EU split on maintaining Russian sanctions

(Business New Europe – bne.eu – Ben Aris in Moscow – January 16, 2015) With European growth faltering, and mounting fears of a total meltdown of the Russian economy that no-one wants, the European Union’s commitment to sanctions on Russia is wavering.

At least eight EU countries are reported to be against renewing EU economic and financial sanctions when they automatically expire between May and June this year.

The discussion is also likely to continue at the G7 meeting in June where Germany and Japan are expected to clash with the US, calling for an easing of sanctions while Washington is expected to argue for leaving them in place.

France has been the most vocal in the call for an end to sanctions on Russia, which is now under severe economic pressure because of crashing oil prices. Brent crude prices dropped to below $45 per barrel on January 15 from over $100 for most of last year.

French President Francois Hollande floated the prospect of scaling back sanctions on Russia on December 19, becoming the first major European leader to offer to ease the Kremlin’s economic pain.

Most recently the EU’s foreign policy chief Federica Mogherini suggested that the EU should restart trade and finance with Moscow, in a policy paper that was leaked to the press on January 15.

While Brussels said last year trade between the Customs Union and the EU was incompatible (mainly because of differences in quality norms) the same is not true for the EU and the Eurasian Economic Union (EEU), the Customs Union’s successor which came into being on January 1.

Mogherini’s paper is due to be discussed at a meeting of the EU foreign ministers in Brussels on January 19. The paper suggests that the sanctions strategy towards Moscow should be complemented with a “more proactive approach” to make Russia change its policy on Ukraine, reports Reuters, which got hold of a copy of the paper.

Amongst the more notable language was talk of “a common aim of free trade from Lisbon to Vladivostok,” which echos Russian President Vladimir Putin longstanding call for the creation of a “Greater Europe” that encompasses the entire Eurasian continent, a central long-term Kremlin foreign policy goal. The creation of the EEU is specifically designed to build the eastern half of this trade bloc, which would eventually be integrated (if not actually merged) with the EU trade bloc.

“There are significant interests on both sides, which may be conflicting but could serve as a basis for trade-offs and could imply a give-and-take approach,” the paper reads, reports Reuters.

Mogherini also conceded in the paper that part of the reason the EU needs to make up with Russia is the West needs help with solving a long list of other international problems where Russia enjoys significant influence, including Syria, Iraq, Libya, Iran, North Korea, Palestine, as well as the fight against the deadly Ebola virus.

The argument will likely be aired in public at the G7 meeting to be hosted by Germany in June. Russia has pointedly been excluded from the meeting: there is no chance that Russian President Vladimir Putin will be invited to the next meeting of G7 leaders, German Chancellor Angela Merkel said on January 15. However, Germany and Japan, which is also a major importer of Russian gas, are both expected to champion calls for a compromise and for easing of sanctions on Russia.

Germany has taken a tough line, with Merkel calling the annexation of Crimea “a blatant violation of the principles of international law, and the events in eastern Ukraine are serious violations of [EU] common values”. She has repeatedly said that until there is real progress in enforcing a ceasefire in eastern Ukraine, and a withdrawal of Russian support for rebels there, sanctions will remain in place. However, provided Putin can deliver on these requirements, the EU is signalling it would be willing to start unwinding the restrictions on Russia.

The US is being more intransigent. Kyodo reported G7 sources as saying: “The United States told the Berlin session that the G7 must ensure coordination to prepare for a possible invocation of new sanctions, calling for continued EU and G-7 sanctions on Russia”.