EU blacklists more Russians, prepares economic sanctions

24.07.14 @ 20:55

  1. By Valentina Pop
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BRUSSELS - EU ambassadors in a marathon meeting on Thursday (24 July) added 15 more individuals, nine companies and nine institutions from Russia and east Ukraine to an existing blacklist of 72 individuals and two firms linked to the annexation of Crimea.

  • EU sanctions are getting closer to Putin's inner circle (Photo: malyousif)

The names will be published on Friday afternoon in the bloc's Official Journal.

They are expected to include eastern Ukrainian separatists believed to be responsible for the downing of the Malaysia Airlines plane - a disaster which killed 298 people, mostly EU citizens.

The ambassadors also agreed to change the legal parameters of the blacklist, so that cronies and oligarchs close to Russian President Vladimir Putin can be designated in future.

The day-long meeting also looked at a raft of economic sanctions proposed by the European Commission, which could be adopted next week if Russia does not change course on Ukraine.

Ambassadors were set to continue their talks on Friday on the economic sanctions front.

According to an EU diplomat: "it was not foreseen for them to agree today and it is an acceleration that they meet tomorrow."

The sanctions, according to an EU commission paper seen by EUobserver, should be effective and respect a cost/benefit ratio - meaning they should have a considerable impact on the Russian economy but should also take into account "adverse impacts on the EU economy from Russian retaliations".

They are to be evenly spread across sectors and member states, as financial sanctions primarily hit the City of London, while defence sanctions are mostly to be felt by France, which faces a cost of €1.5 billion in penalties if it breaches a contract to deliver two warships.

For its part, Germany insisted that all sanctions should be "legally defensible" and easy to implement, as well as "reversible" if Russia does change its mind.

The proposed sanctions revolve around making Russian state-owned banks and companies more fragile by restricting their access to capital markets.

In 2013, the paper reads, almost half of all bonds issued by Russian state-owned banks were issued in the EU (notably the UK) - €7.5 billion out of a total of €15.8 billion.

"Restricting access to capital markets for Russian state-owned financial institutions would increase their cost of raising funds and constrain their ability to finance the Russian economy, unless the Russian public authorities provide them with substitute financing. lt would also foster a climate of market uncertainty that is likely to affect the business environment in Russia and accelerate capital outflows," the commission paper says.

Businesses in Russia would be hurt by a hike in interest rates and fewer avenues of funding, while the direct negative impact on the EU would be "limited and concentrated in jurisdictions with high levels of financial intermediation" - an allusion to the City of London.

"Other jurisdictions such as Switzerland, Singapore, Hong Kong or Tokyo would only provide significant substitution capacity over time, but they could not fully compensate for the loss of EU and US investors," the paper adds.

As for a possible arms embargo, it could be introduced for the "whole defence sector, applying to all the products listed in the EU common military list."

Russia has €3.2 billion worth of exports at stake, which could hit eastern member states who still own Soviet-era jets and military technology which needs spare parts from Russia.

Export licences - such as France's Mistral warships - are a national competence and the EU commission notes that some member states have suspended them.

France may still go ahead with its Mistral sale, as the commission says it is a "political decision" by member states if the ban should apply only to future or also to existing contracts.

"There are a number of options to deal with the issue, such as a clause of safeguard for the execution of contracts signed before a certain date, which could be equally applied to both exports and imports and to spare parts and servicing for existing equipment," the paper notes.

A harder-hitting sanctions than the arms embargo would be a ban on so-called dual use technologies and goods produced in the EU, which can also have a military purpose.

Russia imports €20 billion worth of these dual use items, such as high performance computers and electronics or special materials.

In addition, the EU may halt exports high-tech goods Russia needs for oil and gas exploration or steel production, with the US expected to co-ordinate and impose a similar ban.

"The possibility for Russia to substitute such products and technologies originating from the EU or US is low in view of the likely unavailability of similar products (of similar degree of sophistication and quality) elsewhere," the paper says.