PUNISHING RUSSIA WILL TRIGGER A CHAIN REACTION

European member states have agreed the wording of sanctions on Russia, including travel restrictions and asset freezes against those responsible for violating the sovereignty of Ukraine. The measures are being coordinated with the United States, United Kingdom, Canada, Italy, France, Germany, Poland, Switzerland, Turkey and Japan, in an effort to ensure the sanctions net is as tight and effective as possible.

Article 1: "Member states shall take the necessary measures to prevent the entry into, or transit through, their territories of the natural persons responsible for actions which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine"

Article 2: “All funds held in the European Union and economic resources belonging to, owned, held or controlled" by those responsible for actions which have undermined Ukraine's integrity "shall be frozen".

If negotiations with Russia don’t take place in the next days then the EU Foreign Ministers will at their Council meeting next Monday, March 17, seal further second-stage measures. That includes bars on travel, freezing bank accounts and cancellation of the EU-Russia summit.

It is clear that such measures could lead to a dangerous chain reaction that would be difficult to control. Indeed sanctions would lead to retaliatory action and that would trigger a spiral with unforeseeable consequences. Russia will not accept the language of sanctions and threats. Moscow has vowed to retaliate if sanctions are imposed but, overall, Europe has less to lose than the Russians in any tit-for-tat economic conflict. European exports to Russia represent only 1% of the bloc’s GDP but Russian exports to the EU count for 15% of Russia’s Gross Domestic Product. A trade war between Brussels and Moscow would result in a rise in energy prices in Europe, by 15% for gas and 10% for oil. All in all, the eurozone’s GDP would decline by 1.5% between now and 2015. But, for Oxford Economics, the biggest loser would be Russia with a fall in the rouble accompanied by a leap in inflation. In the event of an embargo on 80% of Russian gas and oil sales, Russia’s GDP would shrink by 10% by the end of 2015. The fact remains, however, that among the 28 EU member states, some have more to lose than others. Germany is highly dependent on gas coming from Russia also through the Ukraine. Also many German companies have invested in Russia. No less than 31% of Germany’s gas and 35% of its oil comes from Russia. Some 6,000 German businesses are established there and 200,000 jobs in Germany depend on trade with Russia.