.

And a scramble for energy by Western powers seeking to wean themselves off Russian energy has further pushed up power prices — once again hitting the poorest hardest.

Statements by Senegal President Macky Sall following his recent visit to Moscow for talks with Putin over the food crisis alarmed Western officials.

Sall had said he was “reassured” by Putin and had instead called on Ukraine to demine waters around its Odessa port to allow grain exports out.

At the same time, Western allies are seeking to ensure that the developing giants refrain from taking action that could worsen the crisis.

India’s decision to halt wheat exports and Indonesia’s move to stop palm oil exports have sparked shockwaves in the commodities markets. 

Argentina has also lowered its quota of wheat exports. 

South Africa meanwhile is suffering from the soaring oil prices.

A G7 official said Monday’s talks had shown that there was work to be done to convince the emerging giants about their action.

– ‘Don’t torpedo’ –

Putin too is jostling to broaden his backing, trying to hammer home his message that Western sanctions were to blame.

During a summit of Brazil, China, India and South Africa, calling on them to cooperate in the face of “selfish actions” from the West.

Amid fears of a growing gulf between the West and the rest, European leaders were tempering their tone. 

While calls had been made earlier for G20 host nation Indonesia to exclude Putin from this November’s summit, European leaders now appear to have distanced themselves from that stance.

A Kremlin advisor said Monday that Putin planned to attend the summit, having received the official invitation. Jakarta has also invited Ukraine’s President Volodymyr Zelensky.

Scholz said the group of major developed and developing economies would continue to play a “big role” and cooperation was key.

Germany would therefore “not torpedo” the G20’s work, Scholz told ZDF public television.

EU chief Ursula von der Leyen said on Sunday that she did not rule out sitting at the same table with Putin at the G20. 

“It is also important to tell him to his face what we think of him,” she said. 

“And we must carefully consider whether we want to paralyse the whole G20,” she said, warning that the bloc, which makes up 80 percent of total world economic output, is “too important a platform” to undermine.

Russia acknowledged Monday that two interest payments on its debt didn’t make it to creditors, an event which could be considered a default, even if Moscow disputes such an interpretation. 

What happens next?

Why the default risk?

Russia was due to pay $100 million in interest on its debt on May 27 and the one-month grace period on the payment expired on Sunday.

The Russian finance ministry has said it paid the money on May 20. But it acknowledged on Monday that the money didn’t reach creditors as the banking intermediaries blocked the transfers due to Western sanctions imposed on Moscow over the war in Ukraine.

The United States has since the end of May blocked Moscow from paying its dollar debts.

How to know if Russia is really in default?

Traditionally, it is the big credit ratings agencies (Fitch, Moody’s, S&P Global Ratings) which make such a determination.

However, with the Western sanctions in place, “they are now prohibited from rating Russian government bonds,” said Eric Dor, director of economic studies at the IESEG business school.

“We could well have a default without an official declaration by an authorised institution,” he added.

It will now likely fall to the Credit Derivatives Determinations Committee (CDDC), a committee of creditors, to make the official determination whether Russia missed the payments and whether this constitutes a default.

The Committee has already acknowledged earlier this month that Russia did not make $1.9 million in penalty interest payments concerning a different payment due.

It plans to meet on Wednesday afternoon to discuss the missed May 27 payment.

It is also the Committee which decides whether or not to trigger payment of credit default swaps (CDS), financial products designed to serve as insurance for creditors against default.

Moscow argues that the fact that creditors didn’t receive their money was not of the result of its failure to make the payment, but the actions of third parties, thus there is no default on its part.

What consequences of a default?

Russia’s last default on its foreign debt was in 1918, when Bolshevik leader Vladimir Lenin repudiated Tsarist-era debts.

In case a default is declared “Russia won’t be able to borrow in foreign currencies,” said Slim Souissi, a researcher at the Institute of Business Administration at the University of Caen.

“In the short term, it will have trouble raising funds on international markets” and this could last for years, said Souissi, who previously worked as a financial analyst at Fitch. 

Liam Peach, Emerging Europe Economist at Capital Economics, downplayed the impact of a default determination, as Western sanctions are already blocking Russia’s access to international capital markets.

Normally, a default can have serious consequences.

Argentina’s decision to freeze payment on $100 billion in debt in 2001 triggered a deep economic, political and social crisis.

But with sanctions again blocking Russian access to many markets, Peach said default would be a “largely symbolic event” unlikely to have an additional macroeconomic impact.

Russia’s situation is also different in terms of the sums involved.

“There are around $2 billion in payments due from now until the end of the year, and that isn’t going to destabilise” the international financial system, said Dor.

Mexico’s 1982 default sparked debt crises in several developing countries as creditors demanded higher interest rates.

Peach said only about half of Russian foreign currency bonds are held by foreigners, which reduces the possibility of a wider impact.

Recovering the debt could prove to be thorny to litigate, according to legal experts questioned by AFP. The terms of Russian bonds are notoriously vague, including even on such basic elements as the legal jurisdiction to resolve disputes.

How did Russia try to avoid default?

To get around the ban on dollar payments, Moscow made the equivalent ruble sums available to creditors at the National Settlement Depository (NSD), a Russian financial institution.

According to Souissi, if the bond’s terms didn’t forsee payment in rubles this would constitute a default.

Moscow said the arrangement allowed Western creditors to recover their money, and they are free to request conversion into the foreign currency of their choice. 

But getting the money out of Russia isn’t straightforward and “investors weren’t keen on opening accounts at the NSD”, said Dor.

bur-boc-jvi-dga/rl/cdw

The investment vehicle seeking to merge with Donald Trump’s social media venture disclosed Monday that it received federal subpoenas, delaying and potentially derailing the transaction. 

Digital World Acquisition said that it and its board members received grand jury subpoenas on issues that include due diligence on the Trump venture and communications with potential merger partners other than the Trump venture, according to a Securities and Exchange filing.

The subpoenas from the Southern District of New York are connected to a Justice Department probe that “could materially delay, materially impede, or prevent the consummation of the Business Combination,” the filing said.

First launched in September on Wall Street, DWAC was established as a special purpose acquisition company (SPAC), sometimes called a “blank check” company set up with the sole purpose of merging with another entity that is announced after the entity goes public.

In late October, DWAC announced the plan to combine with Trump’s venture to establish “a rival to the liberal media consortium.”

The deal, which would provide Trump’s venture $1.3 billion in capital and a stock market listing, has been under SEC investigation for months on similar questions raised by the DOJ subpoenas.

The SEC probe has focused on whether talks were held between Trump’s team and DWAC figures prior to the public offering, according to a New York Times report. SPACs are not supposed to have a target lined up before selling shares.

Shares of DWAC slumped 9.4 percent to $25..22 in afternoon trading. 

Cash-strapped Sri Lanka announced a two-week halt to all fuel sales except for essential services starting Monday and called for a partial shutdown as its unprecedented economic crisis deepened.

The South Asian nation is facing its worst economic meltdown since gaining independence from Britain in 1948, and has been unable to finance even the imports of essentials since late last year.

As fuel reserves hit rock bottom with supplies barely enough for just one more day, government spokesman Bandula Gunawardana said the sales ban was to save petrol and diesel for emergencies.

He urged the private sector to let employees work from home as public transport ground to a halt.

“From midnight today, no fuel will be sold except for essential services like the health sector, because we want to conserve the little reserves we have,” Gunawardana said in a pre-recorded statement.

He apologised to consumers for the shortages: “We regret the inconvenience caused to the people.”

-Electricity shock-

The sudden fuel ban came as the loss-making state-run electricity monopoly asked for a massive price increase for its poorest customers.

The Ceylon Electricity Board (CEB) lost 65 billion rupees ($185 million) in the first quarter and sought a nearly tenfold price hike for the heavily-subsided smallest power consumers, the Public Utilities Commission of Sri Lanka (PUCSL) said.

Currently, anyone using less than 30 kilowatts a month pays a flat 54.27 rupees ($0.15), which the CEB sought to raise to 507.65 rupees ($1.44).

“A majority of the domestic consumers will not be able to afford this type of steep increase,” PUCSL chairman Janaka Ratnayake told reporters in Colombo. 

“Hence we proposed a direct subsidy from the Treasury to keep the increase to less than half of what they have asked.”

As part of measures to ease the forex crisis that led to the energy crunch, the CEB will be allowed to charge users who earn foreign currency, such as exporters, in dollars.

The move is aimed at helping the electricity utility collect dollars to finance imports of oil and spare parts it desperately needs, but is unable to secure because of the country’s forex crisis.

The country is also facing record high inflation and lengthy power blackouts, all of which have contributed to months of protests — sometimes violent — calling on President Gotabaya Rajapaksa to step down. 

Last week, all government schools were shut down and state institutions operated with skeleton staff to reduce commuting and preserve oil.

The state sector shutdown was meant to end this week, but it is now being extended till July 10, when Gunawardana promised to restore fuel supplies.

– Broken promise –

On Sunday, the government promised it will implement a token system to ration distribution of limited fuel stocks, but it failed to take off.

There have been long queues outside the few pumping stations which still had supplies. 

Sri Lanka is seeking cheap oil from Russia and Qatar.

Earlier this month, the United Nations launched an emergency response to the island’s unprecedented economic crisis, feeding thousands of pregnant women who were facing food shortages.

Four out of five people in Sri Lanka have started skipping meals as they cannot afford to eat, the UN has said, warning of a looming “dire humanitarian crisis” with millions in need of aid.

Sri Lanka defaulted on its $51 billion foreign debt in April, and is in talks with the International Monetary Fund for a bailout.

Russia said Monday that two of its debt payments were blocked from reaching creditors, pushing the country closer to its first foreign default in a century due to sanctions over the Ukraine offensive.

The announcement came on the 124th day of Russia’s military intervention in Ukraine, with Western sanctions so far failing to force the Kremlin to change its course.

The Western economic penalties have largely severed the country from the international financial system, making it difficult for Moscow to service its debt.

The Russian authorities insist they have the funds to honour the country’s debt, calling the predicament a “farce” and accusing the West of seeking to drive Moscow into a default artificially.

“There are no grounds to call this situation a default,” Kremlin spokesman Dmitry Peskov told reporters after a key payment deadline expired Sunday.

“These claims about default, they are absolutely wrong,” he said, adding that Russia settled the debt in May.

Russia lost the last avenue to service its foreign-currency loans after the United States removed an exemption last month that allowed US investors to receive Moscow’s payments.

– ‘Vicious circle of decline’ – 

A 30-day grace period for the payment of $100 million in interest payments expired on Sunday night, most of which had to be paid in foreign currency.

Russia had attempted to make the payments, but the finance ministry said Monday that the money had not been transferred to creditors.

International settlement and clearing systems “received funds in full in advance” but the payments were not transferred to the final recipients due to “the actions of third parties,” the ministry said in a statement.

“The actions of foreign financial intermediaries are beyond the Russian finance ministry’s control,” the statement said.

While some experts dismiss the event as a technical default, others say it will have far-reaching consequences.

“This default is important as it will impact on Russia’s ratings, market access and financing costs for years to come,” said Timothy Ash, an emerging markets strategist at BlueBay Asset Management.

“And that means lower investment, lower growth, lower living standards, capital and human flight (brain drain), and a vicious circle of decline for the Russian economy.” 

– ‘Locked Russia out’ –

But Liam Peach, emerging Europe economist at Capital Economics, a research group, said a default was a “a largely symbolic event that is unlikely to have an additional macroeconomic impact”.

“Sanctions have already done the damage and locked Russia out of global capital markets,” Peach said in a note.

The sanctions included freezing the Russian government’s stockpile of $300 billion in foreign currency reserves held abroad, making it more complicated for Moscow to settle its foreign debts.

After the United States closed the payment loophole last month, Russia said it would pay in rubles that could be converted into foreign currency, using a Russian financial institution as a paying agent, even though the bonds do not allow payments in the local currency.

The country last defaulted on its foreign debt in 1918, when Bolshevik revolution leader Vladimir Lenin refused to recognise the massive debts of the deposed tsar’s regime.

Russia defaulted on domestic debt in 1998 when, due to a drop in commodity prices, it faced a financial squeeze that prevented it from propping up the ruble and paying off debts that accumulated during the first war in Chechnya.

The International Monetary Fund’s number two official, Gita Gopinath, said in March that a Russian default would have “limited” impact on the global financial system.