Saturday

20th Jul 2019

Multi-billion losses expected from Russia sanctions

  • The jury is still out on the economic impact of Russia sanctions on Europe (Photo: guysie)

EU diplomats on Monday (28 July) are to pour over the legal texts drafted by the EU commission for imposing sectoral economic sanctions on Russia for its role in the Ukrainian conflict. The sanctions are expected to be approved on Tuesday.

According to an EU source familiar with the legal texts, the economic effect of the sanctions will hurt the Russian economy by €23 billion this year (1.5% of its GDP) and €75 billion in 2015 (4.8% of its GDP).

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

The Economist meanwhile has calculated that the pain Russian firms will suffer from these sanctions could go up to one trillion US dollars (€744bn).

But the EU will also be hurt by the capital markets restrictions and trade bans for defence, high technology and goods that can be used both for military and defence purposes.

The EU commission expects the EU to lose €40 billion (0.3% of GDP) this year and €50bn in 2015 - the equivalent of 0.4 percent of the EU GDP - as Russia is expected to retaliate with trade bans of its own against EU countries, the source said.

This has already caused concern in southern member states - notably Russia-friendly Italy - where economic growth is meagre and recession may kick in again due to the Russian sanctions regime.

At a meeting of EU ambassadors last week, the southern countries called on the EU commission to take into account the sanctions fallout when it evaluates how they stick to deficit and debt rules.

Germany, who so far was reluctant to endorse wide-ranging economic sanctions, is bracing itself for the fallout, too.

German foreign minister Frank-Walter Steinmeier told Sueddeutsche Zeitung over the weekend that "after the death of 300 innocent people" and the "undignified actions" of pro-Russian rebels believed responsible for shooting down the MH17 plane, Russia "gave no other option" than to impose economic sanctions.

He told another paper, Wirtschaftswoche, that the German economy will suffer only to a limited degree from these sanctions.

But the Committee on eastern European Economic Relations, a German business lobby representing firms active in Russia, has estimated that the sanctions would threaten 350,000 German jobs that depend directly on German-Russian trade, which totals €80bn a year.

The head of this committee, Eckard Cordes, last week however endorsed the stepping up of sanctions, even if it will hurt the German economy.

For its part, Russia has given no signs of wanting to change course over the threat of broader economic sanctions.

"The current sanctions will not have a macroeconomic effect, it is a problem for specific companies," said senior Kremlin advisor Andrei Belousov, quoted by Russian newswires.

The Russian economy expanded by 1.3 percent last year, with the Washington-based International Monetary Fund projecting a much lower 0.3 percent growth this year due to the sanctions.

But Wolfgang Munchau, a German columnist for the Financial Times, warned of the near-impossibility to accurately predict the fallout of economic sanctions.

"Forecasters have a hard time putting shocks – including sanctions – that are hard to measure into their models. We know the large-scale economic forecasting models used by international institutions perform badly during and after financial crises. In a situation like this, they are hopeless," he wrote.

"The correct answer on the question of Russian growth is not “0.2 per cent” or some other number. It is “Don’t know”," Munchau added.

Another thing to consider is Russian resilience to economic hardships.

Philipp Missfelder, an expert on foreign relations from Angela Merkel's Christian Democrats, said sanctions are no ultimate solution.

"Sanctions cannot replace a political solution. Russia has the potential to endure them for a long time and to tighten its belt. We should therefore not believe that sanctions are a panacea," Missfelder told Deutsche Welle.

EU to hit Russia with economic sanctions next week

The EU is set to impose economic sanctions on Russia next week. Meanwhile, southern member states want the European Commission to consider any blowback effect when it assesses national deficits.

Obama, EU leaders agree on Russia sanctions

The leaders of Britain, France, Germany, Italy and the US held a conference call on Monday and agreed to impose economic sanctions on Russia as it continues to support the war in eastern Ukraine.

Russia in sanction threat against EU

Russia may restrict or impose a ban on Asian-bound European airlines from flying over its Siberian territory as part of a retaliatory move against western-imposed sanctions.

Feature

Romania enlists priests to promote euro switchover plan

Romania is due to join the single currency in 2024 - despite currently only meeting one of the four criteria. Now the government in Bucharest is enlisting an unlikely ally to promote the euro to the public: the clergy.

Trump and Kurz: not best friends, after all

The visit of Austrian chancellor Sebastian Kurz to the White House on Wednesday showed that the current rift in transatlantic relations is deepening by the day.

Stakeholders' Highlights

  1. UNESDAUNESDA reduces added sugars 11.9% between 2015-2017
  2. International Partnership for Human RightsEU-Uzbekistan Human Rights Dialogue: EU to raise key fundamental rights issues
  3. Nordic Council of MinistersNo evidence that social media are harmful to young people
  4. Nordic Council of MinistersCanada to host the joint Nordic cultural initiative 2021
  5. Vote for the EU Sutainable Energy AwardsCast your vote for your favourite EUSEW Award finalist. You choose the winner of 2019 Citizen’s Award.
  6. Nordic Council of MinistersEducation gets refugees into work
  7. Counter BalanceSign the petition to help reform the EU’s Bank
  8. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  9. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  10. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  11. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat
  12. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North

Latest News

  1. EU goes on holiday as new UK PM arrives This WEEK
  2. Survey: Half of EU staff 'don't know' ethics rules
  3. Von der Leyen signals soft touch on migrants, rule of law
  4. Timmermans: von der Leyen will be tough on rule of law
  5. Timmermans trolls 'idiot' Brexit negotiators
  6. Rudderless Europe: Will real Germany please stand up?
  7. PiS & Fidesz claim credit for von der Leyen victory
  8. Von der Leyen faces gender battle for commission posts

Stakeholders' Highlights

  1. Nordic Council of MinistersLeading Nordic candidates go head-to-head in EU election debate
  2. Nordic Council of MinistersNew Secretary General: Nordic co-operation must benefit everybody
  3. Platform for Peace and JusticeMEP Kati Piri: “Our red line on Turkey has been crossed”
  4. UNICEF2018 deadliest year yet for children in Syria as war enters 9th year
  5. Nordic Council of MinistersNordic commitment to driving global gender equality
  6. International Partnership for Human RightsMeet your defender: Rasul Jafarov leading human rights defender from Azerbaijan
  7. UNICEFUNICEF Hosts MEPs in Jordan Ahead of Brussels Conference on the Future of Syria
  8. Nordic Council of MinistersNordic talks on parental leave at the UN
  9. International Partnership for Human RightsTrial of Chechen prisoner of conscience and human rights activist Oyub Titiev continues.
  10. Nordic Council of MinistersNordic food policy inspires India to be a sustainable superpower
  11. Nordic Council of MinistersMilestone for Nordic-Baltic e-ID
  12. Counter BalanceEU bank urged to free itself from fossil fuels and take climate leadership

Join EUobserver

Support quality EU news

Join us