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02 April 2022

After Bucha

Dutch UN units looked the other way when Bosnian Serb troops committed the Srebrenica massacre in 1995. What Germany, Austria and Hungary are doing now is morally even more reprehensible. The problem now is not that we fail to intervene when Russian soldiers are executing civilians as they did in Bucha, near Kiev. We are still right not to engage with Russia directly. But with our continued gas and oil purchases and our refusal to accept a gas import ban, we are helping Putin stabilise the Russian economy, freeing up resources with which he can finance these atrocities.

Let there be no doubt: Putin is not defeated. He is regrouping. He has the bigger military. He has nuclear, chemical, and biological weapons. As he has shown time and again, he is willing to commit unspeakable atrocities. And each day we are sending him some €700-800m for his fossil fuels. For crying out loud, stop the cheerleading and fantasising about dragging him in front of a war crimes tribunal. And stop talking about how Germany is finally changing.

This week I expect Olaf Scholz once again to come under an unprecedented amount of pressure from the public and their allies to cut themselves off Russian gas. They could seize the moment, or resist with the same old feeble arguments they used before: that an oil and gas embargo won't affect Putin's war machine; and that western solidarity cannot be taken for granted if the consequences of sanctions are a severe recession.

The answer to the latter is this: the pain of recession is self-inflicted. It was the result of the biggest policy error committed by previous leaders, like Silvio Berlusconi and the much-feted Angela Merkel. They have made their countries dependent on Russian gas to fuel an increasingly unsustainable gas-guzzling industrial model.

They may defend their refusal to cut off the gas by saying that this won't stop the war. This is both trivially true and misleading. A classic strawman. Of course, the war won't stop the minute you stop the gas. But it is our purchases of Russian gas and oil in the past that has given Putin the resources to fund his war today. What we are paying him now will allow him to wage future wars.

If Scholz resists, nobody will remember his decision to end Nord Stream 2. That did not cost him anything. They will remember his hesitancy now. How we remember political leaders is not an exercise in calculating the bottomline of a balance sheet. The same goes for how we remember war crimes. The pictures of the executed lining streets of Bucha will impact us more than whatever happened in Srebrenica. The pictures we remember are those of mass graves. We did not see what happened. This is different here.

The discussion in the next few days will be critical not only for this war, but also for European unity. If Germany resists, I expect at least some member states to question the wisdom of aligning themselves strategically with a country that keeps pursuing its self-interest at the expense of others. The EU and its member states have no record of standing up to Germany. They didn’t during the euro area’s sovereign debt crisis. They allowed Germany to frame that crisis as one of fiscal profligacy, rather than one of private sector imbalances that resulted first and foremost from German domestic policy. Nato did not stand up to Germany and Italy when they committed to Nato defence spending targets they never intended to meet. And they didn’t stand up on Nord Stream 2.

The reason why gas and oil sanctions are necessary is because Putin and his economic team are very successful at evading the sanctions we've imposed so far. After the west issued the central bank sanctions over a month ago, the rouble fell to almost 140 against the dollar. It is now back to pre-war levels of the mid-80s. What this means is that sanctions are not working.

What Putin did last week was getting western gas buyers to engage in rouble foreign exchange transactions that would be harder to transact otherwise. Half of Russia’s foreign assets are frozen. But the frozen assets are more than compensated for by continuous inflows of European money. Putin also benefits from the rise in oil and gas prices that have come about partly as a consequence of his own actions. We should stop kidding ourselves. From a western perspective, this war is not going well.

Sanctioning oligarchs and seizing their yachts is silly revenge populism. Leaving aside for now the debate about the long-term consequences of central bank sanctions, they make no sense unless accompanied by an oil, gas, and coal embargo. Forget the platitudes about the EU showing unprecedented unity. We Europeans like to congratulate ourselves on the half-measures we take in response to every crisis. If we fail again, as we did so many times in the past, the moral case for European integration can no longer be made.

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