SANCTIONS AGAINST RUSSIA WILL HURT THE EU

Just as the EU is trying its best to revive a stagnant economy, attempting to mend a fragile debt market and tackle high unemployment, sanctions against Russia will hurt the economies of major EU member states such as Germany,  Britain, Italy, Holland and France  with Germany being hit the hardest.

As a block, the European Union exports about € 100 billion worth of goods and services to Russia and takes in roughly € 200 million of the latter's imports.

Germany

For Germany, curtailed trade with Russia could really bite. Germany is Russia’s biggest European investor, with German companies pouring in over € 16 billion last year. Last year, Germany and Russia had trade in goods of close to €77 billion . Russia primarily supplies petroleum and natural gas to Germany. Germany, on the other hand, exports mechanical engineering products, medicines, trains and automobiles to Russia. Some 300,000 German workers depend on Germany's trade with Russia for their livelihoods. Sectors like the automotive industry, defense and engineering which have haemorrhaged jobs since the 2008 crisis would be hit hard once again.

More than 6,000 German companies are registered in Russia and, together, they have invested €20 billion in recent years. German chemical giant BASF has holdings in Siberian gas fields and Russian gas monopoly Gazprom obtained natural gas storage facilities in the state of Lower Saxony in exchange. German retailer Metro wanted to take its Russian subsidiary public this year, but the plan is now imperiled. Volkswagen also wants to invest a further €1.2 billion in the expansion of its Russian plants. It is now uncertain whether this will happen. Germany's state-owned KfW development bank had planned to sign a contract together with Russia's government-held VEB bank for a €900 million investment initiative on behalf of mid-sized companies, but the German side cancelled the event at the last minute.

United Kingdom

The UK provides minor military hardware and sells cars to Russia. However if the EU hits Russian state-owned banks, London's financial centre would suffer. Russian companies are well represented on the London Stock Exchange, and UK Trade and Investment market. London is also a prime destination for Russian businesses, and Russian oligarchs are major property owners in Britain. The energy sector could also be hit.

Italy

Italy will be seriously hurt by further sanctions against Russia. The country is currently attempting to boost its economy and attract foreign investors, particularly Russians. Italian goods sell well in Russia, many Russian tourists go to Italy for holidays, and so the Italian government is reluctant to implement further sanctions against Moscow.

Netherlands

The Netherlands will also be affected if broader sanctions against Russia are implemented. The Netherlands is the largest single recipient of Russian exports  9.2 percent in total. Outside of the EU, Russia is the biggest Dutch market for flowers. In 2011, imports from Russia to the Netherlands amounted to € 16 billion and exports to Russia amounted to € 6 billion.

France

France is Europe’s largest supplier of arms to Russia. The billion euros contracts for Mistral warships, keeps some 1,000 people employed in a country with a 10% unemployment rate.  

Boomerang Effect

Should Russia cut its gas to the West in response, the loss in European production would more damaging than the hit its trade balance would take. It is unlikely that punitive measures would go unanswered by Russia. Russia may expropriate foreign companies doing business in the country, freeze bank accounts held in Russian banks as well as seizing assets.

EU Positions on tougher Sanctions Against Russia

1. Pushing Towards (United KIngdom, Netherlands, Denmark, Sweden, Czech Republic, Poland, Estonia, Latvia, Lithuania)

2. Most Reluctant (Portugal, Spain, Austria, Hungary, Bulgaria, Greece, Cyprus, Luxembourg, Italy, Malta)

3. Undecided (Ireland, France, Belgium, Germany, Slovakia, Croatia, Slovenia, Romania)

Possible EU Options

1. Cut off Russian bank finance: This option is the centerpiece of a proposal crafted by the European Commission in Brussels and circulated to national capitals. Specifically, it would ban all citizens of EU countries from purchasing new debt or stock issues by most of the Russian banking sector. The plan also proposes to bar Russian banks from listing new stocks on European stock exchanges, using those exchanges as an intermediary to raise funds from non-Europeans. The banks targeted would be those firms that are at least 50 percent owned by the Russian state which include the majority of the Russian banking system by assets. European markets account for about half of the total bond issuance of Russian banks, so the impact on the Russian banking sector and on the broader Russian economy would be dramatic.

2. Embargo Russia's arms trade: Many countries would like to see France refuse the delivery of Mistral helicopter carrier ships that Russia has ordered. France would prefer not to lose out on business worth over $1 billion. The Commission document notes, however, that Europe could hit Russia in the other direction. While the EU exports €300 million a year in weapons to Russia, EU countries import about €3.2 billion in Russian-made equipment. Those imports mostly go to former Warsaw Pact countries such as Poland, whose militaries have a legacy of using Russian arms.

3. End exports of energy equipment: The Commission proposal calls for Europe to halt the export of certain categories of equipment and technology that are used in fossil fuel extraction. The Commission would not target the natural gas sector, but does call for restrictions on the sale of equipment used in deep-sea drilling, arctic exploration, and shale oil extraction.

4. Block sales of dual-use technology: Possibility of curtailing the €20 billion market in the export of "dual use" technologies from Europe to Russia. These are technologies that have both civilian and military applications, such as certain microchips or precision tools. The Commission proposal especially focuses on €4 billion worth of "highly sensitive" equipment including "high-performance computers and electronics."