Sanctions on Russia will hurt – but doing nothing also has a price

Christopher Howarth

EUROPEAN leaders were quick to say Russia’s annexation of Crimea was “unacceptable”, but mostly accepted it. Others say they know Russia is behind the violence in eastern Ukraine, but still do nothing. Talk is cheap. The real test is whether the EU will move from rhetoric to real action and impose meaningful sanctions on Russia.

If EU leaders value their credibility, they should. They said there would be “additional and far reaching consequences for relations in a broad range of economic areas” if Russia took any further steps to “destabilise the situation in Ukraine.” It is obvious to all that the occupation of buildings and violence in eastern Ukraine is being directed from Russia, so why is the EU dragging its feet and allowing the US take the lead?

The obvious problem with economic sanctions is that the ones that have the most bite do most harm to the sanctioner. The EU is Russia’s largest trading partner and so, on paper at least, has the most influence. Implementing sanctions would, however, not be cost free. The US may look as if it is doing more, but it has less at stake.

EU sanctions also need to be agreed unanimously and the EU is split. There are those like the UK, Poland, Sweden and the Baltic States that wish to curb Russia’s actions by following through on EU threats, and those who, to differing degrees, don’t. The reason for this reticence is only partially economic. Yes, some worry about their dependence on Russian gas, while others like Luxembourg, Cyprus and the Netherlands have large investments in Russia. Some with fragile economies and no history of international action simply believe it is not their problem. But others with the most to lose are the keenest advocates of action.

The EU does have options, however, even if winning round the sceptics in the absence of further open Russian intervention will not be easy. EU leaders could attempt focused sanctions on specific sectors – targeting machinery or chemicals could cause significant damage, since Russia has to import these from the EU. The EU could also move to block more arms exports. The most effective longer-term sanctions would, however, be to stop all oil and gas imports from Russia – depriving the country of foreign exchange earnings would have serious domestic impact. But arranging alternative supplies would take time and investment, and is not a short-term option.

The EU could, alternatively, take aim at Russia’s ability to refinance itself, or at its banking system – key Russian weaknesses. Here it may not matter that the EU’s threats aren’t worth the Twitter accounts they emanate from. The EU may get swept up in American action in any event – the US has shown that, by banning its companies from trading with a Russian bank, it effectively shuts that bank out of global financial markets. So if the US moves ahead with further action, it could make life difficult for European companies doing business in Russia anyway.

Sanctions are obviously not a pain free option. With Europe’s nascent recovery yet to take hold, the last thing it needs is a Russian foreign exchange crisis – deliberately orchestrated or not. But the alternative, a dilution of the West’s credibility, could well be worse.

Christopher Howarth is senior policy analyst at Open Europe.

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