Ukraine: The cost of sanctions

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Ukraine: The cost of sanctions

Ukraine: The cost of sanctions
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Russia’s intervention in Crimea has mobilised the European Union.

At an emergency summit on Thursday, EU leaders announced punitive measures such as suspending talks with Moscow on establishing visa-free travel for Russians.

Pressing for a negotiated solution to the crisis in Ukraine, they also threatened sanctions.

“Any further steps by the Russian Federation to destabilise the 
situation in Ukraine would lead to severe and far-reaching consequences for relations between the European Union and its member states on the one hand and the Russian federation on the other hand,” European Council President Herman Van Rompuy said.

Moscow has vowed to retaliate if sanctions are imposed but, overall,Europe has less to lose than the Russians in any tit-for-tat economic conflict.

European exports to Russia represent only 1% of the bloc’s GDP but Russian exports to the EU count for 15% of Russia’s Gross Domestic Product.

Business analysts Oxford Economics believe a trade war between Brussels and Moscow would result in a rise in energy prices in Europe, by 15% for gas and 10% for oil. All in all, the eurozone’s GDP would decline by 1.5% between now and 2015.

But, for Oxford Economics, the biggest loser would be Russia with a fall in the rouble accompanied by a leap in inflation. In the event of an embargo on 80% of Russian gas and oil sales, Russia’s GDP would shrink by 10% by the end of 2015.

The fact remains, however, that among the 28 EU member states, some have more to lose than others.

‘‘Germany is highly dependent on gas coming from Russia also 
through the Ukraine,” said economist Carsten Brzeski of ING bank.

“So the ties are there. You also have lots of German companies, 
actually, investing in Russia, because Russia was supposed to be the growth market for many, many corporates.’‘

No less than 31% of Germany’s gas and 35% of its oil comes from Russia. Some 6,000 German businesses are established there and 200,000 jobs in Germany depend on trade with Russia.

That’s strong encouragement indeed for Berlin to convince Moscow to sit down at the negotiating table.