Alan Friedman: "If Putin is not stopped, the world order will be no more."

Alan Friedman is a US journalist and author, he was our guest speaker on the weekly podcast of CdT.ch. We discussed with him the release of his new book, The Price of the Future, which is published by La nave di Teseo, but also about the economy, the war in Ukraine and the outlook. He quotes, of several, one phrase in particular, "If Putin is not stopped, the world order will cease to exist."

Mr. Friedman, we begin with your very latest book. Called, we quote, "a guide to avoiding the dangers and pitfalls of a bumpy road and taking the right path." Meaning?

"This is a book that attempts to look at the future of Italy and the European economy, by examining the effects of the war in Ukraine and the situation that will eventually arise. It is, also, looking at a future related to the spending power of the Next Generation EU, which is what the Italians call PNRR or National Recovery and Resilience Plan: a 220 billion euro plan to invest in infrastructure and ecological transition. In order to get this money, however, Italy will have to implement certain reforms. And, unfortunately, the political class includes some populists who are jeopardizing these reforms with their opposition. A de facto, pre-election opposition since in 2023 there will be a vote for a new government. These assumptions explain the book's underlying subtitle, which is why Italy is in danger of squandering the opportunity of the century. One must go back to 1951 to find a country with so much money at its disposal to create jobs, help the economy and, in turn, avoid recession by easing the effects of inflation, supply chain problems and commodity costs. Yes, it is an opportunity not to be squandered but I fear that the Italian political class, after Draghi, will not be up to the task."

We' re asking in the broadest sense of the word. How is the economy today, dealing with a war that is likely to last much longer and with sanctions that are affecting our daily lives as well?

"Let's start off with the United States. Joe Biden is a beleaguered, undermined president with a highly Trumpist Republican Party against him and an increasingly populist country. Many Americans believe that 8-9% inflation is really Biden's fault. It is not, any more than it is the fault of Draghi or the president of the Swiss Confederation. The blame, if anything, lies on the war and the energy crisis it has triggered. That said, the U.S. economy is in grave danger of recession next year. Indeed, it may be the central bank, the Federal Reserve, that will almost deliberately trigger the recession: with inflation galloping, the Fed will increase interest rates by half a percentage point at least two or three times in the coming months. Which, in my opinion, will create instability between the dollar, franc and euro, also causing economic problems."

And Europe?

"The forecast for the Eurozone is for 50% growth: from 4 to 2%. But frankly, with the war set to continue and inflation to last, I fear that growth will be somewhere between 1 and 2 percent at best. The same holds true for Italy."

What ought savers think, to use an expression you hold dear? That things are looking bad and will look even worse in the future?

"As mentioned, I anticipate a period of volatility at the market level. Both on this side and on the opposite side of the Atlantic. A period determined by geopolitics, which will cause times of fear and sell-offs. I see, incidentally, a strange and unprecedented race between the Fed and the European Central Bank. Of the series: who will raise interest rates faster? We will witness, as a result, a zig-zag of currencies and a lot of uncertainty. It will be like this for a long time, at the very least as long as there is a war."

You interviewed several prominent political figures in Italy and internationally in your book, including former Federal Reserve Chairwoman and current U.S. Treasury Secretary Janet Yellen. Considering the historical and cultural ties between Italy and Russia, is whether Rome will be able to permanently unshackle itself from Moscow's gas and start the energy transition.

"It is not a question of if, but when. Because the answer is yes. Among others, I also spoke with Roberto Cingolani, who before being appointed minister of Ecological Transition was chief technology officer of Leonardo, he is a physicist as well as a very straightforward and fine guy. A technician, a scientist in other words. Here, Cingolani was telling me about the whole energy plan to achieve autonomy from Russian gas by the end of 2023. Let's say in 18-24 months. And Italy, well, it's better off than Germany, as it started earlier. As early as early March, Draghi already sent Cingolani and Foreign Minister Di Maio on a tour. Algeria, Egypt, Mozambique, Congo, Qatar. Out gathering new gas suppliers to replace Russia. These supplies, diversification if you want to call it so, represent about a third of the 29 billion cubic meters of gas that Italy has to substitute. The remainder? The use of renewables for now is one small but important piece. Then there is the regasification plants, which allows you to buy liquid gas: the Italian government has been signing contracts for floating regasification plants that will be active from 2023. So, turning to the question, yes. It is possible to untangle from Russia. It is clear, nonetheless, that if a supply disruption from Moscow happens this winter or before 2023 there would be a devastating recession. For this reason, I say that there will be no gas embargo this year. It will be discussed again in 2023, if the war continues."

Why do certain political currents claim that the exit from Russian gas is an American-orchestrated move?

"I have no idea why they say that. It's just a slogan. On the other hand, certain people also say that the war in Ukraine was not initiated by Putin but that it is all Zelensky's fault. It is the same people who promote no-vax theories, conspiracy theories and other conspiracies. There is a lot of untruth, a lot of fake news around this war. Even on Italian television: think of the Russian journalists, who are not journalists at all. They are spreading disinformation, as per the Kremlin's war strategy."

So Europe is continuing to finance Putin's war....

"The embargoes which were imposed so far were basically not that important. They hit the oligarchs; they were mostly symbolic decisions. Announcing an embargo on gas and oil is something else, it's a serious matter. Particularly if we think that, of the billion euros that Europe pours into Moscow every day, around 400 million is about the black gold itself. No one wants to commit, everyone is seeking to avoid a crisis this winter so much so that including Italy, there is a strong concern about stockpiling with an attached chase to fill the tanks."

Where did the West go wrong, if it went wrong at all? That is: are sanctions working? Or, indeed, is the single most important piece missing?

"The existing sanctions passed so far are important. In my book, Janet Yellen discusses how she and Mario Draghi specifically worked together on the measures against the Russian Central Bank. Overall, we are talking about important sanctions but they need time until they have an impact. That said, we have to remember that 75 percent of Russian energy exports end up in Europe. If Europe cut its imports by 40 percent by cutting oil, or even 100 percent by including gas, that will be a problem for Putin. That one billion a day mentioned earlier, in fact, he needs to finance the war: the Kremlin spends between three to five hundred million dollars a day to sustain the war effort. Therefore, in order to stop Putin, Europe must at least stop the oil. Economic interests, for now, will prevail, but it also makes sense that Europe would first want to gain some independence from Russia and then launch an embargo that could cost us 2-3 points in terms of recession. Finally, there is one personal consideration of mine, which is quite drastic."

So the answer lies in the present crystallization of the conflict.

"Yes, there is the risk that the one in Ukraine will become a frozen war. A second Nagorno Karabakh. But a much bigger and more horrifying."

The West, though, would face a moral dilemma of no little consequence. Not to mention the damage...

"Of course, economic damage, all kinds of psychological, moral damage. In my opinion, the West can not allow this. If Putin is not stopped, the world order will no longer. The UN has been depotentiated by Putin, since Russia is able to veto it. And then what do you do if one of the permanent members of the Security Council is a bloodthirsty Saddam- or Assad-style dictator?"

The "new" weapon at Washington's disposal now would appear to be to push Russia into the direction of technical default. Does such a measure make sense or is it too risky?

"It can have a boomerang effect and harm both U.S. banks and institutional investors. It is a strategy that needs to be applied with caution, but it can inflict considerable damage on Russia. It is surely a weapon that is part of the arsenal of sanctions at Washington's disposal."