The election of a left-wing Greek leader could boost Vladimir Putin’s fight against fresh Western sanctions.
European foreign ministers are set to huddle Thursday, Jan. 29, to try to reach consensus on how to dial up the pressure on Russia without harming their own economic interests. An already tricky diplomatic game has gotten more complicated thanks to the outright defiance of Greece’s new government, which on its second day in office rejected a European proposal to study new reprisals on Moscow.
The United States is trying to wrestle reluctant European partners into supporting a fresh round of economic and financial sanctions on Russia; President Barack Obama and Treasury Secretary Jack Lew said this week that the administration is poring through its sanctions tool kit to try to change Russian behavior.
If European leaders, with the White House’s urging, can agree Thursday on fresh sanctions, there would likely be an incremental increase in the pressure that has so far closed global capital markets to big energy firms, blocked Russia from accessing key technologies needed to develop new oil and gas fields, and hamstrung big banks.
Tricky Time
But the latest effort to put the squeeze on Moscow comes at a tricky time politically for Europe and financially for Russia. The anticipated victory Sunday by the left-wing Syriza party in Greece widens the existing fissures in Europe regarding Russia.
The first official visitor to new Greek Prime Minister Alexis Tsipras was the Russian ambassador, and on Tuesday Greece rejected the European Council’s decision to consider “further restrictive measures” against Russia. Greece, already pushing back against European-mandated fiscal rules, appears to be trying to chart a more independent foreign policy as well.
European leaders were torn between easing pressure on Moscow, as advocated by EU foreign-policy chief Federica Mogherini, and ratcheting up financial sanctions, as European Council President Donald Tusk has argued. “Once again, appeasement encourages the aggressor to greater acts of violence,” Tusk tweeted over the weekend.
“Sanctions are consensus-based, and if Putin can pick off a few countries from the pack,” it makes it much tougher to present a united, effective front, said Fiona Hill, a Russia expert at the Brookings Institution and co-author of Mr. Putin: Operative in the Kremlin.
The tricky part is heaping pressure on Russia without slow-growing European economies that do business with Moscow. Policymakers in the United States are privately weighing concerns about the collateral effects on the Russian economy and the spillover into Europe.
Mujtaba Rahman, the head of European risk analysis for Eurasia Group, said Putin is calculating that the European Union “is highly resistant to increasing sanctions while the eurozone economy flounders.”
Elizabeth Rosenberg, a former Treasury Department official now at the Center for a New American Security, said there “were a tremendous number of options to tighten capital-market restrictions.” Big Russian energy firms are now blocked from issuing stocks and bonds to Western investors, which all but closes their financial spigot.
Sanctions Impact
Sanctions have hurt the wider Russian economy in addition to taming the corporate giants that carry out much of Russia’s energy-heavy foreign policy; the sanctions-induced debt woes of oil titan Rosneft, for example, have helped crater investor confidence in the broader Russian economy.
Rosenberg said the easiest increase in sanctions pressure would be to take current restrictions on big energy firms like Gazprom, Rosneft, and Novatek and expand them to other firms in the sector. At the same time, she said, the full impact of earlier rounds of sanctions, such as the limits on energy-sector technology trade, has yet to be felt, which means that Western financial pressure on Russia will steadily escalate over time even without a fresh slate of sanctions.
Andrey Kostin, a top Russian banker with ties to the Kremlin, warned at the World Economic Forum’s annual meeting that efforts to bar Russia from the international financial clearinghouse known as SWIFT would amount to an act of war. Russian Deputy Prime Minister Igor Shuvalov, who handles economic policy, echoed those concerns and said that Russia and China are working to develop their own financial clearing mechanism to avoid dependence on Western-dominated institutions.
Blocking Russia from SWIFT would make it difficult for Russian banks to access the global financial system and would be “a tremendous escalation,” Rosenberg said. However, if the situation in Ukraine continues, she said, even such a move “could be in the cards.”
Ultimately, though, the West has to confront the reality that sanctions are not effective means of achieving goals, and policymakers in Washington and Brussels have yet to craft a broader approach.
“The West does not have a strategy beyond sanctions, and that’s their real problem,” Hill of Brookings said.
