Charlotte Street Partners



The Budapest betrayal

Written by Ian Ng, researcher
Edited by Adam Shaw, associate partner
25 February 2022

Good morning,

Following Russia’s invasion of Ukraine on Thursday, Lithuania and Moldova entered a state of emergency as Eastern Europe braced for an influx of refugees. The United States, the United Kingdom, and the European Union responded with sanctions claimed to be “the largest and most severe package of economic sanctions that Russia has ever seen”.  

In the UK, Boris Johnson announced that Russian banks’ will have their assets frozen and be excluded from the UK financial system, and major Russian companies will be stopped from engaging in UK markets. The US imposed an export restriction against Russia and sanctioned five major Russian banks. The G7 group agreed to restrict Russia from using the US dollar, euro and sterling. The EU has promised “hard-hitting” sanctions that will target “Kremlin interests” but is yet to announce the details.  

However, the international community has held back for now from imposing sanctions on Vladimir Putin himself and from disconnecting Russia from the Society for Worldwide Interbank Financial Telecommunication (Swift) international banking system – regarded by many analysts as the most severe punishment Russia could face short of a military intervention.  

So, what is Swift and how would this sanction, if implemented, work?  

Access to Swift is essential for international trading as it delivers messages among financial institutions. It is used by more than 11,000 banks and financial institutions worldwide and handles 42 million messages a day, facilitating trillions of dollars’ worth of transactions 

The EU cut off Iran from the Belgium-based system in response to Tehran’s nuclear program and losing access to it may cost Russia five per cent in GDP a year.  

However, there has been a reluctance among some western countries to impose this measure as it would make it impossible to pay for Russian energy, which would cause a spike in international energy prices. 

In addition, the Bank of Russia has been running its own financial messaging system for Russian and foreign banks since 2014, and some suspected that banning Russia from Swift would simply encourage Moscow to replace Swift with its own alternative.  

Whether or not ejecting Russia from Swift would be effective is unknown.  

What is known is the diplomatic failure to deter Russia from invading in the first place.  

In 1994, Ukraine signed the Budapest Memorandum and gave up its nuclear weapons in exchange for security guarantees from all parties, a promise that has not been fulfilled. 

As a result, we are now watching something many of us never thought we’d see: Russian forces sweeping through a modern European country and attempting to seize its capital. A dark day. 


Volodymyr Zelenskiy, president of Ukraine, has banned Ukrainian adult men from leaving Ukraine, a move aimed at “guaranteeing Ukraine’s defence and the organisation of timely mobilisation”. It was reported that 137 Ukrainians – soldiers and civilians – died yesterday in the Russian invasion. In an address to the nation, Zelenskiy appealed for a ceasefire and pleaded with Western allies to impose stronger sanctions.  

More than a hundred municipal deputies from Moscow, St Petersburg and other Russian cities have signed an open letter condemning the invasion and urging the Russian people not to take part or stay silent the invasion. Anti-war protests occurred all over Russia yesterday with thousands protesters taking to the streets. Russian police made hundreds of arrests.  

Scott Morrison, the Australian prime minister, has denounced China for offering Russia a trade “lifeline” as he reaffirmed Australia’s support for Ukraine. Morrison criticised China for fully opening up to Russian wheat exports, which had previously been subject to health-related restrictions.  

Business and economy

European gas prices soared and oil topped $105 a barrel for the first time since 2014, triggering worries about global energy supplies. Europe relies on Russia for about a quarter of its oil and a third of its gas. The increases will hit consumers, increasing the cost of energy bills, fuel and plane tickets.  

Global markets stabilised after turmoil sparked by the invasion, with US stocks dropping shaprly before rebounding to end higher on Thursday and shares in Chinese companies left intact. The Nasdaq registered its biggest intraday swing since the start of the pandemic in March 2020.  

Russian stocks plunged and the rouble hit a record low after the invasion of Ukraine. Moscow’s Moex index fell 45% before recovering slightly to end the session 33% lower, while the rouble tumbled to a record low against the dollar on Thursday.  

Columns of note

Writing in The Guardian, Timothy Ash argues that the Russian-Ukranian war will be a long struggle, and suggests the West should prepare accordingly. He advocates stronger sanctions on Russia and more support for Ukraine, as well as strengthening Nato’s defences.  

James Forsyth writes in The Times about how an economic boycott of Russia may harm Europe’s economic recovery from Covid. He argues that Boris Johnson has not adequately outlined the consequences that may come with the boycott, which will be a sign to the Kremlin that the West is unwilling to take the measures that will really hurt. He argues that the West must be prepared to take the economic hit that would come with boycotting Russian oil and gas, removing Russia from Swift and implementing unexplained wealth orders on the UK assets of Russian oligarchs.  


What happened yesterday?

London stocks fell sharply on Thursday. The FTSE 100 ended the session down 3.88% at 7207.01 and the FTSE250 was 2.82% weaker at 20,254.44. On Wall Street, the S&P 500 index first plummeted before ending the day up 1.5% as no sign of Russia being removed from Swift emerged, while the Dow was up 0.28% and the Nasdaq gained 3.34%. 

On the currency markets, sterling was 1.37% weaker against the dollar and fell 0.05% against the euro to €1.20. 

What’s happening today?

AGMCaledonian Tst.On The Beach Grit Inv Tst Annual Report Evraz EGMRuffer Inv. Co.  Glanbia Finals Evraz Jupiter Fund Management Pearson Rightmove Romgaz S Interims Euro Opps Tr.  

International economic announcements (09:00) M3 Money Supply (EU) (07:00) Import Price Index (GER) (15:00) Pending Homes Sales (US) (15:00) U. of Michigan Confidence (US) (13:30) Personal Income (US) (13:30) Personal Consumption Expenditures (US) (13:30) Personal Spending (US) (10:00) Services Sentiment (EU) (10:00) Economic Sentiment Indicator (EU) (07:00) Gross Domestic Product (GER) (13:30) Durable Goods Orders (US) (10:00) Business Climate Indicator (EU) (10:00) Industrial Confidence (EU) (10:00) Consumer Confidence (EU) 

Source: Financial Times

did you know

Drinking tea made Britons in the 1700s healthier. 

Since tea used boiled water, increased tea drinking reduced mortality from water-borne diseases. 

Parliamentary highlights

House of Commons

Oral QuestionsCabinet Office (including Topical Questions) 

Urgent QuestionsTo ask the Secretary of State for Business, Energy and Industrial Strategy if he will make a statement on compensation arrangements for those sub postmaster/mistresses who have been impacted by the Post Office Horizon software scandal – Andrew Bridgen 

Business StatementBusiness Questions to the Leader of the House – Mark Spencer 

Ministerial StatementHigher Education Reform – Nadhim Zahawi 

Backbench BusinessDebate on a Motion on the UK’s relationship with Russia and China – Bob SeelyGeneral Debate on the matter of the UK Government recognition of the State of Palestine alongside the State of Israel – Julie Elliott, Mr David Jones, Dr Philippa Whitford, Layla Moran 

Ministerial StatementUkraine – Boris Johnson 

AdjournmentRecognition of the condition long covid – Wendy Chamberlain 

House of Lords 

Oral questionsThe acceptance of T Levels by Higher Education institutions for candidates for admission to universities via the Universities and Colleges Admissions Service (UCAS) in the current application cycle – The Lord Bishop of CoventryThe National Food Strategy – Baroness BoycottProgress of the National Tutoring Programme – Lord LexdenEncouraging Ukraine to apply for membership of the North Atlantic Treaty Organization (NATO), and to build support among other members of NATO for any such application – Lord Balfe 

StatementCompensation arrangements for those sub postmaster/mistresses who have been impacted by the Post Office Horizon software scandal – Lord CallananJudicial Review and Courts Bill – committee stage (day 2) – Lord Wolfson of TredegarUkraine – Baroness Evans of Bowes Park 

LegislationDissolution and Calling of Parliament Bill – third reading – Lord True 

Orders and regulationsRussia (Sanctions) (EU Exit) (Amendment) Regulations 2022 – Lord Ahmad of WimbledonRussia (Sanctions) (EU Exit) (Amendment) Regulations 2022 – motion to regret 

Scottish parliament 

No business scheduled.  

Share this post

Perhaps Putin is neither mentally unstable nor isolated in a bubble of yes-man—perhaps he’s all of the above and more, writes Jonathan Steele in The Guardian. He says that to understand Putin’s obsession with Ukraine is to understand the history of Russia itself, one that predates the USSR, and the cultural significance of Ukraine to Russia. And to understand Putin is to understand Russian history and culture—one does not exist without the other.
Rishi Sunak has slowly but surely scaled up the Tory ladder and is considered by many to be the “frontrunner in the leadership race”. How will he hold onto it while balancing competing views in terms of tax and spend, asks Iain Martin in The Times. Martin concludes that it could be done, but it may require a grown-up discussion and an equally grown-up audience.