News World EU in balancing act on Russian penalties

EU in balancing act on Russian penalties

Europe wants to make Russia pay for its aggression in Ukraine but fears the economic turmoil from the fallout of new, harsher trade sanctions by the West.
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The US is working to convince a reluctant Europe of the need to punish Russia more severely for its meddling in Ukraine while at the same time warning Moscow to step back or take more financial hits.

It’s a difficult balancing act for Europe, which wants to make Russia pay for its aggression but fears the economic turmoil from the fallout of new, harsher trade sanctions by the West.

Europe is Russia’s largest trading partner and therefore has huge sway over Russia’s shaky economy.

Economists say the US risks appearing weak without support from Europe. But Europe is far from ready to levy penalties against Moscow that would undercut its own financial stability and possibly endanger its main source of energy.

President Barack Obama has signed orders that would allow the US to penalise key Russian industries.

European Union foreign ministers are set to meet on Monday to decide what additional penalties to impose if Russia continues to ignore the West’s warnings.

Assistant Secretary of State Victoria Nuland told a Senate panel this past week that US and EU sanctions now in place are “biting” and “pinching” the Russian economy, “and we’re now considering further measures”.

Nuland said Moscow has spent an estimated $US25 billion ($A26.6 billion) to bolster the ruble over the past five to six weeks since sanctions were introduced.

Russia suffered more capital outflow in the first three months of 2014 than the $US62.7 billon it lost for all of last year, she said.

“Russia is paying a very high price already for its actions, and that cost will go up if its pressure on Ukraine does not abate,” Nuland said.

The next round probably will expand the list of high-ranking Russians whose Western assets have been frozen and are barred from travelling to the EU or US.

Last month, the EU took aim at 33 individuals and the US 31.

The US also has barred American companies or individuals from doing business with Bank Rossiya, which has about $US10 billion in assets and is owned by members of Russian President Vladimir Putin’s inner circle.

The Treasury Department on Friday added seven Crimean separatists and a Crimea-based gas company, for undermining the government in Kiev, the capital.

US moves against Russia’s energy, metals and mining sectors also have been prepared in what Treasury Undersecretary David Cohen has called “a very powerful yet flexible tool that will allow us to respond quickly and meaningfully as events develop in Ukraine”.

In a sign of the tension in eastern Ukraine, home to a large Russian-speaking population, men in the uniforms of Ukraine’s now-defunct riot police occupied police headquarters in Donetsk on Saturday, hours after armed men seized police headquarters in Slovyansk, about 88km away.

In Washington, the International Monetary Fund was wrapping up its spring meetings on Saturday, with its board expected to approve by early May a $US14 billion to $US18 billion loan package to help Ukraine avoid a financial collapse.

Treasury Secretary Jacob Lew insisted late on Friday that there was strong support for harsher penalties, saying Western allies “stand together in asking Russia to step back”.

The EU’s leverage against Russia is greater than America’s because of the EU’s close commercial and financial links with Moscow, including energy pipelines that pass directly through Ukraine.

Europe is Russia’s largest trading partner. It buys more than three-quarters of Russia’s crude oil and natural gas exports, which fund about half the government budget.

Any fresh sanctions by the EU must be approved by unanimous vote among its 28 member nations.

Putin has mocked the current sanctions and on Thursday warned 18 European leaders that their gas supplies were in danger.

Nonetheless, Russia apparently is wary of antagonising the EU too much, so it has decided to retaliate against Washington but not the EU so far.

While the sanctions have given Russia little pause, Europe could find other ways to use their trade leverage against Moscow.