Why Did Italy Request a Review of Anti-Russia Sanctions?

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Valeria Pozzessere

Research Assistant at the European Caucasus House

Late last year, Italian Prime Minister Renzi requested to review EU sanctions against Russia. As a matter of fact, before the European Council took place on 17-18 December 2015, this could be considered both as an unexpected procedural move and a positive development in the framework of bilateral relations between Russia and Italy.

Sanctions were imposed in the wake of the crisis in Ukraine and the referendum in Crimea in March 2014. Since that moment onward, any further unanimous extension was based on an assessment of the state of the Minsk Protocol and Russia’s ability – or rather, failure – to implement and fully adhere to the terms of the ceasefire agreement seeking an end to the conflict in eastern Ukraine.

EU countries remain adamant in the six-month extension of sanctions in the aftermath of the European Council in Brussels, showing no particular willingness to ease them and taking their eyes off the impact on the whole EU economy, therefore producing the general impression that the conflict in Ukraine is rather viewed through a prism of opportunities and challenges that Russia offers as a market and a partner.

Apparently the European Union resists the counter-productive effects of sanctioning and prohibiting exports of dual use goods, key equipment for military use and technology for oil and natural gas industries, nor considers it the risk of losing an estimated 2 million employments and experiencing a steep drop in exports of some €100 billion.

Assuming that the effects and tough consequences of imposing sanctions are not borne in an equal way and are not equally distributed within the EU, factors including geographical interests and trade explain why the great majority of EU countries supports such a prolongation of sanctions whereas others with stronger ties to Russia are wary of them. As second largest EU trader with Russia, Italy is one among those extensively experiencing a direct negative effect of economic sanctions. It is also the recent advocate for suggesting a restoration of normal politico-commercial relations with Moscow.

The rationale behind the interest in sidestepping sanctions reasonably lies in a clear understanding of the deleterious impact and the need to resume the entire Italian economy. Renzi is well aware of the collapse of Italy’s exports affected by Moscow’s persistent import limitations, which incurred €200 millions annual losses on Italian companies – corresponding to a -29,5% annual loss – including high technology (-43,3%), fashion (-33.9%), transports (-82,6%) and agriculture (-45%).

 The impact of economic sanctions against Russia also generates in Italy the boomerang effect of not ensuring investment activity by Russian enterprises in the country and their payment to Italian suppliers. A process of conservation and substitution of imported products with Russian locally produced brands has visibly increased, as did the distribution of the so-called Italian sounding products. Italian enterprises are facing long-term income losses and are not able to cover them. Once they lose Russian customers to more profitable retailers, it may prove hard to take them back again.

 Another effect of such a distortion of the market process between Italy and Russia is the lack of information sharing between producers and the government. The former are not involved in the decision-making process and the production is not encouraged as a released counterweight against their losses. In some cases, a reduction or temporary suspension of production is erroneously applied to specific goods not involved in the spiral of sanctions.

 Renzi’s renewed interest in taking a largely favorable and responsible attitude towards Russia in the Union is quite understandable. Strong internal pressure and feelings of disapproval pervading Italian entrepreneurs and right-wing political representatives characterize domestic politics and, for the very first time, Renzi is about perceiving it effectively.

No particular tension is therefore perceived in Italy around him so far as his firm claim could allow the opportunity to adopt a strategic posture and provide bilateral cooperation with Russia with new inputs. Conversely, it is rather hard to determine which is more surprising, whether his unprecedented determination upon a debate or his inability to put his determination into effect and work it in practice at the European Council.

It is clear that Italy’s request for assessing the state of the Minsk protocol before taking action has a twofold purpose. On the one hand, it involves the strong internal pressures and the need to resume huge benefits to the Italian companies suffering due to a even less attractive regime of sanctions. On the other hand, it also discloses a political attempt to improve the country’s leverage capability within the EU and endorse a reversal process within the Union.

Whether Renzi employed the strategy of impressing the EU or wanted to boost his own political profile, the unexpected request for further discussion of sanctions may open the way to future expressions of divergent positions on the subject of relations with Russia. It may also create stronger reactions in the future from Italy, Austria, Greece, Cyprus and Hungary.

Although it’s unlikely that the Italian government will undermine or disrupt the sanctions regime in the near future the end of the sanctions regime clearly has political relevance to Italy and, as long as it is at play, the country needs to keep an eye on EU trends and prepare for long-term economic consequences.

In addition to economic motivations, geopolitical considerations may also explain Italy’s position. In the light of current events in Syria and Libya, Italy calls for broader cooperation with Russia for a joint strike against ISIS. A possible mission to Libya could also present an opportunity to put the country’s own interest ahead of Washington and Brussels’ schemes and lead the international diplomatic push for a unity government there, a move that could be backed by Moscow backed by Moscow.

The fact that EU-Russia trade and Italian exports have both sharply decreased and 215 thousand workers were laid off means that economic sanctions are simply a political weapon and not a meaningful strategy. Similarly, the Minsk Protocol hardly represents the means to engage Moscow, but it facilitates hostilities between Western countries and Russia, Russian political isolation and internal division within the EU.

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