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U.S., EU split on more sanctions for Moscow

Posted By F. Michael Maloof On 03/18/2014 @ 11:02 am In Politics,U.S.,World | No Comments

WASHINGTON – There is an undertow of resistance among European companies toward further sanctions against Russia over its contemplated annexation of Ukraine’s Crimean Peninsula.

After the initial, tepid sanctions assessed by the EU and U.S., Washington’s interest in further penalties likely will put it at odds with Europe, which relies on Russia as a major trading partner.

French and German companies would be among the hardest hit by further sanctions, potentially affecting hundreds of thousands of jobs in Europe and a sizeable number of Russian workers who have jobs associated with European firms.

The U.S. goal in imposing sanctions, analysts say, is to curb Moscow’s assertiveness on its periphery and attempt to show Central and Eastern Europe and the Caucasus that they can depend on the U.S.

However, the countries in this region don’t believe that escalation over Crimea is worth increased tensions with Moscow.

The 28 countries belonging to the EU all must agree on any action, and that does not appear to be a foregone conclusion.

For example, Finland, Bulgaria, Cyprus, Greece, Italy and Spain already have warned against moving too forcefully against Russia out of concern for the economic repercussions against their already fragile economies.

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While they have agreed to the initial round of sanctions against Moscow of visa and asset restrictions on 11 Russian officials, more stringent sanctions could be met with opposition.

The G-8 group of the world’s most powerful industrialized countries is considering removing Russia from its ranks.

However, concern is mounting that such a move could have a major adverse global economic impact.

The G-8 was scheduled to meet in Sochi, Russia, in June, but that now appears to be off. Apart from Russia, the remaining G-7 members are considering a British proposal to meet instead in London without Russia’s participation. That proposal is being given favorable consideration.

However, much can happen between now and then, and Putin could take action to soothe the Europeans.

Crimea only the first move?

In looking to annex the Crimean Peninsula, Russia may aim to expand its efforts to include the more industrialized eastern Ukraine, which, like Crimea, has a majority of ethnic Russians.

The prospect of Putin further escalating the Ukraine crisis is prompting European companies to assess the impact of more serious sanctions beyond the slap on the hand just imposed by Europe and the U.S. to limit assets and travel of high-level Russian officials surrounding Putin.

France, for example, is reluctant to halt the sale of two Mistral-class helicopter carriers with an option to build two more, at a cost $1.7 billion. Defense ministers of the two countries are to meet shortly to discuss the deal.

French President Francois Hollande said sanctions against military cooperation were at a “third level,” suggesting that any cutoff of the carrier deal was off the table.

The U.S., however, has decided to suspend all of its military cooperation with Russia, although it’s not very extensive.

However, the U.S. may need Russia for more serious issues such as a resolution over the Syrian civil war and curbing Iran’s nuclear development program, which the West believes is a cover to develop nuclear weapons. The prospect makes any serious U.S. sanctions against Russia limited.

Despite resistance by German companies, Berlin at the political level has taken a lead in pushing sanctions, although German Chancellor Angela Merkel and her foreign minister, Frank-Walter Steinmeier, appear to be slowing up that effort.

Analysts say that Germany is in the best position to inflict serious sanctions on Russia because of the close business relations of German companies with Russia.

However, there is concern that German businesses would be the most vulnerable if Moscow retaliates economically.

The sources point out that economic warfare could prove expensive for Germany, which basically is the economic engine of the sputtering economies of the European Union. If unemployment were to rise in Germany, it would have cascading impact throughout the EU.

The prospect has placed Merkel at a crossroads. In pushing political measures, she will be adversely affecting her own country’s business interests. A recent poll shows two-thirds of Germans don’t want sanctions imposed against Russia in response to the Crimean crisis.

Just the prospect of economic sanctions already is affecting German businesses. For example, Volkswagen wanted to invest a further 1.2 billion euros, or $1.7 billion, in Russian plants as a means of expansion, but that plan may be off.

Similarly, Germany’s state-owned KfW development bank had planned to sign a contract with Russia’s VEB bank to invest some 900 million euros, or $1.3 billion, for mid-sized companies, but the Germans canceled the signing at the last minute.

Trade with Germany last year amounted to 77 billion euros, or $107 billion. Russia provides mostly petroleum and natural gas to Germany, which in turn exports mechanical engineering products, medicines, trains and automobiles to Russia.

There are more than 6,000 German companies in Russia. Russia’s own natural gas development relies on special chemicals from Germany, which would impact Russia’s crude-oil refining capability.

In a recent interview with the German publication Der Spiegel, E.ON CEO Johannes Teyssen gave an idea of how German companies regard their economic relationship with Russia and dismissed the notion that Moscow maintains political leverage over Germany and Europe due to their reliance on Russian energy.

“I am tired of this eternal prattling on about dependency,” Teyssen said. “One could also describe a marriage as dependency if one were feeling spiteful. But one could also see it as a partnership.

“Europe and Russia have built up an energy partnership over the course of four decades, and over that entire period there hasn’t been a single day on which natural gas was used as a strategic weapon against the West,” he said.

“Plus, both sides profit equally from this partnership. Even now, natural gas is flowing normally through all the pipelines. Those are the facts,” said Teyssen.

E.ON has invested some 6 billion euros, or $8.3 billion, in modern power plants in Russia and is the largest foreign energy supplier to the country.

“I don’t want to intervene in foreign policy issues,” Teyssen said. “But I believe that we have pursued very responsible policies toward the East in recent years. The establishment of good faith and economic integration has led to 6,000 German companies being active in Russia.

“Conversely,” he said, “Russian companies are here, controlling corporations and natural gas pipelines. Our continent has become more peaceful as a result of the partnership. We shouldn’t frivolously gamble it away.”

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