27th Oct 2016

German central bank: Russia has more to lose than we do

  • The German central bank (Photo: Bundesbank)

German central bank chief Jens Weidmann said on Tuesday (25 March) that Russia has more to lose than Europe if economic sanctions are imposed over its actions in Ukraine.

"The escalation of the conflict has resulted in massive capital outflows, to a significant fall in value of the Russian ruble and to a rise in financing costs," Weidmann told foreign journalists in Berlin.

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He downplayed the impact of possible economic sanctions, noting that "even in case of a serious downturn of the Russian economy, there will be only a limited impact on the economic performance of the eurozone and of Germany."

Weidmann noted that the exposure of eurozone banks to Russian customers is of €77 billion, or two percent of their overall lending operations, with Russia having "about the same importance as Poland or Turkey."

According to calculations made by Bruegel, a Brussels-based think tank, the cost of replacing Russia's total gas exports to EU's 28 member states would take €36.5 billion out of the Russian economy, equivalent to 2.2 percent of its GDP. For the EU, the cost of replacing Russian gas supplies with Norwegian, North African, Dutch and more LNG imports would amount to €10.8 billion, or 0.08 percent of the EU GDP.

Meanwhile, speaking in the Hague the same day, US president Barack Obama admitted that "some particular sanctions would hurt some countries more than others."

“But all of us recognise that we have to stand up for a core principle that lies at the heart of the international order,” he added.

Obama also painted Russia as less important than it thinks it is.

"Russia is a regional power that is threatening some of its immediate neighbours not out of strength but out of weakness," Obama said.

"They don’t pose the number one national security threat to the United States."

Also in the Hague, German Chancellor Angela Merkel warned of the consequences of Russia's actions at a time when other countries are considering to give up their nuclear weapons.

She pointed to a 1994 memorandum signed by Russia, the US and the UK guaranteeing Ukraine's territorial integrity in return for Ukraine giving up its nuclear arsenal, at the time, the third largest in the world.

"The fact that Russia has violated this territorial integrity to such extent is for sure a very bad example on international stage. I hope it sets no precedent. But the danger is there," Merkel said.

Russia's stock markets have fallen by 4.5 percent since the news of EU and US sanctions.

But Russian President Vladimir Putin has ridiculed the move, saying he will open up an account at Rossyia Bank, which was put on the US sanctions list.

In retaliation to Visa and Mastercard refusing to do business with cardholders of Rossyia Bank, a bill was introduced in the Russian parliament banning transaction services based outside Russia. This means that Visa and Mastercard will no longer be able to service any customers in Putin's domain.

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