Today, the European Council is to consider the matter of introducing additional economic sanctions against Russia in light of the ongoing (and recently escalating) military standoff in eastern Ukraine. Yesterday, ITAR-TASS reported that nine countries (including Germany, France and Italy) were against such action, which would require consensus among EU members to go ahead. Bloomberg, citing sources in Washington, reported that at the very least France, Italy, Austria and Slovakia were against escalating sanctions.
In separate news, Bloomberg reported that on Monday the US administration informed its European counterparts that Washington was ready to go ahead with additional sanctions against Russian banks and the military-industrial complex, even if EU support for such action was not forthcoming.
Fully-fledged sector sanctions (i.e. appled indiscriminately to all businesses in a given sector) remain a distant risk, notwithstanding the latest rhetoric. Even the aggressive stance of the US seemingly presupposes targeting a collection of specific entities. The effect of such a step, even if undertaken, would be fairly muted. Meanwhile, unilateral action by the US would further undermine cross-Atlantic relations, which have recently been dented by the spy scandal in Germany.
That said, the situation in the eastern Ukraine has undoubtedly taken another turn for the worse in the last 72 hours, and the position of European nations could change in the coming weeks and months should Kiev’s military might be unable to suppress the insurgency, or at least drive insurgents out of the major urban centres.
VTB Capital analyst
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