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News > International
Primakov ouster hits euro
May 12, 1999: 7:58 a.m. ET

Markets, bonds and single currency turn down on fears of Russian instability
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LONDON (CNNfn) - Europe's fledgling single currency, the euro, slid to a one-week low against the dollar Wednesday after Russian President Boris Yeltsin fired Prime Minister Yevgeny Primakov just eight months after appointing him to resuscitate the country's crisis-wracked economy.
     The move triggered a downturn in Europe's financial markets that hit Germany -- Russia's primary trading partner in the region and the driving engine of the 11-nation Euro-zone -- most sharply.
     After opening firmer before news of the firing broke, the benchmark Xetra Dax was off 1 percent by early afternoon trade, at 5,244.67. France's CAC 40 retreated 0.3 percent, while Britain's FTSE 100 eased 0.9 percent amid a slump in banking stocks sparked by fears Russia may now defer debt repayments to western creditors indefinitely.
     Russian blue chips suffered more serious erosion, tumbling 16 percent as the ruble shed nearly 3 percent of its value, falling to around 24.8 rubles per U.S. dollar.
     Europe's common currency, the euro, lost more than half a cent, falling as low as $1.0666, as currency traders fretted that the ouster of Russia's third prime minister in a little more than a year could spell further political upheaval.
     This marked the euro's lowest level since May 5 and is just over 1 percent above the all-time low reached on April 3. The euro has fallen about 10 percent since its launch on Jan. 1.
    
Red Square

     Benchmark Russian Eurobonds also suffered damage. Russia's global bond due 2028 slumped 5 points to a 39 bid, extending previous losses. Notes of rescheduled Soviet-era debt were also quoted slightly off as traders feared the firing could provoke a political cataclysm with economic fallout.
     Roger Monson, a strategist with Rabobank in London, characterized the market easings in Europe as a "sympathetic reaction" to Russia's plight. In Britain's case, he noted that the country's direct exposure is limited and that the fallout from Russia's turmoil is unlikely to hurt consumer confidence or spending.
     Germany, a large importer of Russian oil and gas, may be seen as more vulnerable to Russian political tremors. Its market took the worst hit during Russia's financial crisis last August. But Moscow is highly dependent on the revenue generated from the sale of natural resources, analysts note, and a political reshuffling is unlikely to lessen that need.
     Nonetheless, concerns about Russia's debt worthiness may be more legitimate.
     Underscoring western creditors' fears, Russia's negotiator to the International Monetary Fund, Yuri Maslyukov, said Wednesday his country would have to renegotiate certain terms of its agreement with the IMF following Primakov's removal.
     Last month, the IMF agreed to extend $4.5 billion in credit to Russia on the condition the country's Communist-dominated parliament approve a series of reforms. Now that tentative deal may be jeopardized.
     James Wolfensohn, the president of the World Bank, said the firing cast a pall on his own institution's dealing with Russia.
     "It certainly is a surprise, and as you might imagine, we were just about to try and conclude our arrangements for a $3 billion package," Wolfensohn told CNN's "World Business Today" Wednesday. "But now we don't have a government to deal with and until there is a new government clearly there is nothing more we can do."
    
A former Kremlin spymaster

     In Moscow, Yeltsin sought to stamp out any hint of crisis by moving swiftly to name First Deputy Prime Minister Sergei Stepashin as acting prime minister.
     Yet the sidelining of Primakov -- a former spymaster plucked by Yeltsin last September to jumpstart Russia's crumbling economy following the summer collapse of the ruble -- could also hamper efforts to find a solution to the Balkan conflict.
     Despite the dramatic turn of events in Moscow, most analysts said the market reaction in Europe amounted to a dispassionate shrug.
     Economists asserted that the Russian development -- the latest in a litany of problems to afflict the country -- would be overshadowed by traders' focus on economic indicators and interest rate directions.
     Yeltsin invoked the lack of progress in improving Russia's crippled economy as the main reason for his decision Wednesday. But some observers in London said they believed the move was more about political intrigue than anything else.
     Yeltsin faces an impeachment vote in Russia's lower House of Parliament, or Duma, Friday and the ouster of Primakov may help delay that vote.
     The move also removes Primakov as an increasingly assertive political opponent to Yeltsin himself, who has been wont to fire Prime Ministers at times when his power seems on the wane.
     Primakov initially accepted the prime minister's post grudgingly, but had managed in recent months to build a working relationship with the Communist-dominated Duma.
     Primakov pricked his western benefactors at times, once denouncing the IMF as kids" with no knowledge of the real world.
     Yet as bad health sidelined Yeltsin, Primakov found himself delegated more control over the daily running of the economy. But that role had begun to shrink of late with Yeltsin's naming of former premier Viktor Chernomyrdin as his personal envoy to the Kosovo conflict.
     "This is not about economic reform in Russia, it's about power," Peter Truscott, a member of the European parliament from the British Labor party, told CNN.
     "Yeltsin is protecting his circle of friends and family. This eliminates a political rival, and he is seeking to halt his impeachment.
     Nonetheless, calling the move a "cynical ploy," Truscott said the firing would be "destabilizing for the (Russian) economy and the reform process."Back to top
     --By staff writer Douglas Herbert

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.