Could the EU Division on the Extension of Sanctions Lead to Their Lifting?

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Valeria Pozzessere

Research Assistant at the European Caucasus House

A far more contentious decision than two years ago is due to be made in July on whether to leave target economic sanctions against Russia in place. Compared with the full unanimity expressed by all the 28 EU members since their introduction, the latest decision on the automatic extension of sanctions came with a major debate paving the way to an internal division within the EU.

Consistent with this, we observe a common decision gradually fading away. Notably, a common position entails a shared perception of risks and a shared strategy to be adopted towards Russia, but this is apparently no longer the case and the EU countries currently show a lack of unity on these issues.

For an increasingly larger majority of countries, including Italy, Austria, Greece, Slovakia and Hungary, it will be an even tougher call to agree upon an extension, particularly because they have a first-hand experience of economic and trade consequences of it. Whereas others consider it a necessity and still attach so much political significance to target sanctions, relying on the fact that no progress has been made by Russia in finding a solution over the crisis in Ukraine and that the Minsk Protocol has not been fully implemented yet, the the opposition argues that sanctions should not be used as a means of deterrence and punishment against Moscow. Their current disapproval does not see these measures as a means to a cohesive end but an unsuitable goal.

In principle, sanctions are imposed to generally depress the Russian market. The strategic effects of these restrictions are pretty visible in the Russian economy and demonstrate that these kinds of measures only have the desired effects when operating in the long-term. It is interesting to note here that the effects of sanctions hardly conform to the linear expectations of the outcome. As a response to EU sanctions, Moscow responded by imposing a trade ban on a wide range of food imports, creating the conditions for a market crisis in several EU countries. The situation was somehow favorable enough for Russia to pursue import substitution and allow the introduction and distribution of sounding products, also excluding EU companies and firms from invitations to tenders.Italy, Austria, Greece, Slovakia and Hungary having come to the conclusion that countermeasures may have irreversible effects on their national economies, openly contest sectoral sanctions targeting cooperation and exchanges with Russia, as laid down in Council decision 2014/512/CFSP and Council Regulation 833/2014 concerning restrictive measures in view of Russia’s actions destabilizing the situation in Ukraine. Essentially, these two provisions, aiming at prohibiting export trade, restrain EU businesses and individuals from engaging in contractual relations with specifically listed governmental entities and Russian state-owned companies and banks, and also from providing them access to European financial markets. Chemicals, car industry, food industry are the areas with a significant export quota that suffer the most from the export ban. These five countries appeal against measures that lead to the shrinkage of trade in a wide a range of industries.

Back in December 2015, Italy managed to hold up the renewal of sanctions by a few days before the European Council (Why Did Italy Request a Review of Anti-Russia Sanctions?). Opposing the Nord Stream route in an attempt to draw attention to Germany’s double-dealing with the EU on sanctions and with Russia on the pipeline, the Italian government hesitation was a striking fact that highlighted the deterioration in food exports to Russia. Likewise, this situation creates a lot of uncertainty and confusion in Greece, where food export has been significantly discouraged. The country’s ambition to be part of Europe is still strong, but it is unlikely to be able to confront any further negative development in its friendly relationship with Russia. Therefore, in the attempt to avoid to stand by in a passive contemplation of events, Greece’s opposition to sanctions can be seen as a great deal of effort to accommodate an agreement and not to consent a defaulcy and such a scenario that puts the country in trouble financially.

A curious fact is that Austria recently allowed sanctioned Russian parliamentarians to enter the country for attendance of an OSCE PA session. Whether this is an early evidence of the country becoming a Eurosceptic, there can be no doubt that Austria is reluctant to have geopolitical games interfere with its economic growth. Austria openly declares itself supporter of bilateral relations with Russia and, as a consequence, distances itself from the EU imposition of automatic sectoral sanctions. For Austria the energy industry matters the most when it comes to relations with Russia and the longer sanctions are in place the more risks its economy is exposed to. To that end in 2014, Austria supported the project of building the Hungarian section of the Russian South Stream natural gas pipeline despite EU’s objections. The project represents the promise of the preservation of the fruitful bilateral relations with the Russian neighbor outside the EU framework.

The European Union is being increasingly split into two camps. The pro-sanctions group of states is backed by the US that declares Russia a threat to international security. The US has recently taken a unilateral decision to extend sanctions for another 12 months, whose content is prescribed in the Executive Orders 13660, 13661, 13662 and 13685 on blocking properties of certain (additional) persons contributing to the situation in Ukraine and prohibiting certain transactions with respect to the Crimea region of Ukraine. Accordingly, US banks cannot process payments and transactions of US citizens who invest and do business in Russia and Crimea or operate as an intermediary in business deals with targeted individuals or companies.

Regardless of what opinion EU countries may have, there is no other option but seeing this as an attempt by the US to exert pressure on EU decisions. The US Administration has probably figured out that the EU is divided. If the European states do not eventually agree to automatically extend sanctions against Russia, the US has a second option, which is imposing new measures against Moscow for its alleged violation of the Intermediate-Range Nuclear Forces Treaty.

Taking into consideration that Russia considers the fulfillment of the Minsk Agreement a responsibility of Ukraine it is hard to imagine how this conundrum could be resolved. Most likely, the EU should envisage a new kind of security architecture and suggest a new practicable EU common action.

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