Eugeny Grigoriev


This coming weekend is developing extremely stressful in Europe. The tragedy in the skies over Donetsk remains in the spotlight. Without going into all the details and circumstances, Western media and intelligence agencies blame a priori Russia for the situation; they do not stop short of instigating hostility towards Russia. The EU, NATO, and most governments are also putting pressure.

In order to make Moscow more pliable to Western policies regarding the Ukrainian crisis, Brussels is initiating another round of anti-Russian sanctions. Yesterday, in response to requirements of the European Council on Foreign Affairs, representatives of 28 EU countries were seeking to do it. According to diplomatic sources in Brussels, they considered the question of expanding the sanctions list of individuals and legal entities (earlier, sanctions were launched against 72 individuals), whose assets will be frozen in the EU. Possible restrictive measures in the field of armaments, technology, and finance were also discussed. In these areas, an open opposition of the interests of EU participants is demonstrated, which will obviously require further harmonization at the highest level.

The United States imposes unceremoniously the sanctions mainstream on to Europe. It seems it has become an idee fixe of President Barack Obama, as he almost daily calls on European leaders to "punish" Russia. On Tuesday, he urged the EU to additional sanctions in a telephone conversation with Prime Minister of the Netherlands Mark Rutte. The Senate assists the White House in doing it. Republican Dan Coats would like "to put the Russian economy onto its knees". As for Democrats, they sent a written recommendation to the President on sanctions against the Russian defense sector, which is a clear reference to the discussion of this topic in Brussels. Sen. Chris Murphy believes that for further sanctions to be effective, the United States and its European allies must present united front.

The UK, Poland, Sweden and the Baltic countries are actively supporting the American line. Germany, France, Italy, which is currently presiding in the EU, and several other countries behave circumspectly. They have extensive and beneficial economic ties with Russia, which are quite significant for their well-being.

On Wednesday night, reports that Angela Merkel joined the supporters of the early adoption of the EU economic sanctions were especially unexpected. Her deputy representative Georg Streiter voiced the position of the head of the federal government, who is on vacation. To prove this view, he claimed that Moscow allegedly did not show any interest in a full-scale investigation of the crash of the Malaysian airliner and stabilization of the situation in Ukraine. But all this looks more than strange, because earlier Merkel seems to have been pleased with the fact that Russian President Vladimir Putin accepted a number of her proposals and suggestions.

It appears that Merkel is shifting the emphasis from a dialogue onto sanctions, while ignoring persistent warnings about their riskiness and inferiority on the part of economic circles. President of the Federal Association of Medium Businesses Mario Ohoven says: "Only losers will be in the economic war against Russia". According to him, "embargo or something similar against Russia will hit many of our medium-level enterprises". He believes that 25% of such exporters will be affected.

The Eastern Committee of German Economy representing 6,200 German companies operating in Russia declares that sanctions generate investor uncertainty, lead to the fact that Russia will turn away from the West; they are detrimental to market conditions across Europe. Head of the Committee Eckhard Cordes says that "new sanctions will just raise the price everyone will have to pay for the conflict". According to Executive Director of the Federal Association of Chambers of Commerce in Germany (DIHK) Martin Wansleben, sanctions "are not a reliable means of solving the political conflict in Ukraine"; they "have already led to a significant negative impact on German- Russian relations".

He confirmed DIHK predictions, according to which the volume of German exports to Russia this year could fall by EUR 4 billion. He emphasized that in Germany about 300 thousand jobs depend on these supplies. In turn, the Association of German Machine Builders and Manufacturers of Industrial Equipment (VDMA) reported reduction of Russian orders. Two-thirds of VDMA members have already been affected. Director at VDMA Eastern Division Reinhard Petts regrets: "We are facing the fact that durable supply ties and hard-won trust between trading partners are being gradually destroyed". In Q1 2014, the exports of German equipment to Russia decreased by 17.2%.

German entrepreneurs warn that, in addition to creating difficulties for Russia, sanctions will create difficulties for Germany, too. According to estimates by Deutsche Bank, due to the artificially induced recession in Russia, Germany could lose 0.5% of its own economic growth, which would affect the whole European economic field because of the importance of its economy. German media cite a lot of readers’ resumes, such as "sanctions are meaningless. Those who approve them do not understand all the associated consequences for the economy".

Politicians are pressing to have their own way. Some of them even initiated the idea to deprive Russia of the right to host the World Cup in 2018. Representative of the conservative bloc in the Bundestag Michael Fuchs believes that such an action may have a much greater impact on Moscow than economic sanctions. He urged FIFA to think about whether Russia can be trusted to conduct the main football event of the past four years, if it cannot provide safe air flights. The politician added that the 2018 World Cup could be held in Germany or France.

Source: Nezavisimaya Gazeta, N153, 25.07.2014, p. 7


EU sanctions on Russian banks would hit Britain the hardest
Sam Coates; Charles Bremner
The Times (London) | July 25, 2014

Britain could suffer more than any other EU country from tougher sanctions against Russia that would put major restrictions on some of Moscow’s biggest banks.

The move against Russian financial institutions has prompted a furious response from Alexander Yakovenko, the country’s ambassador to Britain. He claimed that a major expansion of sanctions "will trigger a long anticipated endgame of the present global crisis", and called them "illegal, unreasonable and counter-productive".

Yesterday ambassadors discussed a four-point plan for more sanctions, including a ban on the sale of arms, energy technology and dual-purpose items that could be used by the military. The most significant discussion was on financial restrictions, which would ban European investors from Russian banks that are more than 50 per cent owned by the state. This would include Sberbank and VTB, which are listed on the London Stock Exchange and raised $16.4 billion in flotations between 2004 and 2008, and VEB, which has offices in London. The ban is likely to cost the City hundreds of millions of pounds.

France, by contrast, has secured an exemption to the arms embargo on the sale of two warships to Moscow by arguing that the contracts are already signed. The EU has also agreed not to look at gas and oil imports, protecting the economies of most eastern European states and Germany.

Signs of divisions within the EU over the sanctions were still evident yesterday. Laurent Fabius, the French foreign minister, hit out at Britain for criticising the ship deal, raising the spectre of the Iraq war. Mr Fabius said: "I replied to Cameron in a friendly way, saying that what would be unthinkable in France is that we would attack another country saying that there were weapons of mass destruction there when there were none."

The think-tank Open Europe questioned whether the burden of the sanctions had been allocated fairly.

"The real question is why is so much of the burden – even if it is not a massive one – falling on the UK? France and Germany might be talking tougher, but they do not quite seem to be following through with actions," said Raoul Ruparel, a senior analyst.

Russia is on the brink of recession as a result of sanctions imposed by the West, as well as a broader aversion to risk in emerging markets. However, Open Europe also questioned what effect the new sanctions would have. "The impact on Russia would likely be mixed. It would force companies to shift to much shorter financing and force the state to back them up even further. Russia might also respond to try to keep capital in Russia inside some of these companies. In any case, there would be a hit but it wouldn’t be a killer blow.

"Much of it all depends on international co-operation. If other countries join in on shutting off capital markets then it could be effective. But (EURO)7.5 billion of bonds to be sold elsewhere is not a huge amount if Singaporean and Hong Kong markets are still open to them." The EU has also added names to a list of 72 Ukranian and Russian officials and businessmen whose assets have been frozen. In addition, the individual sanctions could be extended to President Putin’s inner circle.

German officials in Brussels said that they expected the new measures to be agreed and take effect by the end of July.

Berlin has shifted from its longstanding caution over sanctions after the shooting down of Flight MH17 and Italy called for broad new sanctions yesterday, but unanimous approval is required and several states, including Cyprus and Greece, have been opposed to broader measures.


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