The leaders of the G7 nations held a conference call yesterday and agreed to take steps toward imposing more economic sanctions against Russia in response to events in Ukraine. So far they are only contemplating a broader list of sanctions against specific individuals and some financial institutions. However, speaking from South Korea, Obama raised the threat of imposing sanctions against entire sectors of the Russian economy if Russia takes steps of a military invasion of Eastern Ukraine. The US could of course take such a step unilaterally, but without the participation of the European G7 members its impact on Russia would be limited. There are signs that getting such participation may not be an easy task.
European Firms Seek to Minimize Russia Sanctions
With the showdown over Ukraine escalating and President Obama warning Moscow of a tough new round of sanctions, Russia and its allies in the European private sector are conducting a separate campaign to ensure that they can maintain their deep and longstanding economic ties even if the Kremlin orders further military action.
European banks and businesses are far more exposed to the Russian economy than are their American counterparts. Trade between the European Union and Russia amounted to almost $370 billion in 2012, while United States trade with Russia was about $26 billion that year.
As a result, they have lobbied energetically to head off or at least dilute any sanctions, making it hard for American and European political leaders to come up with a package of measures with enough bite to influence Moscow’s behavior in Ukraine.
Economic integration is an arrangement that cuts two ways. Imposing broader sanctions would certainly damage the Russian economy but it would also impose pain on the people in European countries who have large trading relationships with Russia. These are not small mom and pop businesses. They are major players. The energy sector is the key focus. Europe is dependent on Russia for a quarter of its energy supplies. It is all very well to talk about various plans to reduce this dependency, but those are all long term in nature. The EU is still struggling with its own internal economic problems. It isn't just a matter of the larger economies such as Germany. The less affluent members of the euro zone are still struggling under the burdens of the austerity measures imposed as terms for financial bailouts. It is difficult to determine in advance just how much in the way of a new economic shock this rather fragile structure could absorb without creating another serious crisis.