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There were reports that EU ambassadors met in an emergency session yesterday to discuss the scope for the next round of sanctions – EU foreign ministers meet today;
  • the German economics minister, Sigmar Gabriel, also supports sanctions, and says that Germany’s economic interests were not the most important issue;
  • various leading CDU figures expressed concern that the EU has been too slow in reacting to Vladimir Putin, and expressed outrage at a recent French sale of Mistral helicopters to Russia;
  • Frankfurter Allgemeine notes that Russians fear sanctions more than we think that they are likely to happen;
  • Wolfgang Munchau says Gerhard Schroder should resign from his plum job, and says Germany should reorient its strategic thrust in industrial policy away from Russia;
  • Clifford G. Gaddy and Barry W. Ickes say sanction will hurt the Russians economically, but will not alter Putin’s policies;

22.07.2014

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Towards sanctions

There have been several reports yesterday that the EU was preparing the next round of sanctions against Russia. Peter Spiegel (@SpiegelPeter) tweeted that EU ambassadors had been summoned to an emergency meeting on Ukraine yesterday afternoon. EU foreign ministers are due to meet in Brussels this morning.

Frankfurter Allgemeine reports that German support for economic sanctions against Russia was increasing quoting German economics minister Sigmar Gabriel as saying that the economic concern – important as they may be – should not be decisive. He said another round of sanctions against Russia would now be likely. But the paper says the EU would still not agree to target entire sectors. But it is possible that Gazprom might be targeted in the next round. The paper quotes the chairman of the Bundestag’s foreign affairs committee, Norbert Rottgen, CDU, as saying that the EU was late in its response and had allowed a vacuum to arise. The purpose of sanctions is to be forward looking, not to be punitive. Handelsblatt reports that another senior CDU MP expressed outrage at a recent defence deal by France to sell Mistral helicopters to Russia.

In another article Frankfurter Allgemeine notes a disconnect between the Russian fear of sanctions, which is high, and the Western expectation that sanctions will actually happen. The Russian equity market has not collapsed but has been trending steadily downwards, having lost 6% over the last week. The article quotes a former Putin adviser as saying that if the EU passed financial sanctions against Russia, the economy would collapse within six weeks.

There has naturally been a lot of commentary on this story. Wolfgang Munchau writes in his Spiegel column that the first thing the German should do is to ask Gerhard Schroder to resign from the Nord Stream pipeline project in response to the atrocities that have resulted from Vladimir Putin’s policies. He writes that eastward orientation of the German economy has gone too far, and that it was now in the country’s strategic interest to correct that imbalance quickly. He says Germany should support further sanctions against Russia, notably in the area of energy and finance.

Clifford G. Gaddy and Barry W. Ickes from the Brookings Institute doubt that sanctions will be effective in influencing the action of Putin and the Russian elites in general.

“It is a fallacy to assume that Russia will respond to sanctions the same way that we would. We cannot simply project our own preferences onto Russians. (After all, if Russians had our preference structure, they would not have annexed Crimea in the first place.) Whether it is the idea that Vladimir Putin cares more about his personal wealth than Russia’s national security, or that ordinary Russians who see their living standards decline as a result of sanctions will mechanistically direct their anger against Putin rather than the West — many of the assumptions underlying the West’s sanctions policy are flawed, to say the least.”

The authors say that sanctions will damage the Russian economy. But our assumption is that the economic costs would lead to a change in political preference by Russian voters is mistaken.

“…if the motivation is defense of vital national interests and survival, Russia — like any state — will resort to import substitution and even more radical sorts of interventions to defend itself, no matter what the cost.”

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