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EU Postpones Decision on Russia Sanctions: Reasons and Consequences

The final decision on the extension of sanctions against Russia will be made only in June. The EU apparently wants first to solve the problem of Greece so that a veto from Athens can be avoided


This article originally appeared at German Economic News. Translated for RI by Anita Zalaldinova

<figcaption>How the EU sanctions work</figcaption>
How the EU sanctions work

The EU remains divided in regard to further relations with Russia: Since resistance to the sanctions has grown, the heads of state and government in Brussels could not agree on a clear-cut course on Thursday: the EU decided to proceed only at the EU Council of Ministers meeting in June. The current sanctions are to expire in July.

The FT noted that this decision "failed the hopes of some hardline states and the host of the summit – Donald Tusk," who had sought an "immediate renewal of sanctions" at this summit. In order to allow hardliner Polish Council President Donald Tusk to make a face-saving statement, the EU noted only that the sanctions would not be lifted until the provisions of the Minsk agreement are implemented. "The period of economic sanctions is tied to the complete implementation of the Minsk Agreement," said the head of the EU Council, Donald Tusk. This can now be read by the hard-liners as a preliminary decision that the sanctions run until the end of the year, because the Minsk Agreement is timed in all its points for fulfillment by the end of the year.

The weak economies in the South, however, can hope to have made a persuasive case by the summer that the sanctions cause significant harm to their own economies. According to the Spanish government, the EU economy has had to cope with export losses of 21 billion euros. The sanctions impose a ban on supplying Russian companies with special equipment for oil production and impose export prohibitions on military goods.

In summer, pressure on French President Francois Hollande is likely to increase: France is heading for a presidential election [in 2017]. Currently, Marine Le Pen is first in all the polls, and a further deterioration of the economic situation would be grist to the mill of the National Front. France has until now acted as a stand-alone state. But a large arms deal is hanging in the air at the moment, which the French would lose if the sanctions are extended. This would cost 2,500 jobs.

Adversities threaten the EU from other countries – Hungary, Austria, Italy, Slovakia, and Cyprus have spoken out against the sanctions. First and foremost, Greece could veto the extension of sanctions. Greek Foreign Minister Kotzias already stated this possibility shortly after the new government had entered the office.

Before taking this step, Brussels seems to be worried even more: currently the negotiations with Greece on a solution of the debt crisis are unproductive and halting. Both sides are trying to build pressure in this poker game. So the ECB has warned Greece to set up new short-term financing by issuing T-bills. The FT reports that the ECB is considering banning Greek banks from purchasing these bonds. Reason: banks are kept liquid only by means of ECB loans, which is why the banks would have to use ECB funds for the purchase of T-bills. This is an illegal form of state funding. If the Greeks are hamstrung in this way, Greece could stumble by accident in state bankruptcy.

Although ‘Grexit’ is being played down so much by the Euro-rescuers, Greece would not disappear from the political map. There are no rules to cover the exit of a country from the EU. But above all, it is clear that Greece would continue to remain in the EU even in the case of a Euro-exit. So Greece would continue to be able to participate in all EU decisions and could veto a decision on Russia. If Greece actually becomes more reliant on Moscow to secure its funding, Russia can make a commitment in return for Greece stopping the sanctions.

This risk is real – and it places the EU in a predicament: therefore Angela Merkel and the Euro-savers will make every attempt to find a solution to avoid a Greek crash. In  June, the Greek government must restructure government bonds, which were purchased in 2010 by the ECB. Therefore, there is hope in Brussels to create by June more clarity in two problem areas: Greece and Russia.

But until then EU countries will incur more losses because of the sanctions. And this could strengthen the opponents of sanctions. However, it is also expected that the advocates of sanctions will keep trying to discredit Russia.

To this end, the war of words is likely to continue: the reason for the renewal of sanctions was the downing of the MH-17, for which the Russians have been blamed. The reasoning was taken up gratefully by news agencies and some media – although the downing, which killed 298 people, is still completely unsolved. Russia has repeatedly called for an investigation and answers. But the Federal government holds the key recordings of radio communications with the tower so far under wraps – for safety reasons, as the Federal government said, without giving details.

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