EU Widens Russia Blacklist, Stops Short of U.S. Economic Curbs

European Union governments blacklisted more Russian political figures over the annexation of Crimea, while moving more slowly than the U.S. in imposing wider economic sanctions.

An additional 12 officials were hit with asset freezes and visa bans, bringing to 51 the number of Russian and Ukrainian politicians and military commanders penalized by the EU so far. The EU, Russia’s biggest trading partner, said it will start to consider curbs on business and investment.

“Economic sanctions would follow any escalation,” French President Francois Hollande told reporters early today after the first session of an EU summit in Brussels. He said the EU will “draw up a list of targeted sanctions against major economic interests that can be implemented proportionately.”

The EU steps came hours after President Barack Obama banned a Russian bank and several of the Kremlin’s business allies, and hours before Russian President Vladimir Putin was set to complete the process of taking Crimea away from Ukraine.

Obama blacklisted 20 people including billionaire Arkady Rotenberg, once Putin’s judo partner, along with Bank Rossiya in St. Petersburg, which U.S. officials said has $10 billion in assets and is the 17th largest bank in Russia. The U.S. blacklist now numbers 27 people. The EU will announce the names of its new targets later today or tomorrow.

Putin’s Speed

Special trading relationships that several European countries have with Russia, coupled with the fallout from the debt crisis that came close to wrecking the euro, are frustrating a tougher response to the most serious threat to the European order since the Cold War. Sanctions require the agreement of all EU governments, a consensus-building process that can’t match Putin’s speed in mobilizing troops in Crimea, staging the secession referendum and moving toward annexation.

EU leaders appeared to draw a red line at an emergency summit on Ukraine on March 6 when they warned that “any further steps” by Russia to “destabilize the situation” would be met with broader sanctions that go to the heart of EU-Russia economic ties.

While the Kremlin has since pried Crimea away from Ukraine, the EU said today that Putin hasn’t crossed the destabilization threshold. Putin has balked at negotiating unless the West first acknowledges that Crimea belongs to Russia. Putin’s continued veto of an Organization for Security and Cooperation in Europe observation mission to Ukraine would lead the EU to start planning its own mission “in the coming days,” an EU statement said.

‘Targeted Measures’

The EU left open what sort of provocations or military actions by Russia would trigger the broader sanctions. The European Commission, the bloc’s executive arm, will weigh how to curb business, trade and financial transactions with Crimea and explore “possible targeted measures” against “all economic areas” in Russia, EU President Herman Van Rompuy said.

“We will not put all our cards on the table,” Van Rompuy said. “It’s up to us to decide when we trigger all this, but the preparations are ongoing.”

The EU also canceled a planned summit with Putin in Sochi, the Winter Olympics site, in June.

“They’re redefining and watering down the EU sanctions by delaying them,” said Joerg Forbrig, Berlin-based senior program officer for the German Marshall Fund of the U.S. “This certainly won’t stop the Russians from going further. They will in fact now be encouraged to go further.”

Russian Gas

European leaders also vowed to wean the EU off oil and gas imports from Russia, echoing a pledge made in 2008 after Russia invaded another neighbor, Georgia. The bloc relied on Russian suppliers for almost 32 percent of its gas imports and 35 percent of its oil imports in 2010, according to EU data.

This time, the leaders set a mid-year deadline for crafting a “comprehensive” plan to diversify energy sources away from Russia. Poland, which relies on Russian gas monopoly OAO Gazprom (GAZP) for about two-thirds of its consumption, wants a strategy to increase the bloc’s bargaining power.

“The EU should prepare for a probably long period of cold relations with Russia,” Polish Prime Minister Donald Tusk said.

Citizens of Germany, another Gazprom customer, worry that sanctions would come at a price. Some 58 percent would oppose higher natural gas prices, with 39 percent ready to brace for bigger bills, an Emnid poll for N24 television showed.

While sanctions have dominated the headlines, the EU also pledged to speed up its economic assistance. Leaders endorsed plans to add 1 billion euros ($1.4 billion) to a previously approved 610 million euros in budget support for Ukraine. The European aid would accompany an International Monetary Fund package that is being negotiated.

IMF Loans

The IMF, which has started and stopped two loans to Ukraine since 2008, said yesterday that it made “significant progress” toward a financial lifeline that Ukraine’s interim government puts at $15 billion.

Today, the EU will sign the political provisions of a trade agreement with the Kiev government, a step toward binding Ukraine into the European market. EU-Ukraine trade ties were at the heart of Ukraine’s revolution against the pro-Kremlin government that favored joining Russia’s planned Eurasian economic union instead.

“The task is to help Ukraine rather than just punishing Russia,” billionaire investor George Soros said at a panel discussion in Berlin yesterday. “Just punishing Russia will push Putin further into a corner and as a wounded animal he would strike back and it would be a lose-lose proposition.”

To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net; Gregory Viscusi in Paris at gviscusi@bloomberg.net

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net Leon Mangasarian, Patrick Henry

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