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Russia Sanctions Are a Massive Disaster for Italy

  • Trade, tourism, investment - everything is affected
  • Even should the sanctions be gradually withdrawn in 2015, Italian exporters will have suffered the losses of some €1.8 billion

This article originally appeared at Views & Values

In all likelihood, these sanctions, imposed by Brussels, are not in the interest of average Italians since they do not directly affect their lives, but we cannot remain indifferent to the devastating effects that they produce on the economy and on Italian companies which do business in Russia.

<figcaption>Brussels sanctions produce devostating effect  on business relationtips between Italian and Russian companies.</figcaption>
Brussels sanctions produce devostating effect on business relationtips between Italian and Russian companies.

Until this summer, such companies based their import-export interchanges on the Kremlin.

Let’s look closely at the effects of these sanctions.

As reported by Italy’s most authoritative financial daily, “Il Sole 24 ore”, the current picture is nothing short of alarming.

Sace, the Italian Agency for Export credit, suggested two scenarios in September. In one of them, a few skirmishes occur in eastern Ukraine and tensions only ease in the beginning of 2015, followed by a progressive but slow withdrawal of the sanctions over the course of the year.

For Italian exports affected by Moscow’s import limitations, this scenario would result in a decline of 10% in 2014 and 7% in 2015: a loss in that period equal to 1.8 billion euros.

In the other, less likely, scenario, it is assumed that Russian troops move to support the independence of Donetsk and Luhansk, and are viewed as encroaching on sovereign Ukrainian territory.

The resulting tightening of European and American sanctions, followed by Russian counter-measures, would result in a real collapse of Italian exports to Moscow, a decline of 13% in 2014 and 17% in 2015, amounting to 3 billion euros in lost revenues for Italian companies. In both cases, therefore, the loss for Italy would be extremely significant.

But as pointed out by Sace’s study, the sanctions’ effects on the Italian economy are not limited to exports:

“A trade war, said the agency, between Europe and Russia would deprive Italy of an important contribution, especially in an economically difficult phase such as this one, in terms of investments and income from tourism.”

In recent years, in fact, both investment (between 2005 and 2011, Russian companies have quadrupled their presence in Italy) and number of tourists (between 2008 and 2012, the presence of Russian visitors to Italy has increased by 66%) have been growing.

For the Kremlin, according to what the Russian presidency’s press office posted during Vladimir Putin’s last visit to Milan in October:

“Italy is ranked second in Europe and fourth in the world among Russia’s trading partners.

The exchanges in 2013 grew by 17.8% and amounted to 53.8 billion dollars, higher than the pre-crisis level (52.9 billion dollars in 2008).

Italian investments accumulated in Russia have reached about a billion.

Russian investments in Italy reach $500 million.”

However, in the period of January-August 2014, “there has been a contraction by 2.5% to 34.3 billion”, due to the crisis in Ukraine and the sanctions.

It is natural to ask how much more Italian companies in Russia will have to endure. How is it possible that the Italian government led by Prime Minister Renzi does not notice the risks and the damage that EU sanctions have caused our economy?

Ukraine was part of the USSR and once the Soviet Union fell apart, it remained under Moscow’s economic and political influence, as was normal.

To say that Ukraine should turn towards the West rather than to the Kremlin is like saying that Greece, which has always been European, should begin to shift towards Turkey and the Arab states. The current states of Russia and Ukraine share a history that dates back to the Cossacks’ struggle against Polish enslavement in the mid-17th century, and going further back, Russia was settled by East Slavic settlers from what is now Ukraine in the 9th century.

The European Union is sacrificing its economic and commercial interests, and its actions are hardly justifiable in terms of social, political and cultural ones.

Russia’s claim deserves merit: however corrupt former Ukrainian President Yanukovich was, he was a democratically elected leader who was undone by a violent anti-Russian uprising which received material support from the American government; additionally, Crimea’s residents, wary of the scenes of carnage in Kiev, were happy to reunite with Moscow.

It is surprising that Italy, an important member of the European Union, has not sought a solution or tried mediation during the conflict, at least to defend its own economic interests.

It would be too optimistic for a European to think that in 2014, the union of states that his country had struggled to establish would strive to defend common interests which would reflect the shared traditions and heritage of the continent.

While the Italian economy has started to crumble, Putin hasn’t flinched or backed down in the face of European sanctions, as he has already found suppliers who will replace us.

Argentina will provide Russia with meat and China, Israel, Egypt, Turkey and others will supply other agricultural products. In certain markets, such as the market for cheese, Italy saw its market share disappear with the stroke of a pen; the new suppliers that take Italy’s share won’t simply bow out when sanctions are lifted.

When Italy comes crawling back to the bargaining table, Russia will have the upper hand in dealing with its former friends. Italy relies on Russia for 25% of its energy requirements, and it is precisely this aspect of the sanctions war which is the most worrying for Italians. The early warning signs arrived when, a few months ago, gas supplies diminished mysteriously in Slovakia and in other Eastern European countries. If that should happen, it would be a catastrophe for Italy.

Perhaps my opinions put me in the minority, but I’m not a fool. The professors who sit in the Italian Ministry of Economy certainly are not stupid.

While the US Federal Reserve whispers about an economic resurgence, the European Central Bank is urgently deliberating over how to stave off a recession.

Prompting Brussels to abandon these sanctions should be first on its list.

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