OPPOSITION TO RUSSIAN SANCTIONS AND ECONOMIC COSTS

A number of EU member states and business sectors have shown a stronger preference than others to lift the sanctions. Russia has strong historical and cultural ties with the Balkans and continues to count on political support from Serbia, Montenegro, Bulgaria, Greece and Cyprus. Visegrad countries in Central Europe are more divided, particularly as their economic ties to Russia place pressure on them to adopt a more conciliatory approach. Poland tends to take a harder line, with Czech and Slovakia showing more mixed stances. Hungary has traditionally adopted a stronger pro-Russian stance, which is currently concentrated among Prime Minister Viktor Orbán and his Fidesz party as well as the far right party Jobbik. France and Italy have traditionally been key sites of Russian influence in Western Europe, in part due to the role of Communism in intellectual circles and a lack of direct economic dependency on Russia.  In Italy, Moscow counts on the support of the Northern League. In France, pro-Russian sentiment has been expressed by a number of French politicians and members of Les Républicains party have close Russian business ties (particularly in defence, investment and communications).

Officials in several EU countries have voiced considerable opposition to the renewal of sanctions against Russia. This has included the Slovak and Italian Agriculture Ministers, the Hungarian Prime-Minister, the Greek Prime Minister, the Austrian Vice-Chancellor and President, the Slovenian Foreign Minister, parts of the German Social Democratic Party, as well as parts of France’s Les Républicains and the Front National.

Opposition to the EU’s sanctions on Russia is concentrated among specific sectors and among businesses and business associations with economic interests in the country, particularly those linked (both directly and indirectly) to the energy industry and manufacturing. Nord Stream AG (joint stock with Russian, German, Dutch, and French shareholders) and British Petroleum have called on Brussels to hold off tougher sanctions against Russia.

Associations of companies with business interests in the former-Soviet region, such as BDEx or Ost Ausschuss der Deutschen Wirtschaft (Committee of Eastern European Economic Relations) in Germany have lobbied the German government and European Commission to avoid the prolongation of measures against Moscow.

Analysis of nominal values confirms that the largest losses in absolute terms were suffered by Germany (EUR 14 billion less in exports in 2015 than in 2013), Italy (EUR 3.6 billion), France, Netherlands and Poland (around EUR 3 billion). These figures are not surprising as these countries are among the EU’s biggest exporters to Russia. In absolute terms, Greece, as prominent opponent to renewed sanctions on Russia, ranks (in 22nd place) as one among the least affected, and has actually increased exports to Russia in some areas, along with Luxembourg and Sweden. In relative terms, Malta, Cyprus and Denmark were most affected during the period under reference and Slovenia, as a somewhat vocal opponent to renewed EU sanctions on Russia, lost the lowest of any EU member state (at -27.65%), followed by Luxembourg, Romania and the UK. Italy also lost a comparatively low 34.01%.

Analysis on the relative weight of exports to Russia of each member state in 2013-15 indicates that five countries are substantially interconnected with Russia (Latvia, Lithuania, Estonia, Slovakia and Finland), while others have very limited trade with the country (Ireland, Malta, Portugal, the UK and Cyprus [since 2014]). This highlights variation between costs borne by EU member states and their foreign policy stances towards Russia sanctions. For instance, only a fraction of Italy’s exports is destined for Russia, and yet its government has been vocal in its opposition to the measures at various times. At the same time, Baltic countries tend to be more in favour of maintaining sanctions on Russia, despite being most interconnected in trade terms with Russia.

Possible Scenario

1. Easing in the absence of compliance, or following concessions in unrelated fields: This scenario foresees a situation that takes two possible routes.

In Option 1, the pro- and anti-sanctions camps agree on a partial lifting of the measures by way of compromise, despite no sign of compliance by Russia. Those opposed successfully call for the removal of sanctions that affect their economies negatively and lobby for the de-listing of those officials and businesspeople from whom they expect to extract benefits. By contrast, they display less opposition to the maintenance of measures that do not affect their economies.

In Option 2, alteration of the sanctions package is prompted primarily by the need to reciprocate concessions made by the target in a different domain, such as the Syria crisis. It presupposes a previous process of successful negotiation with the target, or at least some major step in progress in an unrelated and politically-important and difficult domain.

Partial lifting can take place in several forms, even in the absence of any signs of compliance by the target. The easing can be agreed in reward for cooperation in unrelated domains, and as a first step in a phased lifting of the package.

2. Phased lifting in response to partial compliance

Under this scenario, the EU negotiates the easing of some of its bans in return for bite-sized concessions on the part of Russia in the form of progress towards compliance with Minsk agreements. The lifting is typically gradual, and is preceded by one or two rounds of suspension.

It represents a compromise solution between opposing camps in the EU and could deliver results when more ambitious aims have reached a stalemate

This scenario maintains the credibility of the sender vis-à-vis domestic audiences and third parties, while it opens opportunities for European companies to resume business with the target, and assuages those EU Member States most opposed to sanctions renewal. It also allows Russia to negotiate concessions without being seen to ‘lose face’ among domestic audiences. Negotiation of the sanctions’ lifting with Russia would likely include reciprocal easing of the Russian ban on perishables, despite the boosting effect that this measure has had on the Russian agricultural sector.

Final Remarks

Anti-Russian sanctions have cost workers and businesses millions of jobs and earnings. Loss in business for Europe has been estimated at over € 100 billion and up to 2.5 million in jobs. Germany, Europe’s biggest economy with the largest trade links to Russia has suffered most from the sanctions rift (€ 30 billion according to the Austrian Institute of Economic Research). In one German state alone, Saxony-Anhalt, exports to Russia have been slashed by 40%, with the loss of € 200 million to the state.

The EU has been reviewing its sanctions policy on Russia every six months since 2014. To extend the measures, a unanimous decision is required among all Member States. It looks increasingly unlikely that the EU will maintain its hitherto unanimity. The policy of anti-Russian sanctions is tantamount to the EU cutting off its nose to spite its face. The EU’s trade war with Russia is simply becoming untenable. It is an ideologically driven and dubious antagonism that the EU can ill-afford.

It can be safely assumed that if Brussels were to end the sanctions, then Moscow will respond in kind to promptly resume normal trade with the EU.