21 Jul 2014

Russia: EU sanctions inch forward again

Don’t hold your breath for a thunderclap of judgement on Russia tomorrow at the EU foreign ministers’ gathering. You might get some tough rhetoric but you will not see a major escalation of sanctions.

Europe has been working on three categories of “sanctions” over Russia’s actions in Ukraine for some time. David Cameron in the Commons today described the action so far as “relatively modest measures.”

Tier 1 was barring Russia from some international gatherings etc. Tier 2 is asset freezes and visa bans on individuals connected to the Putin regime and some entities. The threat for some time has been that the EU will move to “tier 3” sanctions. That’s when the countries start applying sanctions against entire sectors of the Russian economy.

Several months ago the European Commission was instructed to set up a plan for these sanctions. There was extreme nervousness around the EU meeting table about inflicting pain on Russia that might rebound on the EU member states.

The tier 3 sanctions were devised to spread the pain as equally as possible amongst the member states, so Britain takes a hit with some financial sector sanctions matched by a move against defence contracts that hurts France and energy contracts that hurts Germany. The grid was divided into 3 so that the EU could move to 3.1 before upping its pressure to 3.2 and then 3.3 sanctions.

Despite all the flouting of international law the EU has yet to agree to move to Tier 3 sanctions. It’s stayed in tier 2 and tomorrow is expected to see more of the same. There could be a pledge to move to something just below tier 3 – banning future big defence contracts ( a sort of “tier 2.9″).

That wouldn’t affect existing contracts (though the PM took a swipe at France when answering questions in the Commons and said it would be unthinkable in this country to complete the sort of contract that the French have to supply Russia with two helicopter assault carriers worth 1.2bn euros – the order’s due to be handed over in October).

Beyond that, there will be much talk of threats of future action but the only agreed action is expected to beĀ  an extension of tier 2 sanctions against individuals and entities – moving against what David Cameron calledĀ  some ” cronies and oligarchs” close to President Putin and some companies that operate in eastern Ukraine with what are regarded as seized assets from Ukrainian concerns.

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The Dutch were never at the forefront of the calls for heavy sanctions. They now are said to be arguing behind the scenes that they must do nothing now that could hinder the urgent need to reclaim the passengers’ bodies and get access for a proper investigation of what happened to the Malaysian airliner.

Others who tend to oppose escalating sanctions have included Spain, Italy, Greece, Cyprus … as the PM said in the Commons, the countries closest to Russia in the Baltics have generally tended to be readier to see tougher sanctions.

EU leaders may say they’re doing enough to harm Russia as reports say stocks there are already sliding on the threat of greater sanctions. But European stocks also take a hit on days like this and Russia has consistently seen that Europe is deeply aware and deeply nervous of that. It may well see the same again tomorrow.

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