Western Leaders in Denial on Ukraine Sanctions
The European Union appears determined to impose more sanctions on Russia, whether or not the warring sides in Ukraine can sustain a cease-fire. The doggedness might appear surprising, given the effect that previous injunctions, and Russia's response to them, are having on Europe's economic recovery -- and the lack of any contribution to resolving the crisis. All EU leaders really care about, though, are optics.
The Financial Times has obtained a draft document detailing the new sanctions: a ban on European debt financing for Russian state defense and energy companies, no dual-use technology exports, a prohibition on European energy-services companies participating in Russian projects, and a vague discussion of boycotting the 2018 soccer World Cup, to be held in Russia, and kicking Russian soccer clubs out of European competition.
It's safe to assume Russian President Vladimir Putin will want to retaliate. His previous response has already hit Europe where it hurts: Food prices are declining because Russia no longer imports European fruit, dairy products, meat and fish. According to Brussels-based agricultural lobby group Copa-Cogeca, milk prices in some parts of Europe are down by as much as 30 percent. Some fruit, such as apples and pears, is now so cheap that farmers are thinking of not harvesting. Copa-Cogeca says EU measures proposed so far, such as purchasing interventions and storage aid, are inadequate and direct subsidies are needed to keep farms afloat.
The farmers' plight is only part of the problem. Food accounts for 14 percent of the basket of goods used to calculate euro-area inflation, according to the policy site EurActiv, and European Central Bank chief Mario Draghi said in May that cheaper oil and food had accounted for 80 percent of the inflation decline Europe has seen since 2011. Those Russia sanctions may mean rate cuts and Draghi's efforts to drive down the euro's exchange rate will fail to reverse the deceleration in euro inflation.
It might be worth recalling that the initial goal formulated by the U.S. State Department was for sanctions to "send a strong message to the Russian government that there are consequences for their actions that violate the sovereignty and territorial integrity of Ukraine." The message has been returned to sender, unopened.
Despite that, sanctions have acquired a life of their own. "I don't think we want to be distracted from our determination to impose further sanctions in response to Russia's major military adventure into Ukraine by these noises off about a possible cease-fire," the BBC quoted U.K. Foreign Secretary Philip Hammond as saying. Once imposed, lifting sanctions without Russian concessions would look bad. Western leaders could be seen as condoning Putin's aggressive behavior and betraying Ukraine.
Optics were the only reason France recently suspended the delivery of a warship to Russia, though the decision has only pleased Putin and his ultranationalist friends in the defense industry. Adversaries are not supposed to trade in armaments, and French President Francois Hollande was forced to make a symbolic move.
Symbols and appearances may be important, but not for Ukraine, which is about to lose part of its territory to a long-term frozen-conflict zone and which is facing an economic collapse in part because the rebellious regions account for 15.7 percent of its gross domestic product and about 20 percent of exports. No doubt Ukrainian president Petro Poroshenko is grateful for the show of support, but he would have preferred direct military aid or, barring that, major investment in rebuilding what's left of his country.
Responsible Western leaders would have dropped the sanctions charade, stemming unproductive losses to their economies and using the gains from trade with Russia to shore up their defenses and help Ukraine get back on its feet. Consistent Western leaders would have rejected the current death-by-a-thousand-cuts approach and hit Russia with an oil embargo like the one used against Iran. As a side-effect, that would have solved the disinflation problem.
The current U.S. and European leaders, however, are neither consistent nor responsible. They are in a rut and in denial. It's time for them to formulate a strategy and make it clear first what results they would like to achieve and then how their actions might help achieve these results.
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Leonid Bershidsky at email@example.com