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Sanction game against Russia doomed to fail

2015-02-03

By Wang Yiwei, Director of Center for EU Studies & Senior Research Fellow of Chongyang Institute for Financial Studies at Renmin University of China.


No more sanctions against Russia because of Greece’s obstruction; Extension of the sanctions to September because of Greece’s support. This is the signal that the EU council of foreign ministers sent to Russia after the new Greek government took power.


EU Foreign ministers in Brussels on January 29 extended the Russian blacklist for six months, promised to add extra names, and began preparations for a fresh round of economic sanctions. The new names - individuals and entities - are to be added by  February 9 at the latest. The EU called the snap meeting after a rocket attack on Mariupol which killed 30 civilians.


Maintain or undo sanctions has been the dilemma. “Maintain” because more than 4,500 people have been killed in the Ukraine Crisis and 1.3 million people displaced. The crisis was triggered in 2013 by the then Ukrainian authority’s decision — not to sign the association agreement with the EU, the EU has to respond strongly to the situation. 


The reason for “undo”, is, as a rule of action and reaction, the EU has also felt the  impact brought by the sanctions:


In the short-term, the EU-Russia trade volume amounted to 326 billion Euros in 2013, but there was a 5% decrease as compared to 2012, and estimations have shown a 15% decrease for 2014. Europe will lose €90 billion from sanctions imposed on Russia in 2014 to 2015, Foreign Minister Sergey Lavrov said at a meeting with European business people. 


More than 60 percent of Russia`s oil and gas exports go to the European Union. Economic sanctions against Russia could lead to an increase in the cost of gas, which would particularly affect southeastern European countries; Europe has already impeded countries in that area with the collapse of the Nabucco pipeline project in 2013, and could now be leaving them in a similar situation again. 


By prohibiting EU citizens and firms from trading in the new debt or equity of state-owned Russian banks, the EU has effectively shut Russian government-sponsored enterprises out of European capital markets. Consequently the EU banks have suffered a lot. For instance, London has seen an immediate negative impact as large financial firms lose new business providing services to Russian banks.


The EU’s cost should also include the results brought by Russia’s counter-sanctions. It is estimated that the EU has lost nearly 40 billion Euros in 2014, and will suffer a further 50 billion Euro loss this year. In all, the EU`s still-fragile economic recovery has been greatly damaged because of the sanctions. 


And the long-term costs will be even higher. “EU sanctions against Russia are  suicidal”. Antonio Fallico, an Italian banker with extensive experience of doing business in Russia, complained in an interview. 


The sanctions against Russia are in response to the worsening situation in The Ukraine, which makes it a political gesture for European countries. As Nikos Kotzias, the New Greek foreign minister indicated, “The dispute wasn’t about sanctions or no sanctions. It was about the right of a small country which is in deep crisis to have its own word … we have the same rights even if we are a country in crisis.” But he added EU sanctions on Russia shouldn’t go too far. "We don`t want to destroy Russia", he said.


However, the US is not worried about the consequences. Actually there are three key differences between the EU and the US in the sanctions against Russia: Firstly, the aims of the sanctions are different. The EU’s sanctions focus on the situation in eastern Ukraine, while the US is responding to Moldova, Georgia, and Nordic countries situations, and even Poland’s requirements to protect them, and even go further to undermine Russian President Vladimir Putin’s leadership. Secondly, the characteristics of the sanctions are different. The EU’s sanctions against Russia are all reversible, i.e., if Russia changes its policy towards the eastern Ukraine, then the sanctions will be suspended. The US’s sanctions are more irreversible; designed to impair the Russian ambition of re-surging as “an empire”. Thirdly, the targets of the sanctions are also different. The EU targets Russian trade, capital and personnel, while the US targets energy and finance which can exasperate the Russian economic situation greatly. 


Of course, the EU’s sanctions have to be approved by all 28 members, and the anti-system extreme right or left political forces could cast a shadow on the sanctions: those who feel sympathy to Russia and even envy Putin’s authority, tend to block further sanctions against Russia, while the US can make the decision on its own. Since the US companies have much less investment and trade relations with Russia, the US government can easily tighten the sanctions.


The differences also reveal that the EU and the US actually hold contrasting positions towards Ukraine’s NATO membership. Unlike the US’s intention to bring The Ukraine into NATO, most EU countries believe this a “red line” for Russia. To do so, the confrontation with Russia will be continuous, which the EU cannot afford. French president Hollande claimed that from his past meetings with Putin, he understood that Putin does not want to annex eastern Ukraine but just wants to retain influence there, and to prevent Ukraine from joining NATO. Hollande stated one month earlier that the west should suspend the sanctions to advance progress of the peace process.


Hollande’s stance is echoed by German leaders. It is not surprising that the end of 2014 witnessed both French and German leaders claiming that the sanctions against Russia had reached the upper limit, and that continuing sanctions would make the situation worse; tightening sanctions would undermine Russian political stability and threaten European stability. The EU sanctions against Russia should be limited to  influencing the Ukraine Crisis and not to bringing chaos to Russia. 


Not only different political forces have different views on the sanction, but also different EU states have different considerations about the sanctions. The UK, Sweden, Poland, Romania and Baltic states hope to design a more detailed timetable for further new economic sanctions against Russia, while France, Italy and Germany hesitate to carry out tough sanctions against Russia. This soft position is winning more and more support in the EU, particularly from those who are suffering from the export and investment loss in the Russian market. 


Sanctions are always a double-edged sword. This is the reason why they seldom work. The internal disputes, particularly the EU-US’s different considerations on the sanctions against Russia, reveal a basic conclusion; the sanctions are not sustainable, so they are doomed to fail. (欢迎关注人大重阳新浪微博:@人大重阳,微信公众号:rdcy2013)

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