16 July 2014, 19:52

EU could have more economic links with Russia and China, not with the US - expert

EU could have more economic links with Russia and China, not with the US - expert
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A need to decide on fresh sanctions against Russia placed the EU between a rock and a hard place. With the US pressing hard for punishing Moscow over its alleged role in Ukraine, EU nations feel the step could affect their economic growth. Nine EU states, including France, Germany and Italy, indicated they would block the decision to impose more sanctions on Russia.

Says Eleonora Tafuro , Researcher at FRIDE think tank, Spain:

I think that the proposed sanctions are likely to be approved, although they are not like the phase three sanctions, they are not as tough as the phase three would require, because at the moment we have sanctions that only target individuals and not companies or other economic entities of the Russian economy. Some European media like the Financial Times have just leaked a draft of the proposed sanctions, and these proposed sanctions would indeed not only target individuals but also affect some of the investments and funds that the EU has in Russia. For example, all the projects that the European Bank for Development funds in Russia would be blocked; other funds that are parts of broader cooperation programs in Russia would also be withheld. These funds are not huge, we are talking about approximately three billion euro, so these sanctions would indeed have an impact on the EU-Russia’s relations, but they are not in absolute terms very big as they could be if they affected key Russian companies.

Could they produce some kind of effect on the EU economy?

They could, if Russia decided to retaliate. Russia and the European Union, especially some member states such as Germany or Italy, have very close economic ties. They do expect that these measures could have an impact on the relations.

Nine EU countries have indicated that they are opposing the sanctions.

Yes, it is true. Sanctions have always been a very hot topic, because, as I was saying, some European countries have very high stake and they are not willing to adopt very tough sanctions towards Russia. The nine states that you have mentioned reflect more or less the biggest trade partners of Russia. Apart from Italy and Germany, there is Slovenia, for example, or France, which is not very keen on passing to do the third phase of the sanctions, there is Cyprus. It is true that there are very important members of the European Union that oppose tougher sanctions. On the other hand, although it is true that there is active lobbying of the biggest German companies against the sanctions, Merkel has said she would in principle agree to have tougher sanctions provided that the situation in Ukraine worsens.

When we are looking at this issue which is really very complicated and which is likely to have certain impact both on the EU-Russia relations and on the state of the EU economy, does that imply that deciding to apply new sanctions, the EU would yield to American pressure?

It is true, that EU-Russia relations are very important and very likely to suffer setbacks from the sanctions. Today the Dow-Jones reported that the EU-Russia trade went down 13% in the first four months of this year. It is true that sanctions are having a very negative effect on the trade between the EU and Russia. It is also true that the US is pushing the EU to adopt that offered position. In this sense I can only say that it is very important, according to many member states, that adopting a common position with the US in order to have some sort of impact on the resolution of the Ukrainian crisis.

Do you think that the new sanctions are going to contribute to the resolution of the crisis?

This is a very tough question, there are broader questions on the effect of the sanctions. There are many studies that prove that sanctions in general can be contradictive. There are other academic studies that say that targeted sanctions, sanctions that affect only individuals like the ones that are in place right now are better to solve the crisis because they don’t affect the population and they are likely to affect only the elite and have a more effective, a more exceptive effect on the crisis. It is a very difficult question. I frankly don‘t know if the sanctions or the third phase of the sanctions would be effective, but I honestly think that the EU doesn’t have many other means to try to solve this issue. So, I think for the time being it is the only tool that we have, of course, apart from negotiations.

Dr. Richard Wellings, Deputy Editorial Director at the UK-based Institute of Economic Affairs:

… I don’t think we are going to see any major sanctions on big trade flows like energy import because that would be extremely counterproductive in terms of the EU own interests.

Actually any one of the major EU countries could effectively veto any collective sanctions. I mean this isn’t really in the EU competence in the sense some other areas are. Germany said, for example, we are not going to have this particular set of sanctions. They wouldn’t go ahead. At the same time there would be a lot of bargaining and trade and horse trading between the different countries. So, there will be sort of bargaining if one country does another country a favour in this respect, then there might be some other favour given in terms of some other aspects. The EU policy gets very complicated and very mixed in a lot of other debates within the European Union.

What could be the effect of sanctions on the European economy?

It’s very bad news, if the sanctions were to escalate. The amount of trade between the EU and Russia is very large – ten times the size of trade between the US and Russia, which means that the EU countries have a lot more to lose than America does from imposing hard sanctions. Trade with Russia has been a major source of growth for the last decade, this is a potential source of further growth for the future as well, whereas trade with America is much more stagnant, and the US power is really declining in terms of its relative weight in the global economy. In terms of the potential for future growth, this is very important.

One of the reasons the US might be pressing the EU to support more sanctions could be that those sanctions are actually weakening European economy giving the US more leverage in the US-EU trade agreement talks. Could that be one of the reasons?

There is an increased awareness of the machinations in the US geopolitical policy. For several decades now it’s been afearof the US that the American economy would become marginalized if there were to be an increased trade within Eurasia which, looking at geography, should be the world’s economic core. Looking at geography, North America, in particular, is a peripheral location in the global economy. If you remove some of the barriers within Eurasia, than the potential for that emergence of this major core is immense. That’s what we’ve seen recently – the changing patterns of world trade both with Russia and China are growing very rapidly and there are potentially more links between these countries – between the EU, Russia and China. That would than become the world’s major hub web with the US left on the margins. These long-term geopolitical strategies explain a lot of recent events. In a sense, the EU was quite naïve, responding to short-term events, not seeing this long-term picture – the big picture of the US strategy.

When you are looking at the new people at the helm of the EU, do you think that those politicians are going to possess enough stamina to fight for European interests and to oppose the American pressure?

Yes. Definitely, I think that parts of the German-centered clique within the EU, so they are going to tend to favour German interests rather than Transatlantic interests. Relations between Germany and the US are getting difficult, largely driven by these long-term economic forces, the US becoming less important to the Germany economy, Russia and China becoming a lot more important to the German economy and the Germans are also looking 10-20-30 years ahead, when this dicrepancy is likely to increase even further with Russia and China being far more important than they are today. That is going to drive the foreign policy as well. Germany is doing reasonably well within the EU, where some of the other countries are weak, particularly in Southern Europe, and that further strengthened Germany’s relative position and that is reflected in the recent appointments within the European commission.

How about the UK?

The UK is a very much part of the USA’s orbit. Looking at the history, one of the reasons why the UK was pushed into joining the EU was because it would a bridge between Western Europe and the continent of Europe and the USA, it would act as a go between the America’s representative within the EU. It is quite a difficult choice for the UK, because it either has to carry on being very close to the US even if in the longer term it means harnessing itself to a sinking ship, or it can start to reach out to some of the new global powers like the BRICS. But obviously the incentive to retain closer relations with America are much stronger for the UK than they are for Germany, particularly given the importance of the financial sector and trade between the two countries in that respect.

How do you see the situation in Europe is going to develop with the account of the Ukrainian crisis, those trade wars etc.?

I’m quite worried about how it is going to develop. There have been opportunities to de-escalate the situation in Ukraine and for whatever reason the Ukrainians and their international backers have chosen not to go down that path. It almost seems as if that regional conflict has been caught inside this wider geopolitical issues, in which case, it becomes quite worrying, because there could be reasons why certain interests would want to destabilize that part of the world rather than try to seek a peaceful solution that would bring economic stability.

Dr. Konstantin Kholodilin, DIW Berlin:

Do you think that the decision to impose more sanctions on Russia would actually be based on thorough economic analysis, or is it rather more of a political decision based on short-term reasons?

It can be, of course, the result of solid calculations, although I cannot speak for those who make these decisions. It can also be, to a large extent, dictated by the political attitudes. If you look at the distribution of the countries which are against sanctions, then you easily see that most of those who are for the sanctions have historically held negative attitudes to Russia, whereas those who are against the sanctions, are rather balanced, and the only thing that can contribute to their position is, in my opinion, economic interdependence with Russia, so that they are afraid that the sanctions can have negative impact on their own economy.

Until now they have been confining themselves to only symbolic actions, so all the sanctions that we saw before, were sanctions of a purely symbolic nature. They were centered to signal Russia that you don’t have to do something but they didn’t really cause any serious economic damage to the Russian economy. So, when it comes to economic sanctions that can be really dangerous both for Russian and European economies, then I think they will be much more careful, therefore, it is highly probable that they would veto this decision.

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