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Russia braces for economic upheaval as sanctions start to bite

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Evidence of the economic damage is evident on the streets of Moscow, now lined with shuttered shops
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At his garage in the south of Moscow, 35-year-old mechanic Ivan is starting to worry.

With billions of dollars in financial reserves and money still coming in from oil and gas exports, Russia has yet to feel the full impact of the barrage of Western sanctions imposed over its offensive in Ukraine.

But Ivan sees storm clouds on the horizon.

The foreign parts he needs to fix his clients’ cars are getting harder to find, and prices have jumped by at least 30 percent after many brands halted exports to Russia.

“We’re running out of stock. At some point, there won’t be anything left,” said Ivan, who declined to give his last name when speaking to international media.

“People who have foreign cars are worried, they are wondering what to do in the future,” he said.

Faced with a shortage of imported parts in factories, authorities eased safety and emission standards for locally produced cars in May — including dropping the requirement for airbags.

President Vladimir Putin has been defiant in the face of Western sanctions, insisting that the Russian economy will emerge stronger, and pointing to “chaotic measures” in Europe that have boosted global energy prices.

Officials say the damage from sanctions will be temporary, with the economy expected to shrink by eight percent this year and then bounce back to growth in 2024.

– VAT points to spending drop –

But Russia is heavily reliant on imports of everything from manufacturing equipment to consumer goods, and economists believe the worst effects of the sanctions are still to come.

Now almost 100 days into the conflict, officials and ordinary Russians are reporting a litany of problems, including shortages of everything from paper to medicine. 

Authorities have stopped releasing key data, making it difficult to assess the impact of sanctions.

But the few available economic indicators point to significant problems.

Strict capital controls, high energy prices and a collapse in imports have led to a surge in the ruble, prompting Russia’s central bank to slash its key rate last week in a bid to rein in the currency.

Inflation meanwhile hit 17.8 percent year-on-year in April, the highest for 20 years.

And revenues from domestic value-added or sales tax collapsed by more than a half in April, VAT fees on imported goods dropping by a third compared to the same month in 2021.

“In April, the revenues of the overwhelming majority of companies in Russia took a hit,” Andrei Grachev, head of tax practice at Birch Legal, told The Bell, an independent Russian business website.

“This didn’t merely affect those who ceased operations in Russia, but also those who continued to work but lost clients and profits.”

That hit is evident on the streets of Moscow, which are now lined with shuttered shops: from McDonald’s and Starbucks to clothing retailers H&M and Zara. 

Central bank chief Elvira Nabiullina warned in April that problems were emerging “in all sectors, both in large and small companies.”

– Button, paper shortages –

Textile manufacturers are having trouble buying buttons, while paper producers are struggling with a shortage of bleaching agents, Nabiullina said.

Prices for white paper have skyrocketed and some businesses in Moscow have started printing out receipts on unbleached beige paper. 

The aviation and tourism sectors have been hit especially hard. Direct air links with Europe have been severed and Russians are unable to use their bank cards abroad.

Authorities are trying to convince Russians to holiday at home, but the country’s balmy Black Sea coast has become hard to reach due to the closure of airspace in the south over the fighting in Ukraine.

Russian Railways has launched additional train services to compensate for the absence of flights.

For now, the surge in oil and gas prices prompted by the Ukraine conflict is helping to keep the Russian economy afloat, despite the tens of thousands out of work or put on leave and paid a reduced salary while factories halt production for lack of foreign components.

Chris Weafer, the founder of consultancy Macro-Advisory and a long-time observer of the Russian economy, said sanctions mainly hit the financial system in March and April.

“What will start in the next few months are pay cuts,” Weafer told AFP. 

“There will be a drop in income, and that combined with inflation will cut very deeply into people’s disposable income.”

Weafer said Russia was in a strong financial position and the authorities could still keep the economy going.

The EU’s decision this week to ban more than two-thirds of Russian oil imports will not have as much impact as many hoped, he said.

“By the time oil sanctions kick in, Russia should be able to replicate the EU market elsewhere,” in particular in Asia, Weafer said.

But further Western moves against Russia’s energy sector could cause serious harm, he said, “if sanctions were to move into more damaging territory: gas.”

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Google to delete user location history on US abortion clinic visits

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Google has faced calls to limit smartphone data collection in the wake of anti-abortion laws passed in the United States
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Google announced Friday it would delete users’ location history when they visit abortion clinics, domestic violence shelters and other places where privacy is sought.

“If our systems identify that someone has visited one of these places, we will delete these entries from Location History soon after they visit,” Jen Fitzpatrick, a senior vice president at Google, wrote in a blog post. “This change will take effect in the coming weeks.” 

Other places from which Google will not store location data include fertility centers, addiction treatment facilities, and weight loss clinics.

The announcement comes a week after the US Supreme Court made the tectonic decision to strip American women of constitutional rights to abortion, leading a dozen states to ban or severely restrict the procedure and prompting mass protests across the country.

Activists and politicians have been calling on Google and other tech giants to limit the amount of information they collect to avoid it being used by law enforcement for abortion investigations and prosecutions.

Fitzpatrick also sought to reassure users that the company takes data privacy seriously.

“Google has a long track record of pushing back on overly broad demands from law enforcement, including objecting to some demands entirely,” she wrote. 

“We take into account the privacy and security expectations of people using our products, and we notify people when we comply with government demands.”

Concerns over smartphone data and reproductive rights arose even before the Supreme Court ruling, when several conservative US states in recent months passed laws that give members of the public the right to sue doctors who perform abortions — or anyone who helps facilitate them.

That led a group of top Democratic lawmakers in May to send a letter to Google chief executive Sundar Pichai, asking him to stop collecting smartphone location data lest it become “a tool for far-right extremists looking to crack down on people seeking reproductive health care.”

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Kerry vows US to meet climate goal despite court setback

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US Special Presidential Envoy for Climate John Kerry fists-bumps a guest at the Summit of the Americas in Los Angeles in June 2022
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US climate envoy John Kerry vowed Friday the United States will meet goals it submitted to the United Nations on slashing greenhouse gas emissions, despite a Supreme Court ruling that curtailed the government’s powers.

“We are determined to achieve our goals. We can achieve our goals,” Kerry told AFP.

“But obviously it would help if we had a majority of the Supreme Court in the United States of America that actually understood the gravity of the situation and was more willing to try to be helpful rather than present a hurdle of one kind or another,” he said.

President Joe Biden, after defeating the climate-skeptic Donald Trump, in April last year said the United States would reduce greenhouse gas emissions by 50 to 52 percent by 2030 from 2005 levels, dramatically increasing the climate ambitions of the world’s largest economy.

He submitted the so-called nationally determined contribution to the UN climate body in line with the 2015 Paris Agreement, the landmark deal brokered by Kerry when he was secretary of state.

China, the world’s largest carbon emitter, called Friday on all nations to live up to Paris commitments, with foreign ministry spokesman Zhao Lijian saying of the United States, “it is not enough to just chant slogans.”

Kerry, who has worked with Chinese officials in his climate role despite soaring tensions between Beijing and Washington, said that he was “not surprised by the messaging” from the Asian power.

“We will show China precisely how we’re going to get the job done,” Kerry said.

In an unusual commentary, Stephane Dujarric, the spokesman for UN Secretary-General Antonio Guterres, called the Supreme Court decision “a setback in our fight against climate change.”

– ‘Every option available’ –

The Supreme Court, finishing a term in which three justices nominated by Trump pushed it sharply to the right, on Thursday cut the wings off a key way in which the government could have tackled climate change.

In a 6-3 ruling branded “devastating” by Biden, the top court said the Environmental Protection Agency did not have authority to order sweeping cuts on emissions from coal-fired power plants.

“I am convinced — and our legal people are looking at it very carefully — that this decision leaves plenty of latitude for us to be able to do a lot of things that we need to do,” Kerry said.

Asked about calls by some lawmakers from his Democratic Party for Biden to declare a climate emergency, Kerry said, “I think the president needs to evaluate every option available.”

Coal accounts for around 20 percent of US electricity generation — still roughly on par with renewables. China, despite investing heavily in wind and solar, has also kept building coal production capacity.

But Kerry said that the marketplace showed that coal was not the future.

“Nobody’s going to fund any new coal power in the United States — no bank, no private lender. Coal is the dirtiest fuel in the world,” he said.

– ‘Pin into balloon’ –

Scientists warn that the world is far off track in avoiding the worst ravages of climate change including worsening heatwaves, floods, drought, rising sea levels and storm surges. 

The Paris accord set the goal of limiting end-of-century warming to two degrees Celsius (3.6 Fahrenheit) above pre-industrial levels — and preferably not beyond 1.5 degrees — but the planet has already warmed by nearly 1.2 Celsius.

Ruth Greenspan Bell, a climate expert at the Woodrow Wilson International Center for Scholars, said it was difficult for the United States to show climate leadership while also fighting internally on whether it is a priority.

“It’s kind of putting a pin into a balloon. There’s a little bit less air in the balloon than there was before,” she said of the court decision. 

“The times call for a moonshot but imagine trying to pull off a moonshot when you are at the same time in a defensive crouch.”

Environmental groups have put guarded hope in negotiations in Congress on an energy bill that would include climate action.

But on the Democratic side, Senator Joe Manchin from coal-producing West Virginia holds the key vote — and Trump’s Republican Party is widely expected to advance in November elections.

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French police bust gang selling fake Bordeaux wine

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Bordeaux wines have become a major target of thieves and traffickers, who seek to profit off its worldwide recognition.
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French police have broken up a gang that had allegedly produced hundreds of thousands of bottles of fake Bordeaux wine in an elaborate counterfeiting operation, prosecutors said on Friday.

Officers investigating drug dealing in the southwestern French region discovered printing machinery being used to create the labels for the bottles last September, sparking a wider criminal probe.

It led to the arrest of around 20 people on Monday during an operation in seven different areas of France, with three of them charged with organised fraud, counterfeiting and money laundering.

The main suspect is a winemaker and broker in the Medoc region near Bordeaux who was buying low-grade wine from other areas including Spain, then bottling it up as more expensive local produce, a statement from Bordeaux prosecutors’ office said.

“Major orders” had been placed for the wine “destined for supermarkets and foreign countries”, the statement added.

Bottling operations were being run at night to avoid detection, it said.

“If the allegations are proven, we hope that the culprits will be heavily punished because these practices undermine the image of Bordeaux wines and those who work properly and respect the rules,” the local wine industry body told AFP.

French wine makers, customs and police are constantly on the lookout for cheats who pass off budget plonk as top vintages.

In 2016, police busted a Bordeaux vintner who was blending poor-quality wine with high-end Saint-Emilions, Lalande-de-Pomerols and Listrac-Medocs to sell to major supermarkets under prestigious labels.

The owner of several domains, Francois-Marie Marret, was handed a prison sentence and a fine of eight million euros after being found bringing in cheap wine at night.

In 2010, 12 French winemakers and dealers were convicted of selling millions of bottles of fake Pinot Noir to the US firm E&J Gallo.

Before that, in 2006 legendary Beaujolais winemaker Georges Duboeuf was fined more than 30,000 euros for blending grapes from different vineyards to disguise the poor quality of certain prized vintages.

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