Putin Faces Debt, Import Curbs as EU Weighs Sanctions

Sept. 2 (Bloomberg) -- Bloomberg’s Hans Nichols reports on how NATO’s expanding involvement in Ukraine may change the ongoing crisis and President Barack Obama’s visit to the region. He speaks on “Bloomberg Surveillance.”

President Vladimir Putin faces possible further curbs on debt sales and access to technology as European Union regulators review the arsenal of measures at their disposal to sanction Russia.

The European Commission, responding to an Aug. 30 call by EU leaders, pledged to propose a second round of economic penalties within the week to punish the Kremlin for aiding pro-Russian rebels in eastern Ukraine. EU governments may use a fast-track procedure to endorse the proposals within days of receiving them from the commission, the EU’s regulatory arm.

Map: Tracking the Ukrainian Conflict

As Chancellor Angela Merkel signaled that Germany is ready for any economic fallout from measures taken against Russia, the options open to the EU include further financial and technological restrictions as laid out in a paper drawn up by the commission in July.

Waging Financial War

“Things on the ground are getting more and more dramatic, we speak about an aggression and I think that we need to respond in the strongest possible way,” Italian Foreign Minister Federica Mogherini told reporters today in Brussels. She said the commission would complete its proposals tomorrow and EU ambassadors would decide on the measures by Sept. 5.

Photographer: Dergei Chirikov/AFP via Getty Images

Russian President Vladimir Putin. Close

Russian President Vladimir Putin.

Close
Open
Photographer: Dergei Chirikov/AFP via Getty Images

Russian President Vladimir Putin.

In an initial set of economic sanctions imposed in late July, the EU barred five state-owned Russian banks from selling shares or bonds in Europe; restricted the export of equipment to modernize the oil industry; prohibited new contracts to sell arms to Russia; and banned the export of machinery, electronics and other civilian products with military uses.

Debt Financing

In the explanatory paper that paved the way for those penalties, obtained at the time by Bloomberg News, the commission mentioned several possibilities for deepening the measures at a later stage.

This could entail extending the financial restrictions to sovereign bonds, which have so far been excluded because Russia invests in the debt of several EU nations, to private-sector equity and debt financing, and to syndicated loans, according to the paper.

For example, the EU could prohibit the purchase of bonds and stocks from companies in industries such as defense that already face sanctions, the commission said at the time. Targeted Russian investors could be barred from using EU stock exchanges or other trading venues to list and quote newly issued securities, according to the paper.

In the area of dual-use technologies, the commission referred in the paper to the possibility of expanding the list of goods covered by the export prohibition.

Photographer: Krisztian Bocsi/Bloomberg

Angela Merkel, Germany's chancellor and the leader of the Christian Democratic Union. Close

Angela Merkel, Germany's chancellor and the leader of the Christian Democratic Union.

Close
Open
Photographer: Krisztian Bocsi/Bloomberg

Angela Merkel, Germany's chancellor and the leader of the Christian Democratic Union.

Merkel, speaking to reporters in Berlin yesterday, signaled a willingness to accept the consequences of more sanctions in the face of Russian aggression.

‘Certain Disadvantages’

“Being able to change borders in Europe without consequences, and attacking other countries with troops, is in my view a far greater danger than having to accept certain disadvantages for the economy,” the chancellor said.

Several EU leaders including Finnish Prime Minister Alexander Stubb have indicated that the priority is to build on sanctions in the existing framework rather than widen them to other areas.

“If we discuss sanctions, we should probably talk about them within the four parameters of the sanctions that have already been discussed, in other words arms embargo, the financial services, dual goods and then some energy-technical issues,” Stubb told reporters in Brussels on Aug. 30.

Mogherini echoed those comments today, saying the additional sanctions will be a “strengthened package in the four sectors that were already decided.”

The 28-nation bloc is also due to expand a blacklist of people and companies subject to EU asset freezes. That’s because the leaders asked the commission three days ago to propose the blacklisting of people and institutions “dealing with” separatist groups in the Donbass area of eastern Ukraine.

Another commission spokeswoman, Maja Kocijancic, was unable to say whether this step would target more Russian tycoons close to Putin.

To contact the reporters on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net; Ian Wishart in Brussels at iwishart@bloomberg.net

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net Jones Hayden

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.