Fri | Dec 2, 2016

Despite pressure, EU sanctions against Russia could last

Published:Friday | January 9, 2015 | 12:00 AM

European Union sanctions against Russia over the crisis in Ukraine are cutting both ways: hurting Russia as well as pinching some big European companies.

But economic relief isn't likely any time soon, diplomats and analysts say, since EU divisions make the sanctions tough to overturn.

France, Germany, Russia and Ukraine are trying to set up talks next week in Astana, Kazakhstan, to ease the tensions behind the punitive measures that, along with slumping oil prices and US sanctions, have sent the ruble sinking.

The sanctions, and Russian retaliation, have in turn squeezed corporate Europe - including banks, oil companies, machinery makers and food giants that do business with Russia.

European Union rules complicate any attempt to modify the sanctions put into place last year amid the separatist violence in eastern Ukraine and after Russia's annexation of Crimea. A unanimous decision by all 28 EU nations is needed to change the sanctions, and analysts say such unanimity doesn't exist.

The main EU sanctions - which have hit Russian banks and oil companies and have banned arms exports and the export of dual-use goods - are in place until the end of July. A first review of some sanctions could come in March.

"We don't turn any sanction screw just for the sake of turning," German Chancellor Angela Merkel's spokesman, Steffen Seibert, told reporters Monday. "The sanctions are responses to concrete situations from the Russian side and concrete situations in eastern Ukraine."

Under the combined blow of sanctions and slumping oil prices, the ruble has lost about half its value this year and the Russian economy has drifted into recession. President Vladimir Putin has promised the economy will rebound, but he has failed to offer a specific plan for easing Russia's heavy dependence on oil and gas revenues.

Zsolt Darvas, a senior fellow at the Bruegel think tank in Brussels, said France and Italy are among the nations more open to lifting the sanctions while Poland, Britain and the Baltic countries want to stand firm.

Putin weakened

It's not certain the talks scheduled for January 15 in Astana will take place. Diplomats say high-level preparatory talks are planned for today, Friday. French President Fran├žois Hollande told France-Inter radio that he would only attend the Astana talks if progress could be made in easing the tensions.

"The sanctions should be lifted if there's progress. If there's no progress, the sanctions will remain," he said Monday, adding that Putin "of course is not letting on that he has the slightest difficulty."

"The sanctions ... and the decrease of the oil price ... weaken him. He doesn't say it of course, he doesn't let people think that he has any kind of difficulty, but he has some difficulties."

So do some European corporate titans.

Patrick Pouyanne, the new chief executive of the French oil giant Total SA, has echoed his predecessor - who died in a plane crash in Russia in October - in calling the sanctions "unjust and unproductive".

The Western sanctions have hurt European companies that do business in or with Russia. For example, some Russian clients can no longer pay them because they are going into debt or payments are blocked in sanctions-hit banks. In addition, demand has dried up because Russians are struggling financially.

Paul Ivan, a policy analyst at the European Policy Centre in Brussels, said Russian retaliation has added to Europe's economic pain.

Moscow has imposed a one-year ban on imports on a range of food produced by EU countries, hitting Lithuanian dairy farmers, Italian cheese makers and Belgian apple growers alike. The European statistics agency, Eurostat, said Russia absorbs 10 per cent of all EU agricultural and food exports.

But overall, the fallout was limited to less than one per cent of GDP in all EU countries, Ivan said.

Beyond the tensions in parts of eastern Ukraine held by pro-Russian militants, diplomats from three EU delegations said Russia's 2014 annexation of Crimea was making it impossible to move quickly to ease the sanctions, and no moves were underway to ease the pressure on Moscow. All three spoke on condition of anonymity because of the sensitivity of the issue.

"There are no serious reasons to change the policy," Ivan said. "Fighting in Ukraine goes on. There are reports of new Russian military vehicles. There are no real improvements. ... The policy will continue as long as the situation doesn't improve there on the ground."

- AP