Sunday, July 27, 2014

Serious EU financial sanctions against Russia coming?

Wolfgang Münchau has said he wanted stiffer EU sanctions against Russia over Ukraine. Now that the EU is considering major economic sanctions, he seems to be hearing a Bruce Springsteen song in the background, the one with the line "With every wish there comes a curse."

In The west risks collateral damage by punishing Russia Financial Times 07/27/2014 Münchau writes:

The sanctions to be decided this week are known in EU jargon as 'tier three'; the red-alert stage. As reported by Peter Spiegel, the Financial Times Brussels bureau chief, the European Commission wants a ban on purchases by EU citizens and companies of equity and debt issued by state-controlled Russian banks that has a maturity of more than 90 days. The ban would also include investment services. No EU bank would be allowed to help Russians banks raise funds on a regulated market. The rule would extend to development finance institutions. Last week, the EU and the US used their majority vote on the board of the European Bank for Reconstruction and Development to stop the bank’s investments in Russia, which accounts for almost 20 per cent of its invested assets.

The kind of financial sanctions he describes would be particularly noticeable in Austria, whose banks do a lot of business in Russia. But also: "The IMF raised the German growth forecast for 2014 from 1.7 per cent to 1.9 per cent. I am not saying this is wrong. But can we be sure Germany will brush off sanctions against Russia so easily – especially, as is now likely, if the EU this week widens them to the financial sector?" And since strong German growth is the only thing with an immediate prospect of pulling the eurozone out of depression and borderline deflation, well, this could get ugly.
Maybe they would be better off sticking to something more modest (Ishaan Tharoor, The growing calls to strip Putin and Russia of the 2018 World Cup Washington Post 07/23/2014):

European leaders are discussing new tough measures on Russia, which will likely come in the form of new sanctions.

But does that really punish Putin? Europe’s ultimate dependence on Russia as a market and key source of energy means its bark is often worse than its bite. And by all accounts, Putin appears to be hardening his own position, fueled by record approval ratings at home.

So now, some are venturing a new line of attack: depriving Russia of the privilege of hosting the 2018 soccer World Cup.
It wouldn't surprise me if Angela Merkel isn't working on some way of avoiding imposing serious sanctions while still pretending to be tough on Russia.

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