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Divisions Will Delay an EU Decision on Russia Sanctions

7 MINS READMar 17, 2015 | 08:54 GMT
Europe Remains Divided Over Russia Sanctions
(YURIY DYACHYSHYN/AFP/Getty Images)
Kiev's Independence Square is seen looking through an EU flag in March 2014.
Summary

The debate over sanctioning Russia has reignited leading up to the summit of EU heads of state and government that will take place March 19-20. Most of the European Union's economic sanctions against Moscow are set to expire in late July, and extending or expanding them will require a unanimous vote. Some EU members, such as Lithuania and Poland, want to continue the sanctions and would like to vote on them in March. But Italy, Spain, Greece, Hungary and others want to delay the decision in order to give Russia more time to de-escalate the conflict in Ukraine.

Because the European Union is mostly a reactive force when it come to Russia, barring an unexpected spike in violence in Ukraine, Europe is unlikely to pass additional sanctions. Moreover, EU governments will delay the debate over extending the sanctions for as long as possible in the hopes that the political situation will permit the sanctions to expire on their own in July.

Following Russia's annexation of Crimea in March 2014, the European Union applied a series of travel bans and asset freezes on Russian politicians, military officers and Crimean officials who supported the move. Over the following year, the list grew to include 150 people and 37 entities in Russia and Ukraine. Because the sanctions targeted only a specific set of people and entities, they did not generate much controversy, and in January, most of the measures were extended until September 2015.

It was not until July 2014 that the European Union passed controversial measures targeting exchanges with Russia in specific economic sectors. These sanctions limit access to EU capital markets for five major state-owned financial institutions, three major energy firms and three defense companies. They also ban weapons sales, establish an export ban on civilian goods that can be applied for military use and sever Russia's access to certain sensitive technologies and services that can be used for oil production and exploration. The European Union voted to expand these measures in September.

Officials from countries including Hungary, Bulgaria and the Czech Republic expressed concern about the negative impact the sanctions would have on economic growth, while business leaders in Germany and Italy warned about sanctions hurting exports to Russia and jeopardizing jobs in their countries. However, pressure from the United States and the largest political powers in the European Union, escalating violence in eastern Ukraine and shocking events such as the downing of Malaysia Airlines Flight 17 in eastern Ukraine allowed the European Union to unanimously support the toughened economic sanctions.

Russia responded to Europe's punitive measures with sanctions of its own. In August, Moscow introduced a one-year embargo on most agricultural imports from the European Union, Norway, the United States, Canada and Australia. The ban includes vegetables, fruit, fish, meat and dairy products. While the embargo primarily affects the countries that are geographically closer to Russia, such as Poland and Finland, agricultural producers and farmers in countries such as France, Spain and Italy have also taken a hit.

A Fragmented Union

The EU members have different opinions on sanctions on Russia because they have different strategic imperatives and priorities. Estonia, Latvia, Lithuania and Poland tend to take a particularly tough stance on Russia. In addition to the presence of Russian ethnic minorities in the Baltic region, the locations of these countries on the North European Plain and their proximity to Kaliningrad, where Russia's Baltic Fleet is stationed, make them see Moscow's moves in Eastern Europe as a threat to their security. As a result, since the beginning of the crisis in Ukraine, these countries have continuously supported sanctions and lobbied for their expansion and extension.

Other governments in Central and Southeastern Europe tend to have a different view of the situation. Countries including Hungary, the Czech Republic, Slovakia and Bulgaria are more geographically secure from Russia and do not have direct conflicts with Moscow. These nations seek a permanent balance between their membership in the European Union and NATO and their interest in attracting Russian investment and securing cheap energy imports. This is why they have publicly criticized, but quietly supported, sanctions against Russia after lobbying to soften or delay them.

The position of the countries with the Continent's largest economies — Germany, France and Italy — also complicates the issue. These countries do not feel directly threatened by Russia's actions in Eastern Europe, and they have strong political and economic ties with Moscow. They worry about the economic impact of sanctions and counter-sanctions and would like to see a diplomatic solution to the conflict. However, they are also concerned with holding the European Union together and accommodating the conflicting strategic needs of its various member states.

Germany is in a particularly awkward position. Berlin and Moscow have strong business and energy ties, but they also compete for influence in Central and Eastern Europe. This is why Germany has taken such a direct role in the Ukrainian crisis. In the beginning, it supported opposition groups in the Kiev protests against the government of former President Viktor Yanukovich, and it has contributed financial support to the new government. Berlin has pushed for increasing sanctions against Moscow while also keeping negotiation channels open and opposing moves by the United States that could lead to an escalation of the conflict.

Russia's Charm Offensive

The Kremlin understands that its slowing economy and a weakening ruble have limited its options when negotiating with EU members. However, Moscow has been working to build a coalition of countries to oppose extending the sanctions when they are set to expire in July.

Russian President Vladimir Putin visited Hungary on Feb. 17 to discuss energy and investment, as well as Russia's 10 billion-euro ($10.6 billion) loan for Hungary's nuclear sector. On Feb. 25, Putin received Cypriot President Nicos Anastasiades in Moscow, where Russia offered Cyprus more investment opportunities and better repayment terms for its 2.5 billion-euro loan in return for Cyprus' agreeing to give Russian military ships access to Cypriot ports. While the issue was not on the official agenda, Anastasiades and Putin probably also discussed ways to soften the effects that Russia's efforts to end tax evasion will have on Cyprus' banking sector.

On March 5, Putin met Italian Prime Minister Matteo Renzi in Moscow to discuss the situation in Libya and Syria in addition to the peace process in Ukraine. Italy has strong trade ties with Russia and is particularly interested in Moscow possibly lifting its embargo on agricultural products.

On March 10, Russian Foreign Affairs Minister Sergei Lavrov met with his Spanish counterpart, Jose Manuel Garcia-Margallo, and Margallo later admitted that sanctions and counter-sanctions are hurting the Spanish economy. In February, Margallo said the European Union as a whole had lost 21 billion euros in foregone exports as a result of the sanctions. Like Italy and Cyprus, Spain is worried about a weaker ruble hurting Russian travel to Southern Europe.

Finally, Russia's relationship with Greece is important in light of the Greek economic crisis. Greece needs as much money as it can get. On Jan. 29, Russian Finance Minister Anton Siluanov said his country would consider extending financial aid to Greece should Athens request it. If Athens fails to reach a deal with its lenders, it could be forced out of the eurozone. Greece would have to revert to the drachma, which would likely devalue rapidly and make energy imports more expensive. Greece depends on Russia for natural gas, making friendly ties with Moscow indispensible. Because it needs Russia so much, the new Greek government has advocated closer ties with Russia from the start, and Athens has questioned the EU sanctions against Moscow. It is no coincidence that Greek Prime Minister Alexis Tsipras will meet with Putin in May, roughly a month before Greece's bailout extension expires — and also a month before the European Union will hold a summit to discuses its sanctions on Russia.

On Summits and Sanctions

Most of the European Union's economic sanctions expire in late July, and renewing or expanding them will require a unanimous vote. Some of the more hawkish EU members fear that support for the sanctions could be losing momentum and are lobbying to hold the renewal vote when the EU Council meets March 19-20. Meanwhile, other countries want to hold the vote during the EU Council summit talking place June 25-26.

Stratfor believes EU governments will hold off on deciding the future of the sanctions until after March to have more time to assess whether Russia is complying with the Minsk agreement. Because asset freezes and travel bans are less controversial than economic sanctions, the European Union could continue to extend them without facing significant political frictions among member states.

Renewing or expanding sanctions does not require a formal EU Council summit; foreign affairs ministers can do so during an emergency meeting at any time. This means they will be able to discuss economic sanctions again before the June summit. However, a large number of EU member states are counting on Russia to de-escalate the conflict so the bloc can let the sanctions expire on their own. As a result, Brussels will probably delay a formal decision as long as it can.

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