Following the Russian attack on Ukraine, the USA, the G7, and the EU have agreed on far-reaching sanctions against Russia. We take a closer look at the individual sanction areas. Till Hoppe analyzes the planned punitive measures against the Russian financial sector. The US, UK, and EU are significantly increasing the pressure on Russia’s banks. But the West has so far shied away from excluding the Russian financial industry from SWIFT – probably also at Germany’s request.
Germany is one of the countries that depend particularly heavily on Russian gas. The question of how energy supplies will continue to be handled is correspondingly tense at the moment. The EU sanctions are aimed at technical equipment for the Russian oil and gas industry, not at the import of fossil raw materials. At the same time, German industry is discussing compensation for further increases in energy prices, as Manuel Berkel and Lukas Scheid report.
Export restrictions on high-tech products are expected to hit Russia’s economy hard. But the EU alone can only do so much in this area. However, strong pressure is being built up in cooperation with the USA, Japan, the UK, South Korea, and Taiwan, writes Falk Steiner.
And China? It is currently performing a remarkable balancing act, writes Michael Radunski. The People’s Republic does not want to turn away from Russia, but it also does not want to be completely taken over. Beijing is currently presenting its own view of things and is talking about a “so-called attack“. How the West reacts to Russia – that is also interesting for China in view of its own intentions in Taiwan.
Sigmar Gabriel offers an extensive analysis of the background to the Russian invasion in his guest article. On Vladimir Putin’s world of thought and motivation, he writes: Russia wants to be a “great power in Europe” again. Putin is interested in “influencing the future role of Europe within the framework of the reorganization of the world that has just begun.
Russia is facing tough and far-reaching economic sanctions following its war of aggression in Ukraine, which violates international law. The US, G7, and EU announced an internationally agreed set of punitive measures on Thursday, just hours after the war began. US President Joe Biden, referring to the G7 countries, called it a “devastating package of sanctions.”
President Vladimir Putin warned that his country would be excluded from the world economic system. “We do not want to destroy the system to which we belong,” Putin told business representatives in Moscow. “Our partners should understand that and should not push us out of this system.” However, he said, Western measures could amount to just that.
Diplomatically, Russia is already isolated. With the exception of China and Iran, most UN members have strongly condemned the war in Ukraine. “With the full intent to do so, President Putin is breaking with the fundamental principles of the United Nations Charter and with the European peace order,” German Chancellor Olaf Scholz said in a televised address. Putin will pay “a high price”.
EU Council President Charles Michel and Commission President Ursula von der Leyen called on Russia to “immediately cease hostility, withdraw its military from Ukraine and fully respect Ukraine’s territorial integrity, sovereignty, and independence.” The EU stands firmly by Ukraine and its people in this crisis..
On economic and financial policy, the EU opted for a graduated approach. “The European Council agreed today on further restrictive measures that will entail massive and serious consequences for Russia’s actions,” reads the statement issued by the EU summit, which met in Brussels on Thursday evening. However, the leaders at the same time called for preparing further, even tougher sanctions that would also cover Belarus.
The second wave of punitive measures now announced – the first had been agreed on Wednesday – will affect Russia’s financial sector, energy supply, and transport, as well as dual-use military goods. The EU also wants to impose export controls on strategically important high-tech products and impose travel bans and other penalties on others.
However, President Putin will not be personally prosecuted. Nor does the summit resolution mention Russia’s exclusion from the SWIFT international banking data system. Germany in particular had opposed this. Scholz insisted that all options should not yet be considered, but that the sanctions package agreed with the United States should be retained for the time being. This was important for the EU’s “unity and determination,” he said. He said one must “save everything else for a situation where that is necessary to do other things.”
Scholz also invoked the US government in his stance. President Biden had said in a televised address before the start of the EU summit that sanctions against the Russian president were still an option, even if they were not imposed now. The same applied to an exclusion of Russia from the international payment system SWIFT, Biden said.
In Brussels, however, Scholz also faced criticism for his wait-and-see approach. Several heads of government have criticized that the current package did not go far enough. Belgian Prime Minister Alexander De Croo called for additional financial sanctions. Slovenian Prime Minister Janez Janša stressed that the sanctions package must be as tough as possible. This would also include excluding Russia from SWIFT.
The US, UK, and EU are significantly increasing the pressure on Russia’s banks. The US Treasury Department announced last night that it would also place the country’s two largest institutions, Sberbank and VTB, on the sanctions list and thus no longer allow them to conduct dollar-based transactions. In addition, Washington is freezing the US-related assets of VTB and three other Russian banks.
The sanctions are intended to raise the cost of financing for the Russian economy and thus, in combination with further trade restrictions (see the following article), the cost of war for Moscow. “These sanctions will depress Russia’s economic growth, increase financing costs and inflation, accelerate capital outflows, and gradually erode its industrial base,” said EU Commission President Ursula von der Leyen.
Indeed, the Russian stock market slumped massively yesterday, with the leading Moex index losing 34 percent. The ruble exchange rate sank to a record low against the dollar. Obviously, investors had not expected that Vladimir Putin would actually order an invasion of Ukraine, which had to trigger countermeasures.
In this context, Western countries are still shying away from the most severe of the sanctions under discussion – the exclusion of the Russian financial industry from the international payment processing system SWIFT. US President Joe Biden pointed to opposition from some European countries, including Germany. “That’s always an option, but right now that’s not the position the rest of Europe wants to take.” But he said the sanctions now imposed on Russian banks are just as severe.
At the special EU summit, German Chancellor Olaf Scholz spoke out against excluding Russia from SWIFT at the present time. He said that these measures should be “reserved for a situation where it is necessary to do other things as well.” Earlier, British Prime Minister Boris Johnson had urged unity among Western states and a SWIFT exclusion of Russia.
Instead, the EU is targeting more banks that are no longer allowed to do business with European banks and whose assets will be frozen. Specifically, it is reportedly Alfa-Bank, the country’s fourth-largest. In addition, there is Bank Otkritie, number seven. The two largest financial institutions by far, Sberbank and VTB, on the other hand, will be spared for the time being. Both primarily manage the deposits of Russian citizens and are therefore likely to be left out.
In addition, Russian state-owned companies are no longer to be newly listed on European stock exchanges. The EU also wants to make it more difficult for the Russian power elite to secure their money abroad. Therefore, banks in Europe will no longer be allowed to accept major financial investments from Russian citizens.
However, experts believe the impact of these measures in Russia will be limited. “The Russian economy is only marginally affected,” says Daniel Gros, Distinguished Fellow at the Centre for European Policy Studies (CEPS). This is because Russian banks only conduct a limited part of their business abroad, while their domestic business is not affected by the financial sanctions.
According to the report, Russia’s exclusion from SWIFT would cause significantly greater damage. The Belgium-based service provider processes transactions for more than 11,000 financial institutions. Without access, neither the Russian state nor the private sector would be able to accept or send payments across borders. However, Western banks would also be affected – German institutions, in particular, use the system extensively for transactions with Russian banks. The German government was also skeptical about Russia’s exclusion from SWIFT.
Economist Gros thinks the move is worth considering: “One might well ask: when, if not now?” Russia is working on its own payment system, the System for Transfer of Financial Messages (SPFS), he said. “In a few years, therefore, the SWIFT weapon will be blunt,” Gros said.
Russia could also turn more to China to circumvent Western financial sanctions (read a detailed analysis here). China could step in as a trading partner because the country has a parallel financial world: payment processing in yuan.
Already, 17 percent of trade between China and Russia is conducted in yuan, even though dollars and euros continue to account for the lion’s share. Thus, China pays for raw material deliveries with its own currency. On the one hand, Russia adds the renminbi it collects to its own foreign exchange reserves, 12 percent of which are denominated in yuan. It also uses Chinese money to pay bills for industrial goods. A strengthening of this trend has long been agreed upon between Vladimir Putin and Xi Jinping.
For example, oil giant Gazprom has already switched to yuan when charging Chinese airlines for jet fuel at Russian airports. As early as two years ago, the Japanese newspaper Nikkei identified the formation of a “financial alliance” between Russia and China when the use of the dollar in mutual trade had fallen below the 50 percent mark.
A close link to yuan trade would make Russia a junior partner in the Chinese business model – a major Silk Road country. The ruble’s role as a C-currency alongside the B-currency yuan would become clear. And Beijing could possibly support Russia generously with loans and then dictate policy to it. with Finn Mayer-Kuckuk
Following Russia’s invasion of Ukraine, the application of the EU Dual-Use Regulation for Russia is to be significantly expanded, among other things: Technologies that could be used in the military field or in support of it would hardly be able to be exported to Russia in the future. Even a support service, such as a maintenance service, would hardly have any chance of being approved.
The list of products covered by the Dual-Use Regulation is long. In addition to research equipment and machine parts, the scope includes encryption technologies, certain materials, fuels and fuel cells, pumps, sensors, electronics, certain categories of software, semiconductor components, pipes and tubes, and certain alloys.
Since sanctions on the part of the EU alone are only likely to have an effect in certain areas of high technology, international cooperation is of particular importance. Although there are some manufacturers and suppliers in the EU, strong pressure is being built up here, particularly in cooperation with the USA, Japan, the UK, South Korea, and Taiwan. If there is concerted cooperation between the states, products, and services from these countries are almost impossible to replace.
The USA is now resorting to one of its toughest sanctions: the Foreign Product Direct Rule (FPDR). With this rule, the sanctions have a massive impact even beyond the sanctioning states themselves and the companies based there: by means of FPDR, export restrictions also have an indirect effect on producers. If the manufacturing process depends significantly on US products, such as software, components, or chips, the end products also fall under the sanctions regime and require a US export license.
This directly affects the hardware sector, for example: A large part of the information technology used worldwide depends on intellectual property attributable to US owners. The fact that even Chinese suppliers cannot escape this regime has already been demonstrated by the first-time application of the FDPR to the IT group Huawei in 2019. Moreover, without corresponding licensing by the owners of the intellectual property, it would be impossible to export Russian goods to large parts of the world – all of Moscow’s trading partners should also be well aware that the USA takes harsh measures in the event of attempts to circumvent sanctions.
Russia could therefore be cut off at a stroke from the supply and sale of a number of products with modern technology. In the short term, any impact would depend on Russia’s stock levels. Export controls could have a “significant impact on Russia’s economic development, but only in the medium and long term,” says Daniel Gros of the think tank CEPS.
In the medium term, it would be more important for the sanctions effect whether Putin’s economy finds alternative suppliers and service providers who do not shy away from the high risk of being affected by sanctions themselves. However, the market volume of the Russian economy as a whole, beyond the extraction of fossil fuels and military technology, is small by global standards and not even remotely capable of compensating for the loss of market access to the G7, the EU, and the USA.
From a German perspective, Russia is not unimportant, but still only a small technology sales market. Both the information and telecommunications association Bitkom and the German Electrical and Digital Manufacturers’ Association ZVEI do not see the Russian Federation among the top ten sales countries. The electrical and digital industry estimates the market volume for 2021 at just €3.8 billion – out of a total global export market of €225 billion.
On the other hand, Russia plays an important role in production not only for energy sources, but also indirectly for certain raw materials such as nickel or aluminum. Here, the commodity markets are already tight, which is likely to lead to further price increases. However, the products are generally traded indirectly, so there is hardly any direct dependency on the Russian Federation.
Europe and the West have to watch helplessly as Russian President Vladimir Putin breaks the peace in Europe and overwhelms Ukraine with military force. War in the heart of Europe? Who could have imagined that just a few months ago?
And before we hear the self-accusations again, especially in Germany, that “the West” has “overdone it with the encirclement of Russia” and that we are to blame for the fact that the “Russian bear is now acting irritably,” it is worth taking a look at Russian President Vladimir Putin’s speech on the reasons for the annexation disguised as “recognition” of the eastern Ukrainian separatist regions. And it is definitely not about the alleged need to protect the Russian part of the population in eastern Ukraine from “genocide” and a “fascist government in Kyiv.”
It is about something quite different: The return of Russia as a superpower, which is more reminiscent of the tsarist empire than of the former Soviet Union. Unlike the former Soviet Union, this Russia is not intended to unite different peoples, but to anchor a hegemonic claim to a supposedly unique Russian civilization, which emerged from the three East Slavic peoples – the Russians, Ukrainians, and Belarusians – and which sees itself as fundamentally different from “Western civilization”.
The “Russian nation” based on this does not recognize any independent states in Ukraine, Belarus and probably not even in the Caucasus, parts of Central Asia and probably not even in Finland. Therefore, not only Europeans will have heard the speech of the Russian president with both attention and concern. Above all, however, according to Vladimir Putin’s will, this “Russian nation” is also to become a major European power again, which is to have at least a say in deciding the future and fate of Europe. Just as was the case with tsarist Russia for centuries.
The Russian president wants to reverse a development in which Russia has steadily lost influence in Europe since the collapse of the Soviet Union and has since increasingly descended to the role of an energy supplier. Geopolitically, the United States has dominated Western Europe since 1945 and all of Europe since 1989. Russia no longer played a significant role; instead, China has expanded its influence in Europe in recent years. Russia is the big geopolitical loser, both globally and in Europe. The Russian president wants to stop and reverse this trend. And since Russia is neither economically nor politically attractive, “only” the military remains as an instrument to re-establish the country as a European power.
In a sense, the Russian president has already achieved this goal, because the US is again negotiating with him about the fate of Europe. From the Russian perspective, this is a return to normality: Russia negotiated with the US about the future of Europe in 1945, then again in 1989/1990 as part of German reunification, and again in 1997 with the NATO-Russia Founding Act.
Russia wants to reverse this development after 1989/90 and position itself as a great power in Europe, as it did for centuries before. It is concerned with influencing Europe’s future role in the reordering of the world that has just got underway. After all, the postwar order of World War II has come to an end with a bit of delay. What we were used to as a global order emerged when states like China and India were still developing countries belonging to the so-called “Third World.”
Decisions were made in the “first world”: in the US, the USSR, and the democratic industrialized nations of the West. The decline of the Soviet Union and the rise of China were also associated – largely unnoticed at first – with the end of the “Pax Americana”. The United States became less and less able to be both the leading economic and technological nation and to maintain the global order.
Long before Donald Trump, the USA began to gradually withdraw from its traditional role as a global regulatory power to be able to focus its strength on the new competition with China. Today, the center of gravity of the world is no longer Europe and the Atlantic, but the Indo-Pacific. This is where the majority of the world’s population now lives, where most of the world’s GDP is generated, and where five nuclear states with the capability to build nuclear weapons have long since emerged. We are witnesses to an almost tectonic shift in the world’s economic, political and military power axes.
It is still unclear what the new world order will look like, but Russia wants to play a decisive role in it again. Russia’s military involvement now extends from Central Asia and the Caucasus and the Middle East to West Africa. And now the country is also using its military capabilities to influence and, if possible, determine Europe’s role in this reordering of the world. So this is about much more than Ukraine or Russia’s allegedly threatened security needs. It is about its imperial claim to power to determine the future of Europe. Europe would be well advised to oppose this claim to power.
For Europe is not powerless or even impotent, even if one may once again have the impression that European leaders are glad that the United States is once again willing to negotiate the future of Europe with a foreign power. From the Russian point of view, this is normal, because Europe is the object of Russian policy and not the subject with which something has to be negotiated.
However, we Europeans should not be too sure about being in the protection of our traditional ally on the other side of the Atlantic. For it is by no means certain that the next American president will still feel responsible for Europe. In any case, the cross-party political trend in the US is once again moving far more toward isolationism than toward perceiving itself as an “indispensable nation” for the maintenance of a democratic and peaceful order in Europe.
As unimaginable as this was in Europe’s Western democracies, war still seems to be a means of politics as a matter of course in the eyes of the Russian elites. We have largely suppressed the fact that Russia invaded its neighbor Georgia in 2008 with a script similar to the current one in Ukraine. Since 2014, Russia has not only annexed Crimea, but has provided military support to separatists in eastern Ukraine and has been at war there for eight years, albeit a limited one so far.
Syria seems far away to us, but there Russia is ready to make common cause with the brutal human abuser Assad. And anyone who speaks Russian has been able to follow prime-time discussions on Russian television in recent weeks, in which calls for a new war were made without much contradiction – on the one hand, to reunite the country, and on the other to show “the West” its limits.
For well-considered reasons, neither the US nor Europe will stand by Ukraine with military means. NATO rightly shies away from a direct military confrontation with the nuclear weapon state Russia because such a war would quickly get out of control, and its end could be nuclear devastation in large parts of Europe. The Russian president also knows this, which is why we seem like helpless spectators who are being deprived of the illusion of peaceful coexistence in Europe, albeit not without conflict.
In the midst of the vision of an ever greener and more climate-friendly Europe, the quest for gender justice, and the search for the appropriate use of language for the diversity of our societies, we hit hard on a very different reality. It is not about values – at least not those of the democratic West and the Enlightenment – but about power and its largely ruthless enforcement. This leaves us speechless in the truest sense of the word.
Naturally, we can and must now take harsh sanctions against Russia. Harsher and more consistent than anything we could have imagined so far. But we already suspect that Russia has already “priced” these sanctions into the cost of its war: Neither halting the Nord Stream 2 natural gas project, nor freezing the assets of Russian oligarchs, nor decoupling Russia from the European and American financial markets will make the Russian leadership turn back.
Sanctions are a kind of “superpower tax” for Russia that it must be willing to pay if it wants to be a geopolitical power factor. And even if we go further and completely cut ourselves off from the Russian energy market and exclude Russia from international payments: None of this will work quickly, especially since China is Russia’s new economic partner.
In fact, Russia’s invasion of Ukraine contradicts China’s principles of non-interference in other states. But the Middle Kingdom will not go as far as to participate in Western sanctions. China’s geopolitical rivalry with the United States is too great. On the contrary, from the perspective of China’s political leadership, this conflict will receive a great deal of attention.
Particularly given China’s claim to Taiwan, the political leadership in Beijing will closely study whether and for how long Europe and the US will stand together, or whether this unity may eventually show cracks. China wants to learn from the current conflict between Russia and the West concerning impending US sanctions. On the other hand, from a Chinese perspective, it is a good thing if the US has to refocus parts of its strength on Europe and Russia. This will at the same time hinder the American focus on the Indo-Pacific. The conflict with Russia thus certainly has global consequences.
Nevertheless, sanctions remain the right thing to do, because they are the only available option for responding to this blatant breach of international law and peace in Europe. If we did nothing at all, it would be an invitation to Russia to try again in another place in the near future. It is probably only NATO membership that protects the three Baltic republics from becoming the next victim of Russian great power politics. Conversely, Putin also shies away from direct confrontation with the Western defense alliance. Anyone who doubted the usefulness of NATO and the US nuclear shield for Europe in recent years should now be taught better.
As bitter and appalling as it is, we are back in a time when we in Europe must also rely on military deterrence. Russia will now experience what it supposedly wanted to prevent: The deployment of NATO troop formations and modern weapons systems in Eastern European member states. For, contrary to Russian propaganda, this is precisely not the case so far. Although NATO member states border on Russia, NATO does not “stand” troop units or weapons systems on the border with Russia.
Both are excluded in the NATO-Russia Founding Act to accommodate Russia’s security needs despite NATO’s eastward expansion. Russia has broken this and several other treaties by attacking Ukraine. As a result, there will again be a long border, as there was until 1989, with Russian and NATO military formations directly facing each other. From Ukraine’s point of view, the fact that the country was not accepted into NATO in 2008 is now taking its revenge.
The most important condition Europe needs now to get through this conflict is unity. Russia is testing us. The Russian president knows about the economic concerns in some EU member states, about the German economy’s dependence on relatively cheap Russian gas and oil, and he knows about the internal divisions between Western and Eastern Europe. He is convinced that Western democracies have become soft and will not hold a hard line against Russia for long. We should prove him wrong.
This starts, by the way, with helping each other: first and foremost Ukraine. If not by supplying defensive weapons systems, then in protecting against cyberattacks. We may be seeing the “usual” images of war at the moment, but it is likely that hybrid warfare with cyberattacks on the country’s infrastructure will cause far greater damage.
And we must help those within Europe who are economically and financially weaker and for whom sanctions against Russia will have negative consequences at home. Comparable to the European Recovery Program for the economic reconstruction of Europe after the pandemic, there is a need for jointly financed aid for the weaker member states of the EU and the Western Balkans.
If Europe wants to be a serious adversary against Russia’s hegemonic claims and become a “global player,” as EU Commission President Ursula von der Leyen has put it, then the EU member states must be prepared to invest in European sovereignty. This is not first and foremost about building a common European defense policy or even a European army. After all, the conflict with the nuclear power Russia cannot be waged militarily anyway, let alone won.
The real power of Europe is economic and financial. Deepening the internal market, developing a common energy and industrial policy, bringing about the Capital Markets Union, and, last but not least, jointly vouching for the European Monetary Union and developing the euro into an international reserve currency are not technocratic projects centered on the respective economic self-interest of the parties concerned. Rather, all of this serves Europe’s economic and financial sovereignty, which must be used right now to make the price of further acts of military force by Russia as high as possible.
This will throw some of the financial and investment goals we have set ourselves in Germany out of kilter. But we can only withstand tough sanctions against Russia if we help each other. This also applies to domestic energy policy: Germany will diversify its energy suppliers, regardless of the outcome of the crisis with Russia.
The reason Russia became the preferred energy supplier is, of course, the low-cost price of Russian energy commodities. Since energy prices were already high even without the current crisis with Russia, the federal government will have to provide relief if the conflict with Russia causes oil and gas prices to rise even more. That will cost money. Money that was either budgeted for other things or that we will have to borrow on the credit market. With interest rates rising as a result of the current inflation trend, the latter is no easy task.
Europe must “learn the language of power,” said Josep Borrell, the European Union’s High Representative for Foreign Affairs and Security Policy, long before the Russian crisis began. Europe is still a long way from that. However, the realization that war is once again possible in Europe could become Europe’s turning point in becoming a strong player instead of a pawn in the upcoming reordering of the world.
Following the Russian attack on Ukraine, the USA, the G7, and the EU have agreed on far-reaching sanctions against Russia. We take a closer look at the individual sanction areas. Till Hoppe analyzes the planned punitive measures against the Russian financial sector. The US, UK, and EU are significantly increasing the pressure on Russia’s banks. But the West has so far shied away from excluding the Russian financial industry from SWIFT – probably also at Germany’s request.
Germany is one of the countries that depend particularly heavily on Russian gas. The question of how energy supplies will continue to be handled is correspondingly tense at the moment. The EU sanctions are aimed at technical equipment for the Russian oil and gas industry, not at the import of fossil raw materials. At the same time, German industry is discussing compensation for further increases in energy prices, as Manuel Berkel and Lukas Scheid report.
Export restrictions on high-tech products are expected to hit Russia’s economy hard. But the EU alone can only do so much in this area. However, strong pressure is being built up in cooperation with the USA, Japan, the UK, South Korea, and Taiwan, writes Falk Steiner.
And China? It is currently performing a remarkable balancing act, writes Michael Radunski. The People’s Republic does not want to turn away from Russia, but it also does not want to be completely taken over. Beijing is currently presenting its own view of things and is talking about a “so-called attack“. How the West reacts to Russia – that is also interesting for China in view of its own intentions in Taiwan.
Sigmar Gabriel offers an extensive analysis of the background to the Russian invasion in his guest article. On Vladimir Putin’s world of thought and motivation, he writes: Russia wants to be a “great power in Europe” again. Putin is interested in “influencing the future role of Europe within the framework of the reorganization of the world that has just begun.
Russia is facing tough and far-reaching economic sanctions following its war of aggression in Ukraine, which violates international law. The US, G7, and EU announced an internationally agreed set of punitive measures on Thursday, just hours after the war began. US President Joe Biden, referring to the G7 countries, called it a “devastating package of sanctions.”
President Vladimir Putin warned that his country would be excluded from the world economic system. “We do not want to destroy the system to which we belong,” Putin told business representatives in Moscow. “Our partners should understand that and should not push us out of this system.” However, he said, Western measures could amount to just that.
Diplomatically, Russia is already isolated. With the exception of China and Iran, most UN members have strongly condemned the war in Ukraine. “With the full intent to do so, President Putin is breaking with the fundamental principles of the United Nations Charter and with the European peace order,” German Chancellor Olaf Scholz said in a televised address. Putin will pay “a high price”.
EU Council President Charles Michel and Commission President Ursula von der Leyen called on Russia to “immediately cease hostility, withdraw its military from Ukraine and fully respect Ukraine’s territorial integrity, sovereignty, and independence.” The EU stands firmly by Ukraine and its people in this crisis..
On economic and financial policy, the EU opted for a graduated approach. “The European Council agreed today on further restrictive measures that will entail massive and serious consequences for Russia’s actions,” reads the statement issued by the EU summit, which met in Brussels on Thursday evening. However, the leaders at the same time called for preparing further, even tougher sanctions that would also cover Belarus.
The second wave of punitive measures now announced – the first had been agreed on Wednesday – will affect Russia’s financial sector, energy supply, and transport, as well as dual-use military goods. The EU also wants to impose export controls on strategically important high-tech products and impose travel bans and other penalties on others.
However, President Putin will not be personally prosecuted. Nor does the summit resolution mention Russia’s exclusion from the SWIFT international banking data system. Germany in particular had opposed this. Scholz insisted that all options should not yet be considered, but that the sanctions package agreed with the United States should be retained for the time being. This was important for the EU’s “unity and determination,” he said. He said one must “save everything else for a situation where that is necessary to do other things.”
Scholz also invoked the US government in his stance. President Biden had said in a televised address before the start of the EU summit that sanctions against the Russian president were still an option, even if they were not imposed now. The same applied to an exclusion of Russia from the international payment system SWIFT, Biden said.
In Brussels, however, Scholz also faced criticism for his wait-and-see approach. Several heads of government have criticized that the current package did not go far enough. Belgian Prime Minister Alexander De Croo called for additional financial sanctions. Slovenian Prime Minister Janez Janša stressed that the sanctions package must be as tough as possible. This would also include excluding Russia from SWIFT.
The US, UK, and EU are significantly increasing the pressure on Russia’s banks. The US Treasury Department announced last night that it would also place the country’s two largest institutions, Sberbank and VTB, on the sanctions list and thus no longer allow them to conduct dollar-based transactions. In addition, Washington is freezing the US-related assets of VTB and three other Russian banks.
The sanctions are intended to raise the cost of financing for the Russian economy and thus, in combination with further trade restrictions (see the following article), the cost of war for Moscow. “These sanctions will depress Russia’s economic growth, increase financing costs and inflation, accelerate capital outflows, and gradually erode its industrial base,” said EU Commission President Ursula von der Leyen.
Indeed, the Russian stock market slumped massively yesterday, with the leading Moex index losing 34 percent. The ruble exchange rate sank to a record low against the dollar. Obviously, investors had not expected that Vladimir Putin would actually order an invasion of Ukraine, which had to trigger countermeasures.
In this context, Western countries are still shying away from the most severe of the sanctions under discussion – the exclusion of the Russian financial industry from the international payment processing system SWIFT. US President Joe Biden pointed to opposition from some European countries, including Germany. “That’s always an option, but right now that’s not the position the rest of Europe wants to take.” But he said the sanctions now imposed on Russian banks are just as severe.
At the special EU summit, German Chancellor Olaf Scholz spoke out against excluding Russia from SWIFT at the present time. He said that these measures should be “reserved for a situation where it is necessary to do other things as well.” Earlier, British Prime Minister Boris Johnson had urged unity among Western states and a SWIFT exclusion of Russia.
Instead, the EU is targeting more banks that are no longer allowed to do business with European banks and whose assets will be frozen. Specifically, it is reportedly Alfa-Bank, the country’s fourth-largest. In addition, there is Bank Otkritie, number seven. The two largest financial institutions by far, Sberbank and VTB, on the other hand, will be spared for the time being. Both primarily manage the deposits of Russian citizens and are therefore likely to be left out.
In addition, Russian state-owned companies are no longer to be newly listed on European stock exchanges. The EU also wants to make it more difficult for the Russian power elite to secure their money abroad. Therefore, banks in Europe will no longer be allowed to accept major financial investments from Russian citizens.
However, experts believe the impact of these measures in Russia will be limited. “The Russian economy is only marginally affected,” says Daniel Gros, Distinguished Fellow at the Centre for European Policy Studies (CEPS). This is because Russian banks only conduct a limited part of their business abroad, while their domestic business is not affected by the financial sanctions.
According to the report, Russia’s exclusion from SWIFT would cause significantly greater damage. The Belgium-based service provider processes transactions for more than 11,000 financial institutions. Without access, neither the Russian state nor the private sector would be able to accept or send payments across borders. However, Western banks would also be affected – German institutions, in particular, use the system extensively for transactions with Russian banks. The German government was also skeptical about Russia’s exclusion from SWIFT.
Economist Gros thinks the move is worth considering: “One might well ask: when, if not now?” Russia is working on its own payment system, the System for Transfer of Financial Messages (SPFS), he said. “In a few years, therefore, the SWIFT weapon will be blunt,” Gros said.
Russia could also turn more to China to circumvent Western financial sanctions (read a detailed analysis here). China could step in as a trading partner because the country has a parallel financial world: payment processing in yuan.
Already, 17 percent of trade between China and Russia is conducted in yuan, even though dollars and euros continue to account for the lion’s share. Thus, China pays for raw material deliveries with its own currency. On the one hand, Russia adds the renminbi it collects to its own foreign exchange reserves, 12 percent of which are denominated in yuan. It also uses Chinese money to pay bills for industrial goods. A strengthening of this trend has long been agreed upon between Vladimir Putin and Xi Jinping.
For example, oil giant Gazprom has already switched to yuan when charging Chinese airlines for jet fuel at Russian airports. As early as two years ago, the Japanese newspaper Nikkei identified the formation of a “financial alliance” between Russia and China when the use of the dollar in mutual trade had fallen below the 50 percent mark.
A close link to yuan trade would make Russia a junior partner in the Chinese business model – a major Silk Road country. The ruble’s role as a C-currency alongside the B-currency yuan would become clear. And Beijing could possibly support Russia generously with loans and then dictate policy to it. with Finn Mayer-Kuckuk
Following Russia’s invasion of Ukraine, the application of the EU Dual-Use Regulation for Russia is to be significantly expanded, among other things: Technologies that could be used in the military field or in support of it would hardly be able to be exported to Russia in the future. Even a support service, such as a maintenance service, would hardly have any chance of being approved.
The list of products covered by the Dual-Use Regulation is long. In addition to research equipment and machine parts, the scope includes encryption technologies, certain materials, fuels and fuel cells, pumps, sensors, electronics, certain categories of software, semiconductor components, pipes and tubes, and certain alloys.
Since sanctions on the part of the EU alone are only likely to have an effect in certain areas of high technology, international cooperation is of particular importance. Although there are some manufacturers and suppliers in the EU, strong pressure is being built up here, particularly in cooperation with the USA, Japan, the UK, South Korea, and Taiwan. If there is concerted cooperation between the states, products, and services from these countries are almost impossible to replace.
The USA is now resorting to one of its toughest sanctions: the Foreign Product Direct Rule (FPDR). With this rule, the sanctions have a massive impact even beyond the sanctioning states themselves and the companies based there: by means of FPDR, export restrictions also have an indirect effect on producers. If the manufacturing process depends significantly on US products, such as software, components, or chips, the end products also fall under the sanctions regime and require a US export license.
This directly affects the hardware sector, for example: A large part of the information technology used worldwide depends on intellectual property attributable to US owners. The fact that even Chinese suppliers cannot escape this regime has already been demonstrated by the first-time application of the FDPR to the IT group Huawei in 2019. Moreover, without corresponding licensing by the owners of the intellectual property, it would be impossible to export Russian goods to large parts of the world – all of Moscow’s trading partners should also be well aware that the USA takes harsh measures in the event of attempts to circumvent sanctions.
Russia could therefore be cut off at a stroke from the supply and sale of a number of products with modern technology. In the short term, any impact would depend on Russia’s stock levels. Export controls could have a “significant impact on Russia’s economic development, but only in the medium and long term,” says Daniel Gros of the think tank CEPS.
In the medium term, it would be more important for the sanctions effect whether Putin’s economy finds alternative suppliers and service providers who do not shy away from the high risk of being affected by sanctions themselves. However, the market volume of the Russian economy as a whole, beyond the extraction of fossil fuels and military technology, is small by global standards and not even remotely capable of compensating for the loss of market access to the G7, the EU, and the USA.
From a German perspective, Russia is not unimportant, but still only a small technology sales market. Both the information and telecommunications association Bitkom and the German Electrical and Digital Manufacturers’ Association ZVEI do not see the Russian Federation among the top ten sales countries. The electrical and digital industry estimates the market volume for 2021 at just €3.8 billion – out of a total global export market of €225 billion.
On the other hand, Russia plays an important role in production not only for energy sources, but also indirectly for certain raw materials such as nickel or aluminum. Here, the commodity markets are already tight, which is likely to lead to further price increases. However, the products are generally traded indirectly, so there is hardly any direct dependency on the Russian Federation.
Europe and the West have to watch helplessly as Russian President Vladimir Putin breaks the peace in Europe and overwhelms Ukraine with military force. War in the heart of Europe? Who could have imagined that just a few months ago?
And before we hear the self-accusations again, especially in Germany, that “the West” has “overdone it with the encirclement of Russia” and that we are to blame for the fact that the “Russian bear is now acting irritably,” it is worth taking a look at Russian President Vladimir Putin’s speech on the reasons for the annexation disguised as “recognition” of the eastern Ukrainian separatist regions. And it is definitely not about the alleged need to protect the Russian part of the population in eastern Ukraine from “genocide” and a “fascist government in Kyiv.”
It is about something quite different: The return of Russia as a superpower, which is more reminiscent of the tsarist empire than of the former Soviet Union. Unlike the former Soviet Union, this Russia is not intended to unite different peoples, but to anchor a hegemonic claim to a supposedly unique Russian civilization, which emerged from the three East Slavic peoples – the Russians, Ukrainians, and Belarusians – and which sees itself as fundamentally different from “Western civilization”.
The “Russian nation” based on this does not recognize any independent states in Ukraine, Belarus and probably not even in the Caucasus, parts of Central Asia and probably not even in Finland. Therefore, not only Europeans will have heard the speech of the Russian president with both attention and concern. Above all, however, according to Vladimir Putin’s will, this “Russian nation” is also to become a major European power again, which is to have at least a say in deciding the future and fate of Europe. Just as was the case with tsarist Russia for centuries.
The Russian president wants to reverse a development in which Russia has steadily lost influence in Europe since the collapse of the Soviet Union and has since increasingly descended to the role of an energy supplier. Geopolitically, the United States has dominated Western Europe since 1945 and all of Europe since 1989. Russia no longer played a significant role; instead, China has expanded its influence in Europe in recent years. Russia is the big geopolitical loser, both globally and in Europe. The Russian president wants to stop and reverse this trend. And since Russia is neither economically nor politically attractive, “only” the military remains as an instrument to re-establish the country as a European power.
In a sense, the Russian president has already achieved this goal, because the US is again negotiating with him about the fate of Europe. From the Russian perspective, this is a return to normality: Russia negotiated with the US about the future of Europe in 1945, then again in 1989/1990 as part of German reunification, and again in 1997 with the NATO-Russia Founding Act.
Russia wants to reverse this development after 1989/90 and position itself as a great power in Europe, as it did for centuries before. It is concerned with influencing Europe’s future role in the reordering of the world that has just got underway. After all, the postwar order of World War II has come to an end with a bit of delay. What we were used to as a global order emerged when states like China and India were still developing countries belonging to the so-called “Third World.”
Decisions were made in the “first world”: in the US, the USSR, and the democratic industrialized nations of the West. The decline of the Soviet Union and the rise of China were also associated – largely unnoticed at first – with the end of the “Pax Americana”. The United States became less and less able to be both the leading economic and technological nation and to maintain the global order.
Long before Donald Trump, the USA began to gradually withdraw from its traditional role as a global regulatory power to be able to focus its strength on the new competition with China. Today, the center of gravity of the world is no longer Europe and the Atlantic, but the Indo-Pacific. This is where the majority of the world’s population now lives, where most of the world’s GDP is generated, and where five nuclear states with the capability to build nuclear weapons have long since emerged. We are witnesses to an almost tectonic shift in the world’s economic, political and military power axes.
It is still unclear what the new world order will look like, but Russia wants to play a decisive role in it again. Russia’s military involvement now extends from Central Asia and the Caucasus and the Middle East to West Africa. And now the country is also using its military capabilities to influence and, if possible, determine Europe’s role in this reordering of the world. So this is about much more than Ukraine or Russia’s allegedly threatened security needs. It is about its imperial claim to power to determine the future of Europe. Europe would be well advised to oppose this claim to power.
For Europe is not powerless or even impotent, even if one may once again have the impression that European leaders are glad that the United States is once again willing to negotiate the future of Europe with a foreign power. From the Russian point of view, this is normal, because Europe is the object of Russian policy and not the subject with which something has to be negotiated.
However, we Europeans should not be too sure about being in the protection of our traditional ally on the other side of the Atlantic. For it is by no means certain that the next American president will still feel responsible for Europe. In any case, the cross-party political trend in the US is once again moving far more toward isolationism than toward perceiving itself as an “indispensable nation” for the maintenance of a democratic and peaceful order in Europe.
As unimaginable as this was in Europe’s Western democracies, war still seems to be a means of politics as a matter of course in the eyes of the Russian elites. We have largely suppressed the fact that Russia invaded its neighbor Georgia in 2008 with a script similar to the current one in Ukraine. Since 2014, Russia has not only annexed Crimea, but has provided military support to separatists in eastern Ukraine and has been at war there for eight years, albeit a limited one so far.
Syria seems far away to us, but there Russia is ready to make common cause with the brutal human abuser Assad. And anyone who speaks Russian has been able to follow prime-time discussions on Russian television in recent weeks, in which calls for a new war were made without much contradiction – on the one hand, to reunite the country, and on the other to show “the West” its limits.
For well-considered reasons, neither the US nor Europe will stand by Ukraine with military means. NATO rightly shies away from a direct military confrontation with the nuclear weapon state Russia because such a war would quickly get out of control, and its end could be nuclear devastation in large parts of Europe. The Russian president also knows this, which is why we seem like helpless spectators who are being deprived of the illusion of peaceful coexistence in Europe, albeit not without conflict.
In the midst of the vision of an ever greener and more climate-friendly Europe, the quest for gender justice, and the search for the appropriate use of language for the diversity of our societies, we hit hard on a very different reality. It is not about values – at least not those of the democratic West and the Enlightenment – but about power and its largely ruthless enforcement. This leaves us speechless in the truest sense of the word.
Naturally, we can and must now take harsh sanctions against Russia. Harsher and more consistent than anything we could have imagined so far. But we already suspect that Russia has already “priced” these sanctions into the cost of its war: Neither halting the Nord Stream 2 natural gas project, nor freezing the assets of Russian oligarchs, nor decoupling Russia from the European and American financial markets will make the Russian leadership turn back.
Sanctions are a kind of “superpower tax” for Russia that it must be willing to pay if it wants to be a geopolitical power factor. And even if we go further and completely cut ourselves off from the Russian energy market and exclude Russia from international payments: None of this will work quickly, especially since China is Russia’s new economic partner.
In fact, Russia’s invasion of Ukraine contradicts China’s principles of non-interference in other states. But the Middle Kingdom will not go as far as to participate in Western sanctions. China’s geopolitical rivalry with the United States is too great. On the contrary, from the perspective of China’s political leadership, this conflict will receive a great deal of attention.
Particularly given China’s claim to Taiwan, the political leadership in Beijing will closely study whether and for how long Europe and the US will stand together, or whether this unity may eventually show cracks. China wants to learn from the current conflict between Russia and the West concerning impending US sanctions. On the other hand, from a Chinese perspective, it is a good thing if the US has to refocus parts of its strength on Europe and Russia. This will at the same time hinder the American focus on the Indo-Pacific. The conflict with Russia thus certainly has global consequences.
Nevertheless, sanctions remain the right thing to do, because they are the only available option for responding to this blatant breach of international law and peace in Europe. If we did nothing at all, it would be an invitation to Russia to try again in another place in the near future. It is probably only NATO membership that protects the three Baltic republics from becoming the next victim of Russian great power politics. Conversely, Putin also shies away from direct confrontation with the Western defense alliance. Anyone who doubted the usefulness of NATO and the US nuclear shield for Europe in recent years should now be taught better.
As bitter and appalling as it is, we are back in a time when we in Europe must also rely on military deterrence. Russia will now experience what it supposedly wanted to prevent: The deployment of NATO troop formations and modern weapons systems in Eastern European member states. For, contrary to Russian propaganda, this is precisely not the case so far. Although NATO member states border on Russia, NATO does not “stand” troop units or weapons systems on the border with Russia.
Both are excluded in the NATO-Russia Founding Act to accommodate Russia’s security needs despite NATO’s eastward expansion. Russia has broken this and several other treaties by attacking Ukraine. As a result, there will again be a long border, as there was until 1989, with Russian and NATO military formations directly facing each other. From Ukraine’s point of view, the fact that the country was not accepted into NATO in 2008 is now taking its revenge.
The most important condition Europe needs now to get through this conflict is unity. Russia is testing us. The Russian president knows about the economic concerns in some EU member states, about the German economy’s dependence on relatively cheap Russian gas and oil, and he knows about the internal divisions between Western and Eastern Europe. He is convinced that Western democracies have become soft and will not hold a hard line against Russia for long. We should prove him wrong.
This starts, by the way, with helping each other: first and foremost Ukraine. If not by supplying defensive weapons systems, then in protecting against cyberattacks. We may be seeing the “usual” images of war at the moment, but it is likely that hybrid warfare with cyberattacks on the country’s infrastructure will cause far greater damage.
And we must help those within Europe who are economically and financially weaker and for whom sanctions against Russia will have negative consequences at home. Comparable to the European Recovery Program for the economic reconstruction of Europe after the pandemic, there is a need for jointly financed aid for the weaker member states of the EU and the Western Balkans.
If Europe wants to be a serious adversary against Russia’s hegemonic claims and become a “global player,” as EU Commission President Ursula von der Leyen has put it, then the EU member states must be prepared to invest in European sovereignty. This is not first and foremost about building a common European defense policy or even a European army. After all, the conflict with the nuclear power Russia cannot be waged militarily anyway, let alone won.
The real power of Europe is economic and financial. Deepening the internal market, developing a common energy and industrial policy, bringing about the Capital Markets Union, and, last but not least, jointly vouching for the European Monetary Union and developing the euro into an international reserve currency are not technocratic projects centered on the respective economic self-interest of the parties concerned. Rather, all of this serves Europe’s economic and financial sovereignty, which must be used right now to make the price of further acts of military force by Russia as high as possible.
This will throw some of the financial and investment goals we have set ourselves in Germany out of kilter. But we can only withstand tough sanctions against Russia if we help each other. This also applies to domestic energy policy: Germany will diversify its energy suppliers, regardless of the outcome of the crisis with Russia.
The reason Russia became the preferred energy supplier is, of course, the low-cost price of Russian energy commodities. Since energy prices were already high even without the current crisis with Russia, the federal government will have to provide relief if the conflict with Russia causes oil and gas prices to rise even more. That will cost money. Money that was either budgeted for other things or that we will have to borrow on the credit market. With interest rates rising as a result of the current inflation trend, the latter is no easy task.
Europe must “learn the language of power,” said Josep Borrell, the European Union’s High Representative for Foreign Affairs and Security Policy, long before the Russian crisis began. Europe is still a long way from that. However, the realization that war is once again possible in Europe could become Europe’s turning point in becoming a strong player instead of a pawn in the upcoming reordering of the world.
