Sanctions – "self-shots" or who are the traps set for?

All positive economic statistics seem similar, but each negative statistic is negative in its own way. On Thursday, European leaders learned that the combined GDP of the eurozone, the eighteen countries that use the euro, did not change at all from the indicators of the previous quarter — that's when they expected at least a small increase. The plot does not take much time to talk about what this means for Europe. It is not surprising that Russia came forward.

At the end of July, the European Union agreed to introduce broad sanctions against Russia to punish it for annexing the Ukrainian region of Crimea — among them freezing the assets of influential Russian oligarchs and banning them from entering the EU, making it more difficult for Russian banks to sell debt or stocks on European markets, and stopping sale of certain oil equipment. This month, Russia took retaliatory measures, banning the import of beef, pork, fish, fruit, vegetables and dairy products from the EU and other regions. All this happened too late to have no effect on the statistics of the second quarter of Europe, but this did not prevent critics from refusing to use them as fodder for their arguments that sanctions - and Russia's response - would be negative for Europe. The Hungarian Prime Minister, Viktor Orbán, announced in a radio interview on Friday that the sanctions, in fact, hurt the West more than they hurt Russia: "In politics they call it, shoot yourself in the foot."

Few would argue that the sanctions are supposed to be recognized profitable enterprise: their goals tend to be political, not economic. By imposing sanctions against Russia, European leaders hope to encourage de-escalation of the situation in Crimea. And yet, it is clear that for sanctions to work, they must harm the sanctioned more than the sanctioners.

Karsten Brceskyi, senior economist in ING (ING Groep NV is a Dutch financial conglomerate that provides banking, insurance and property management services) and his colleague Pieter Vanden Hout, ING's chief economist for the Eurozone, roughly estimated how sanctions could affect Europe. In the absence of sanctions, they said, it would be reasonable to expect the European economy to grow by one percent this year. The direct impact of sanctions on these numbers, despite the fears of some European leaders, would be relatively meager: GDP growth would be below approximately one-half of one-tenth of a percentage point. The bigger concern, they said, is that a prolonged conflict with Russia could damage business confidence and make executives so nervous that they would be embarrassed to do a number of things, such as hiring people or investing in equipment. If this possibility is included in the calculations, the estimated negative impact of sanctions is much higher — two tenths of a percentage point.

Concerning impact on the Russian economy, Brtsesky did not try to determine its quantity, but, he said, "it is obvious that Russia will bear more than Europe." This opinion is widespread: Russia's economy depends much more on trade with Europe than Europe's economy depends on Russia. On Thursday, the newspaper "Vedomosti" reported that the Russian state-controlled company "Rosneft", one of the largest oil companies in the world, asked the Russian government for assistance worth more than forty billion dollars to help it resist sanctions. (Rosneft and the Russian government did not comment, the Wall Street Journal reported.)

Sanctions are usually not all effective. In 2008, scientists at the Peterson Institute (International Economics), a nonpartisan research organization, studied more than two hundred cases of economic sanctions after the First World War and found that only thirty-four percent were successful — that is, they "significantly" contributed to the achievement of foreign policy goals. Among them, the most successful sanctions tended to be those that sought to force countries to make modest changes (for example, the American blocking of Iran's access to its billion-dollar assets that were under American control in order to trigger the release of hostages); they tended to be least successful when they tried to destroy military adventures (such as American sanctions against Sudan, which began in the late eighties, and were unsuccessfully aimed at ending the country's civil war).

Despite the mixed report, Anders Asland, a senior researcher at Peterson, recently wrote on the journalism page that when Russia seized Crimea, Europe — along with the United States — “there was no choice but to react". There were few other options available. The International Monetary Fund has helped Ukraine financially, approved billions of dollars in loans, but it probably won't do much to protect the country from Russia's military actions. And for the most part, Western countries have no interest in bombing with nuclear weapons. Sanctions were among the only options left.

Thursday The President of Russia, Vladimir Putin, made some conciliatory comments during a trip to Crimea, possibly in response to the economic pressure of sanctions. "We will do everything in our power so that this conflict is ended as soon as possible so that blood can stop flowing in Ukraine," he said. Putin admitted that Russia uses the armed forces to protect its interests. But, he added, “we do not intend, like some people, to run around the world with a blade and swing it around". And yet, blood continues to flow: the list of those killed in the crisis in Ukraine almost doubled from July 26 to August 10, from approximately one thousand one hundred to almost two thousand one hundred, and it is still ending. On Monday, Ukrainian officials said that separatist rebels killed dozens of civilians with artillery fire in an attack on vehicles transporting refugees. The Russians, for their part, have reached a dead end in their efforts to send what they describe as an aid trailer to Ukraine; trucks are stuck on the Russian side of the border, while officials are negotiating their passage.

Despite the rhetoric of politicians such as Orbán from Hungary, European officials seem to be tuned in continuation of sanctions. This is partly because they are really alarmed by the turmoil in Ukraine. This is also, frankly speaking, because they recognize that the most important factors of Europe's economic problems are much deeper than any travel bans of Russian oligarchs. Politicians in France and Italy are in no hurry to make changes in their policies regarding finance, business and labor, which critics say are ineffective and outdated; Meanwhile, the European Central Bank refuses to try a quantitative easing policy, similar to the one done in the USA during its recession, which, as some Bloomberg View editors believe, would help. There are many thieves on this planet, but Europe's economic problems were mainly created at home.

According to the source materials: newyorker. com