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“Insanity,” Albert Einstein observed, “is doing the same thing over and over again and expecting different results.” If the great physicist could witness the EU’s current sanctions policy, he would likely try to put the bloc’s leaders in straitjackets himself.
Earlier this week, member states approved yet another raft of restrictive measures on Russia – the EU’s 17th (yes, seventeenth) since Vladimir Putin launched his country’s full-scale invasion of Ukraine in 2022.
The announcement – which Ursula von der Leyen said will “keep the pressure high on the Kremlin” – came as EU leaders threatened to impose further “massive” sanctions after Moscow ignored their call for a 30-day ceasefire.
EU media breathlessly echoed politicians’ warnings of Moscow’s imminent, sanctions-induced apocalypse: Politico reported this morning that the EU, Ukraine, and the UK are preparing a “mega package” that could “deliver a knockout blow to the Russian economy”.
The idea that Brussels could suddenly obliterate the Russian economy at the 18th attempt is, to put it mildly, hard to believe.
Why, after more than three years of a war that von der Leyen herself has said is “existential” for Europe, are leaders only considering this option now? (Did they stumble across it while searching for one of the Commission president’s deleted texts?)
The core of the “mega” plan – the essential details of which seem to have been copy-pasted from a US Senator’s proposal – involves a 500% tariff on all Russian exports into the EU. This would effectively decouple the bloc from its eastern neighbour.
But would this devastate the Russian economy? Probably not.
According to European Commission data, the EU currently imports around €3 billion worth of Russian goods each month, mostly in the form of pipeline and liquefied natural gas (LNG), oil, and fertilisers. This is less than a tenth of Moscow’s total exports.
By comparison, Russia’s total exports fell by more than 25% from 2022 to 2023 – and the Kremlin’s war economy, plainly, didn’t collapse.
Furthermore, the political and economic risks from such a decoupling mean that the EU could only realistically reduce its imports by around half this amount in the near term: that is, from €3 billion to €1.5 billion per month.
Such a decrease would have an effect roughly equivalent to a drop in the price of oil of a couple of dollars, according to Janis Kluge, a senior associate at the German Institute for International and Security Affairs (SWP): a “significant” problem but hardly a catastrophe for Putin.
As it turns out, the EU’s next sanctions package will likely fall far short of even this proposal.
In a speech delivered on Friday afternoon, von der Leyen said that the next package will include additional listings of Moscow’s “shadow fleet” of oil vessels, a lower oil price cap, sanctions on more Russian banks, and a “ban” on the Nord Stream underwater pipeline between Germany and Russia.
Tariffs – including those in the three-digit range – were not mentioned at all.
‘Not a big factor’
Ultimately, the EU’s threats of further sanctions are “just not a big factor for Russia anymore”, as Kluge noted.
“The EU by itself, at the moment [and] in the near term, is not able to do anything that would really drastically worsen the economy for Russia,” he said.
None of this, of course, is to say that the Russian economy is faring well. The country’s shortage of skilled labour – itself a direct consequence of the war – has caused inflation to surge and forced the Russian central bank to hike its key interest rate to 21%, dampening business investment. Indeed, even Putin himself has admitted that the economy is “overheating”.
Nor is this to say that the EU’s sanctions haven’t, in some sense, worked. On the contrary, study after study has shown that Brussels’ measures have pushed up Russia’s cost of purchasing vital military equipment and starved the Kremlin’s war chest of billions of euros.
But although it is able to inflict significant economic pain, the EU must eventually come to terms with the fact that it cannot – at least by itself – bring Russia to its knees.
This problem is closely linked to the main reason for Moscow’s economic survival: there are simply too many countries, including major developing nations like Brazil, India, and especially China, that are willing to do business with Moscow. The United States could also soon follow suit.
The building of “sanctions coalitions” to enforce EU policies requires “strong diplomacy” that will only likely be achievable in the long term, according to Philipp Lausberg, a senior analyst at the European Policy Centre. “You need carrots, not just sticks,” he said.
Don’t play God
Notwithstanding the madness of the EU’s repeated sanctions threats, the bloc’s refusal to accept reality – in all its ugliness – is a common human affliction.
In fact, it is one that Einstein himself suffered from. “God does not play dice,” was his famously pithy rejection of quantum theory’s (true) probabilistic laws.
European leaders should heed the advice of Einstein’s great friend and rival, the Danish physicist Niels Bohr. “Einstein,” he said. “Stop telling God what to do.”
Economy News Roundup
EU trade ministers condemn US-UK trade deal. “If the UK-US deal is what Europe gets, then the US can expect countermeasures from our side,” Sweden’s Trade Minister, Benjamin Dousa, said before meeting his European counterparts in Brussels on Thursday. “I [would] barely call it a trade deal at all,” he added. “The baseline is still there.” Dousa’s remarks were echoed by his Finnish, French, Polish, Estonian and Irish counterparts. They come after the UK became the first country to reach a trade agreement with the US since Donald Trump’s return to the White House in January. London received concessions on Trump’s 25% levies on cars, aluminium, and steel, but its goods remain subject to a 10% “universal” duty. Read more.
EU approves 17th round of sanctions on Russia. The new package, agreed by EU ambassadors on Wednesday, includes visa bans and asset freezes for senior Russian political and business officials. It also includes export bans for chemicals used to make weapons, trade restrictions on dozens of companies involved in sanctions circumvention, and listings of almost 200 members of Russia’s “shadow fleet” of oil-exporting vessels that are used to bypass a Western oil price cap. Hungary and Slovakia, the EU’s two most pro-Moscow countries that remain heavily dependent on imports of Russian energy, supported the package due to its relative weakness, EU diplomats said. The approval comes after multiple EU ministers and officials vowed on Tuesday to continue imposing restrictive measures on Moscow to force it to enter into peace negotiations with Kyiv. Read more.
Germany could breach EU’s fiscal limit this year. Lars Klingbeil, Berlin’s new finance minister, told reporters on Monday that it is too early to predict whether Germany’s next budget will see the EU’s largest economy surpass the bloc’s deficit ceiling of 3% of annual GDP in 2025. “This is my fifth day in office,” the socialist politician said when directly asked whether Berlin would contravene the 3% limit. “We are getting ready to set up the budget for [2025] now,” he added. “All these questions will also be clarified in the next few weeks.” The minister’s remarks, which came ahead of a meeting of eurozone finance ministers in Brussels, followed Germany’s announcement of a €1 trillion defence and infrastructure package earlier this year that broke decades of fiscal rectitude. Other EU finance ministers expressed confidence that Germany would continue to comply with the new rules ahead of Monday’s meeting. Denmark, who will assume the Council’s rotating presidency from Poland in July, said one of its “priorities” will be to ensure member states’ compliance with the bloc’s budget rules. Read more.
The United States and China slash levies on each other’s goods by 115% for 90 days. Washington’s duties on Chinese goods will fall from 145% to 30%, while Beijing’s tariffs on American goods will drop from 125% to 10%, US Treasury Scott Bessent told reporters on Monday after meeting with senior Chinese officials in Geneva. “We had very robust discussions. Both sides showed great respect to what was a very positive process,” Bessent said. The news comes amid fears that Trump’s tariffs on Beijing could lead to billions of dollars’ worth of Chinese goods being re-directed and “dumped” on European markets, inflicting further damaging the bloc’s long-suffering industries. EU officials welcomed the decision but pledged to continue to seek its own trade deal with the US. Read more.
Source: www.euractiv.com
