Should the West loosen the sanctions it has imposed on Russia? Floating that idea might sound crazy, especially after President Vladimir Putin’s combative remarks at his Dec. 18 press conference. But some European leaders are suggesting just that.
Within hours of Putin’s press conference, French President François Hollande said it might be time for the West “to look at how we could bring about a deescalation from our side.” Separately, the foreign ministers of Germany and Denmark warned that continued sanctions could “destabilize” Russia.
These leaders may simply be protecting their own national interests against potential damage from long-term sanctions. German exporters and Danish companies, such as beer brewer Carlsberg, have been hit hard by Russia’s downturn. Hollande has a couple of warships he’d very much like to deliver to the Russian navy. Moreover, there’s been no change in the position of the European leader whose views matter most: German Chancellor Angela Merkel. She said on Dec. 18 that continued sanctions were “unavoidable” as long as Putin doesn’t yield in the Ukraine crisis.
Still, there are reasons to question whether tough sanctions are worth keeping in place for a long time.
For starters, sanctions aren’t the main cause of Russia’s widening economic and financial crisis. The country is headed for economic misery, with or without them. Plunging oil prices, not sanctions, are almost entirely to blame for the collapse of the ruble. Cheaper oil also robs the Kremlin of its key source of hard currency and tax revenue.
Sanctions aren’t responsible for the looming recession, either. Months before the invasion of Crimea, growth had begun to slow sharply. The slowdown stemmed from deep-seated problems, including Russia’s overdependence on energy exports, poorly developed manufacturing and service industries, low productivity, and increasing state control over formerly private businesses. Even if sanctions were lifted tomorrow, recession is inevitable, said Neil Shearing, emerging-markets economist at Capital Economics in London. At best, he says, the end of sanctions “might mean that the recession would be a bit less deep and the recovery a bit quicker.”
At the same time, sanctions make a convenient scapegoat for Putin, allowing him to shift blame for Russia’s woes onto the West. Archibald R.M. Ritter, a Canadian economist and Cuba expert, has pointed out that decadeslong U.S. sanctions against Cuba not only failed to oust its Communist regime but also “reinforced Fidel Castro’s position in Cuba as the champion against an external aggressor.” As Bloomberg View columnist Leonid Bershidsky points out, an isolated and hostile Russia would be “far bigger and more dangerous” than Cuba ever was.
It’s true that sanctions have inflicted some pain on Russia. Most significantly, they’ve locked major companies and banks out of global capital markets, prompting them to seek aid from the Kremlin to service foreign debt. Sanctions also have prevented Russia’s oil industry from getting badly needed Western expertise and equipment to modernize and tap new reserves.
Despite Putin’s tough talk, it’s possible he might be ready to take a step back. During his press conference, he said he believed that Ukrainian President Petro Poroshenko genuinely wants peace and that pro-Russian rebels in eastern Ukraine are partly to blame for continued hostilities. Hollande, who met privately with Putin earlier this month, hinted at possible conciliation when he said sanctions could be loosened “if gestures are sent by Russia as we expect.”
Putin, of course, has reneged on earlier promises and has lied to Merkel and other leaders about Russia’s actions in Ukraine. Any discussions about looser sanctions should proceed with extreme caution. All the same, they probably should proceed.