Russia Is Waiting for Sanctions, So Deliver Them
If France doesn't agree tomorrow to cancel its contract to sell Russia two advanced helicopter carriers, it will be a disgrace both for France and for Europe.
European Union leaders are due to meet in Brussels to agree on a second round of sanctions against Russia, after President Vladimir Putin's decision to annex Crimea. They are, predictably, squabbling. French Foreign Minister Laurent Fabius has said his country might cancel the contract for Mistral naval vessels, if the U.K. also takes a hit by shutting down what amounts to money laundering in London by Russian businessmen.
Both should act against Russia, as should Germany, Italy and others. But the linkage Fabius made is unjustified. It potentially provides cover for fulfillment of a contract that is in a class of its own in terms of moral turpitude and willful strategic blindness. The deal should never have been made in the first place.
This is a 1.37 billion euro ($1.9 billion) contract for two amphibious assault ships (the Vladivostok and, no kidding, Sevastopol), each of which is capable of carrying 16 heavy helicopters, 40 assault vehicles and hundreds of troops. After Russia invaded Georgia in 2008, the commander of the Russian navy, Vladimir Vysotsky, said that with the French ships, he would have needed only 40 minutes rather than 26 hours to accomplish his mission. French President Nicolas Sarkozy agreed to the Mistral sale just three years after the war although Russia still was't abiding by the terms of the peace treaty it signed with Georgia.
These ships are precisely what Russia would want to have at its disposal were it to pursue its ambitions beyond Crimea into other parts of southern Ukraine, such as Odessa. One ship is due to be delivered later this year, the other in 2015. A French decision to deliver the vessels to Putin after Crimea's annexation, and as he continues to claim the right to protect Russian speakers wherever they may be, would provide a clear signal that France, and therefore Europe, don't care about future Russian adventures.
France wants other EU countries to feel the pain of sanctions, too, and appears to be hoping that stopping the sale can be reserved for a third round of penalties, should Russia invade other parts of Ukraine. Unfortunately, France is not alone in looking for excuses to delay. The U.K., no doubt, would want to see action by a reluctant Germany, which has by far the largest trade and investment relationship with Russia of any European country. Others, such as Cyprus and Austria, are even less willing to act.
The recent, taunting tweet from Russia's nationalist defense industry chief, Dmitry Rogozin, had a point: it showed a photo of a bear slouching nonchalantly over a table, vodka bottle at hand, with the caption "Waiting for sanctions."
The U.K. shouldn't wait to take action targeted at Russian money. It should use this opportunity to improve the City of London's tarnished reputation by shutting down questionable money flows from corrupt Russian officials and businessmen. That would, without doubt, have costs far in excessive of cancelling the Mistral contract. It could also prompt shady non-Russian businessmen and dictators' families from around the world to rethink their use of London as a safe haven for stolen assets, producing greater losses for the city. Yet this is a reckoning that surely will have to come one day, just as Switzerland has had to start cleaning up its tax-evasion scams.
For its part, Italy should pull support from the South Stream natural gas pipeline, in which the Italian energy company Eni is a lead partner. South Stream amounts to a collusion between Russia and the European Union to bypass Ukraine in the delivery of gas to Europe. The pipeline, set to start deliveries next year and ultimately carry 63 billion cubic meters per year, would encourage the EU to increase its dependence on Russia for gas, when the opposite should be happening.
At a projected total cost of $38 billion, South Stream, which will run across the Black Sea, is also commercially senseless. It is explainable only as a means for Russia to avoid retaliation by Ukraine when it turns off that country's gas supply. This has happened on several occasions in the last decade, sometimes during genuine price disputes but more often as a tool of economic blackmail.
The EU could send few better signals to Putin that it takes the invasion of neighboring countries seriously than to end this collaboration, directed against the country that just had its territory annexed. The message would be all the stronger because the project's participants are among Russia's strongest allies in Europe: Austria, Bulgaria, France, Germany, Greece, Hungary, Italy and Serbia.
Most important, however, France should reverse the Mistral sale. It was predicated on a faith in Russia's peaceful intentions that was unwarranted after 2008 and is impossible to justify now. No doubt France can find a new buyer for the ships to reduce the blow: I suggest a joint purchase by members of the North Atlantic Treaty Organization. That would get Putin's attention.
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Marc Champion is a Bloomberg View editorial board member. Follow him on Twitter at @MarcChampion1.
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