What to watch for in 2023: Part 1
From The war in Ukraine to the potential of a recession, Here are some of the things you need to watch out for this year
As of writing this article, it’s January 1st, 2023, it’s The start of a new year (also my parents 27th wedding anniversary). This new year will probably see a continuation of the events of last year continuing, but also some new issues and events arising for the new year. So this article is part 1 of 2 of what events and issues should be of focus ahead of the new year.
#1: The war in Ukraine continues into 2023:
The war continues on into 2023 even as Ukrainians were ringing in the new year, missile strikes and explosions still pounded the country and left many of its residents to celebrate under bunkers and subway stations rather than with each other. Some believe that the Russian army are preparing for another invasion similar to the one launched they launched on February 24th of last year but from the north via Belarus.
This time there is belief that Belarus could join the next wave of the invasion as a video surfaced of a bus station board which showed a message that called for males at the age of 18-60, to enlist in the army, while the country hasn’t contributed soldiers or equipment for the Russians, they did allow the Russian army to invade Ukraine from their borders. Alexander Lukashenko, the President of Belarus and is nicknamed “the last dictator in Europe”, has previously shown reluctance that his country will do that.
As written in the last article there are three fronts that are important, The first is the cities of Svatove-Kreminna located in the Luhansk region where reports have come in that the Russian army has made partial retreats from the town of Kremmina. The second front of focus is Bakhmut in Donetsk region, where fighting is at a bloody deadlock, as Ukrainian president, Volodymyr Zelensky, has described the city as being in “ruins”. The third front of focus in south Zaporizhzhia where it is believed if the Ukrainians advance into that territory, they could divide the Russian forces into fighting two fronts of Zaporizhzhia and Donetsk.
There will also be the question over weapons deliveries, while the Ukrainians have had a lot of success in the battlefield in the last months of 2022, those successes were credited from the shipment of weapons from Western countries. However, those weapons take a long time in terms of producing them as well as getting them into the front line. There has also been concern from Western countries over the stockpile of their weapons, as many of them are sending stocks of weapons which they keep in the case where they are at war.
This could be of concern for those who are supplying weapons if that situation of war does arise. As Defence expert, Mike Martin put it, the reason for why Western countries did this was they were expecting the war to be over quickly, however that is not the case.
This leads to the possibility for some fractures with Western countries over their support of Ukraine. While Europe has stood resolute in their support of Ukraine, there is concern specifically that German chancellor, Olaf Scholz and French president, Emmanuel Macron could pressure Ukraine into peace talks with Russia.
Back in December, 2022, Macron said that security guarantees for Russia are an essential part of peace talks. Macron had also said in the past that there was a need to save face for Putin. Scholz has been under pressure by some opposition parties over the ongoing energy crisis that Germany along with many other European countries are dealing with.
For the Ukrainians they are not ready to head into peace talks as they fear that heading into peace talks would mean giving land concessions to Russia, rather they prefer to take back every inch of land that has been taken by Russia since 2014, including land that was taken during the start of war, the regions of Donbas such as Donetsk and Luhansk which were breakaway states in 2014 and later were annexed by Russia last year, and Crimea which was annexed in 2014.
If there was any signs of relations fraying between Europe’s two powerful countries and Ukraine, well it was glossed over with Germany and France both announcing the sale of other weapons such as Tanks and Patriot missiles showing that Europe’s support for Ukraine continues even as it faces its own struggles due to the war.
The Eurasia group has released it’s top risks for 2023, #1 was the risk of a Rogue Russia. They highlighted that as the war continues to grind on, the Russian president Vladimir Putin’s options are dwindling as a loss of this war could potentially see his position of leadership being threatened. This could lead the Russian government to further escalate the war through either more missiles or even cyber-attacks on western governments and firms, LNG terminals, pipelines and elections. As their report also highlighted the threat of Mutually Assured Destruction (MAD), which is the idea that nuclear war between two nuclear armed countries would lead to annihilation, is higher in 2023 than it was during the Cuban Missile Crisis in 1962.
In 2023, The War in Ukraine is still hazed with many mysteries over what the outcome will be. What will matter is what will happen on the battlefield, whether the Ukrainian army can continue the gains into the new year or if the Russian army goes all in, in their invasion of Ukraine.
#2: The Bank of Japan could worsen the current condition of the Global Economy
While Inflation as well as what is happening with crypto with the revelations regarding FTX and Sam Bankman-Fried, along with the economic effects of the War in Ukraine, will still be in the headlines heading into the new year, In East Asia, the Bank of Japan could lead the world into a recession that is far worst than expected.
After the US and China, Japan is the third largest economy, while a big part of that comes from it’s successful exports of electronics and automobiles, it’s financial sector also has an impact on the world as it is intertwined with other financial sectors in the rest of the world. It also is the biggest creditor nation as it hold over trillions of dollars of assets overseas.
Since January 2016, the Bank of Japan has maintained interest rates at a lower level compared to other developed countries as it has very low inflation. According to capital.com, the Interest rate in Japan has been at -0.10% compared that to Canada prior to the start of 2022, when the interest rate was at 0.25%.
That low interest rate continued last year when inflation grew rampant in many countries. However, that has had a negative effect for Japan, especially with regards to its currency, the Yen. The Yen’s value compared to the dollar decreased dramatically. That has meant the cost of importing products has gone up as well as the rate of inflation.
This led to the Bank of Japan to raise the interest rate on a particular form of debt known as the yield on the ten year bond. The yield is important as it has had an important effect on economic activity in Japan. The raising on the yield went from 0.25% to 0.5%. This small change had destabilized on global markets and hint that it could increase the interest rate on the ten year bond along with raising short term interest rates, similar to what other central banks have done across the world.
However, there is still a problem with how huge of a gap there is between Japan and the rest of the world when it comes to the Interest rate. This is important, if Japan takes the route of increasing the interest rate at the same level like the United States for example, who started 2022 with an interest rate of 0.25% to 4.5% at the end of the year. This could be worrying as Japan has the highest debt of the developed world.
Low interest rates meant that public debt was easy to deal with, but high interest rates with the high public debt that the country has could see the potential for Investors sell their bonds and bond yields to go up. These effects could spread across other financial markets given how intertwined it is to global markets.
However if there is a glimmer of some sort in this difficult news, according to ING and Fitch ratings they forecast that the Bank of Japan will continue to it’s policy of low interest rates up until 2024. Although as Capital.com suggests that these forecasts and opinions are not definitive so do take them with a grain of salt.
(I don’t know if I did a good job explaining this especially as I had a hard time understanding what a ten year bond is, so refer to the sources below for more information.)
https://capital.com/japan-interest-rate-rise-next-boj-governor-hike
https://think.ing.com/snaps/bank-of-japan-surprise-surprise-surprise
#3: Does Europe look eastwards for leadership?
New years day was a historic one for both the EU and Croatia, as the latter adopted the common currency of the union, the Euro, and were also signatories to the Schengen agreement, meaning Croatians just like their EU counterparts can travel passport free and live in any European country that is a part of the EU and a signatory to the Schengen agreement.
As big as this news is for both the EU and Croatia, that isn’t what is going to be the most important headline for the year ahead. The issue to look ahead is surrounding leadership in Europe. Since the inception of the EU or in the past was known as the European Coal and Steel community (ECSC) or European Community (EC), There was usually three three or two countries that dominated European politics and Europe’s position on international issues.
These countries being Germany, France and to some extent, the UK (prior to leaving the EU). When it came to many of the big issues regarding how the EU is created and handles it’s affairs with the International community. For example, when it came to the cold war, the United States relied on these three countries to be allies in their fight against the Soviet Union. One of the first phone calls a US president makes in terms of foreign leaders is usually towards the leaders of these three countries as.
These countries have usually shifted or co-shared their leadership of representing liberal Europe. In the 1980s and 1990s, those leaders were President Francois Mitterrand of France and Chancellor Helmut Kohl of West Germany (later became chancellor of Germany after the countries re-unification), both of these leaders represented the liberal vision of a new Europe of unity between both the Western and Eastern halves of the continent which were divided by the Cold War.
In the early 2000s it was Jacques Chirac of France and Gerhard Schroeder of Germany who represented most of Europe’s view on resisting the Americans demand to participate in the Invasion of Iraq. I say most as their were some European countries did support the war such as the UK, Denmark, Spain, Poland, etc.
In the late 2000s to the 2010s, Angela Merkel of Germany was seen as Europe’s leader as she maneuvered her way through several crisis and events such as the debt crisis that engulfed Greece, the migration crisis that Europe was experiencing from 2015 to 2017, as well as the turbulent relationship that Europe had during the Trump Presidency. Now in the 2020s the torch has been passed to Emmanuel Macron of France, who has discussed a new vision for the EU, where European countries need to focus on integrating many of their policies.
However, unlike years past other European countries are now playing a role in regards to the policies of the EU, especially when it comes to foreign and defence policy. Since the start of the war in Ukraine, leaders in Eastern European countries, who have had a difficult past in terms of their relations with Russia, Have been vocal supporters of helping the Ukrainian cause be it through financial or military means and have called on the West to hold Russia accountable for starting the invasion as well as the war crimes that have been committed by them.
This is especially seen with the baltic country of Estonia, a small country that borders Russia and at one point was a part of the Soviet Union. In many of the columns and interviews given by Estonia’s prime minister, Kaja Kallas (seen on the left in above picture). Kallas who is facing re-election this year, talked about in a recent column in the New Statesman, one of the reasons for her country’s support for Ukraine was due to it’s painful past of being under Soviet occupation describing how her predecessors in the 1940s died under Soviet rule. She has also communicated about her decision of sending a third of its military aid to Ukraine through the moral of helping one country defend itself against an aggressive neighbor in “a fight for freedom”.
It isn’t just Estonia showing leadership, but also Poland, who have not just provided economic and military aid for Ukraine, but also have been one of the countries that have been taking in Ukrainian refugees. Even the Nordic countries of Sweden and Finland are playing a role in European affairs as their historic decision to join NATO as well as meeting or on the way of meeting NATO’s 2 percent target for defence spending. A sign that they will not be too reliant on other alliance members to help them.
Even the EU’s commission president, Ursula von der Leyen has been praised for her leadership through ought the crises that she had to deal with since becoming president back in 2019. After the first missile strikes and explosions hit Ukraine, Von Der Leyen led a swift response from the EU which saw sanctions on members of the Russian elite, limit and phase out the use of Russian energy and freezing Russia out of the international banking system This led to her becoming “the most powerful woman of 2022” according to Forbes.
However, both Emmanuel Macron and the current German chancellor, Olaf Scholz still remain as powerful voices regarding the policy direction of the EU. Especially in the case of Macron will be finding himself playing more of a mediator role regarding the conflicts and tensions that both countries did not have a leading voice on such as the Nagorno Karabakh conflict between Azerbaijan and Armenia and the recent tensions in the Balkan countries.
It is also important to note that there is some strain between both the EU, France and Germany and it’s Eastern European members. For example, the EU has withheld 35 billion euros from Poland over violations regarding the rule of law as the government has been attempting to move the judiciary in their favour such as appointing judges who will vote in favour for them. There was changes to these moves as Poland have backed down from the disputes in favour of trying to get the funds it needs.
Poland has also came into focus over it’s position on LGBT rights and Abortion rights have also been of issue as these rights have recently been under attack by the conservative Polish government. These violations could hurt Poland’s credibility as a protector of democracy, even with its significant contribution in helping aid the Ukrainians with the war.
While the Eastern European countries have been proven right in their skepticism in the way how most of Europe treats it’s relations with Russia. They have also been known to be the most hawkish of nations when it comes to these relations. During the early days of the war, the leaders of Poland, Czech Republic and Slovenia paid a surprise visit to Kyiv, Ukraine, at a time when the Russian army was bombarding the city with attacks as they tried to make breakthrough in obtaining the city. This visit however received criticism from other European countries who feared that any harm to the leaders and their delegation could of risked getting a closer to a direct confrontation with Russia.
Also during the early days, the US rejected Poland’s plan to send fighter jets to Ukraine as the US, viewed this plan as drawing NATO into direct conflict with Russia. These actions could prove to be a stumbling block for EU countries that have a more restrained view regarding their foreign policy on issues regarding Russia.
However, some of these Eastern European countries did exercise restraint regarding the incident of the missle that landed in Poland. As Polish officials let investigators investigate where did the middle came from, which was later found out to be one of the Ukrainian missiles used to fend of the attacks from Russia. At the same time showing no blame to Ukraine regarding the missle.
While France’s Emmanuel Macron is seen as the continents leader in terms of both experience as well as the vision he sees for the continent. In the next few years though, he will need to take the advice of other European leaders to help with the future of the continent. Especially from those who have been proven right regarding Russia.