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U.S. and Europe Agree to Escalate Sanctions on Russia U.S. AND EUROPE SET TO TOUGHEN RUSSIA SANCTIONS
(about 3 hours later)
FRANKFURT — The United States and Europe put aside their differences and agreed on Monday to sharply escalate economic sanctions against Russia in a set of coordinated actions driven by the conclusion that Moscow has taken a more direct role in the war in Ukraine. FRANKFURT — The United States and Europe put aside their differences and agreed Monday to sharply escalate economic sanctions against Russia amid worries that Moscow is stepping up its intervention in Ukraine and may be setting the stage for an outright invasion.
After months in which European leaders were hesitant to go as far as the Americans, the two sides settled on a package of measures that would target Russia’s financial, energy and defense sectors. In some cases, the Europeans may actually leapfrog beyond what the United States has done, forcing Washington to try to catch up. After months in which European leaders resisted going as far as the Americans, the two sides settled on a package of measures that would target Russia’s financial, energy and military sectors. In some cases, the Europeans may actually leapfrog beyond what the United States has done, forcing Washington to catch up.
The agreement came during an unusual five-way video conference between President Obama and his counterparts from Britain, France, Germany and Italy in advance of a European Union meeting scheduled for Tuesday to consider new sanctions against Russia. American and European officials said the leaders agreed that Russia has not only not backed down since the shooting of a Malaysia Airlines passenger jet but has also accelerated its involvement in Ukraine’s burgeoning civil war. The collaboration suggested a hardening resolve among the allies after the downing of Malaysia Airlines Flight 17 over eastern Ukraine this month. Not only has Moscow not backed down, as some hoped it might, but American, European and Ukrainian officials said Russia had actually accelerated its involvement in Ukraine’s civil war with pro-Russian separatists.
“They agreed on the importance of coordinated sanctions measures on Russia for its continued transfer of arms, equipment and fighters in eastern Ukraine, including since the crash, and to press Russia to end its efforts to destabilize the country and instead choose a diplomatic path to resolving the crisis,” Antony J. Blinken, Mr. Obama’s deputy national security adviser, told reporters. The agreement came during an unusual five-way video conference involving President Obama and his counterparts from Britain, France, Germany and Italy in advance of a European Union meeting on Tuesday to consider new sanctions on Russia. If the Europeans announce their new measures as expected, Obama administration officials said they planned to follow with their own later in the day or on Wednesday.
President François Hollande of France released a statement from his office saying that the leaders confirmed their intention to adopt new sanctions, and the office of Prime Minister David Cameron of Britain said it should be “a strong package of sectoral sanctions” adopted “as swiftly as possible.” “We expect the European Union to take significant additional steps this week, including in key sectors of the Russian economy,” said Antony J. Blinken, Mr. Obama’s deputy national security adviser. “In turn, and in full coordination with Europe, the United States will implement additional measures itself. Our purpose here again is not to punish Russia but to make clear that it must cease its support for the separatists and stop destabilizing Ukraine.”
The steps risk direct harm to European interest, by curbing business with Russia and courting countersanctions from Moscow. But in contrast to previous debate this year over how aggressively to confront President Vladimir V. Putin over Russia’s intervention in Ukraine, political and business leaders in Germany — the crucial player in determining Europe’s response — now appear united behind the need to take more stringent action. American officials said Monday that an overt Russian invasion of Ukraine, although still unlikely, appeared more possible than it did just weeks ago. “We’ve seen a significant re-buildup of Russian forces along the border, potentially positioning Russia for a so-called humanitarian or peacekeeping intervention in Ukraine,” Mr. Blinken said.
Several prominent German business leaders indicated in recent days that they supported tougher sanctions or were at least resigned to them, giving Chancellor Angela Merkel more political leeway at home to back what is expected to be the most far-reaching response yet by Europe to Russia’s behavior in Ukraine. While criticized at home as not being tough enough on Russia, Mr. Obama has been pressing Europe to stand firmer against Moscow. With their economies far more dependent on energy-rich Russia, the Europeans have until now imposed mainly modest sanctions focused on individuals rather than measures intended to damage the Russian economy. On Monday, they agreed to target a handful more individuals.
“In light of the most recent escalation, new sanctions are unavoidable,” Hannes Hesse, executive director of the German Engineering Federation, which represents makers of machinery and heavy equipment, said in a statement. But the package to be finalized Tuesday would go much further, matching and in some cases exceeding the actions Mr. Obama took on his own this month in blocking access to medium- and long-term American capital markets for some of Russia’s largest and most global banking and energy companies.
Mr. Blinken said: “There’s urgency to arresting these developments, to ending these efforts to destabilize Ukraine. On the call, the European leaders clearly shared this assessment, and a determination to act.” The Europeans plan to impose similar capital-market restrictions on Russian state-owned banks as well as an embargo on future sales of arms and to restrict the sale of equipment that can be used for both civilian and military purposes, according to officials briefed on the discussions. They are also considering limits on technology sales to Russia’s oil industry.
The sanctions would have major consequences for European countries, notably the French weapons industry and the British banking industry. But they have been developed in a way that limits some of the most direct risks to European interests; France, for example, would be free to deliver to Russia the first of two warships it is completing in a French shipyard. They have also been developed with an eye toward spreading the potential pain to Europe among its biggest economies, Germany, Britain and France. Under their own procedures, the Europeans cannot target individual Russian banks the way the Obama administration has, so the capital-market measures will affect all banks that are majority-owned by the Russian state. The Americans would then try to catch up by targeting more Russian banks. While there would be some gaps between the two moves, officials said they would work to make sure Russia could not slip through them.
Germany’s economic vulnerability may be broader than that of the other nations, reflecting the substantial commerce between Germany and Russia and Germany’s position as a bridge between the economies of Eastern and Western Europe. Recent surveys show that optimism among business is sagging because of concern about Ukraine, and economists have begun predicting that the German economy could stagnate or even shrink as a result. American officials were heartened by the agreement, saying it would frustrate President Vladimir V. Putin’s efforts to drive a wedge between the United States and its allies. The key to the agreement, they said, was Chancellor Angela Merkel of Germany, who dropped her past reluctance and pressed for more assertive moves, which forced the French to go along, and that then forced the Italians to give in.
Planned restrictions on the export of equipment for the oil industry would most likely affect ZF Friedrichshafen, a company in the city of Friedrichshafen in southern Germany that makes equipment for energy producers as well as auto parts and other goods. Last year, ZF Friedrichshafen’s sales in Russia soared 60 percent to more than 400 million euros, or about $540 million. This year sales have stagnated, and the company is worried that Russian customers will turn to Asian suppliers instead. The new actions come as Russia’s economy is already under enormous pressure exacerbated by the Ukraine crisis, with growth effectively stifled, capital fleeing the country, the ruble stressed and foreign investors increasingly shying away. Whether that will change Mr. Putin’s calculus, however, remained uncertain, and some American officials privately expressed doubt. Indeed, some worried that the escalation, along with Ukraine’s military success on the ground, might push Mr. Putin into a corner in a way that made him less willing to back down.
That fear is widespread. “Just the announcement of sanctions has caused some Russian customers to stop ordering from German firms,” because they are worried that delivery of the products will be blocked, said Monika Hollacher, a Russia expert at the German Engineering Federation. “The Chinese have already taken major market share. In a situation like what we have now, that will accelerate further.” Moreover, the Europeans still refused to go as far as the Americans wanted. The arms embargo, for instance, will affect only future sales, and will not stop France from completing its delivery of Mistral-class helicopter carriers that has drawn criticism from Washington and elsewhere. Britain remained hesitant to cut off the entire Russian financial industry. And the Germans opposed measures affecting Russian natural gas, on which it relies for energy.
German exports to Russia and Ukraine will fall by €6 billion this year, according to an estimate by the Committee on Eastern European Economic Relations. Even so, the European willingness to escalate reflected a notable shift in attitude across the 28-member bloc, nowhere more so than among one of the continent’s most powerful constituencies: German industry. Several prominent German business leaders indicated in recent days that they supported tougher sanctions or were at least resigned to them, giving Ms. Merkel more political leeway.
Until recently, many German businesspeople had argued that it was better to engage Russia rather than confront Mr. Putin. Some have continued to do so. “Further sanctions raise the price that everyone has to pay for this conflict,” Eckhard Cordes, a former Daimler executive who is chairman of the Committee on Eastern European Economic Relations, said in a statement last week. A spokesman for the committee, which represents the interests of German companies doing business in Russia and former Soviet republics, said the statement still represented Mr. Cordes’s position. “In light of the most recent escalation, new sanctions are unavoidable,” Hannes Hesse, executive director of the German Engineering Federation, which represents makers of machinery and heavy equipment, said in a statement. Mr. Hesse said the consequences for some German companies would be “bitter” but acknowledged that diplomatic efforts had largely failed.
Yet many business leaders have been taking a harder line since Malaysia Airlines Flight 17 was shot down with the loss of 298 lives. “The behavior of the Russian government in the Ukrainian secession conflict must have noticeable consequences,” Ulrich Grillo, president of the Federation of German Industries, said in an opinion article published Monday in Handelsblatt, a financial newspaper. Germany’s economic vulnerability may be broader than that of other European nations, reflecting its substantial commerce with Russia and its longstanding position as a bridge between Eastern and Western Europe. Recent surveys show that optimism among German businesses is sagging because of concern about Ukraine, and economists have begun predicting that the economy could stagnate or even shrink.
The shift by the business community parallels growing impatience by German political leaders with Mr. Putin and Russia. Until recently, many German businesspeople argued that it was better to engage Russia than to confront Mr. Putin too overtly, and some still do. “Further sanctions raise the price that everyone has to pay for this conflict,” Eckhard Cordes, a former Daimler executive and chairman of the Committee on Eastern European Economic Relations, said last week.
Christiane Wirtz, spokeswoman for Chancellor Merkel, told reporters in Berlin on Monday that “a completely new situation has emerged which makes further measures necessary,” in the wake of the crash. The chancellor would be willing to travel to Brussels this week if needed to push through stronger economic sanctions, Ms. Wirtz said. But many business leaders have taken a harder line since Malaysia Airlines Flight 17 went down with 298 aboard. “The behavior of the Russian government in the Ukrainian secession conflict must have noticeable consequences,” Ulrich Grillo, president of the Federation of German Industries, wrote in an article published Monday in Handelsblatt, a financial newspaper.
“Only such a substantial package would enable the German government and the E.U. to send a clear, strong signal to Russia,” Ms. Wirtz said. The shift parallels growing impatience by German political leaders. Christiane Wirtz, spokeswoman for Ms. Merkel, told reporters in Berlin on Monday that “a completely new situation has emerged which makes further measures necessary.” She added, “Only such a substantial package would enable the German government and the E.U. to send a clear, strong signal to Russia.”
In Moscow, Sergey V. Lavrov, the Russian foreign minister, said that while Moscow clearly did not welcome the measures it had no plans to impose sanctions on Europe in response. In Moscow, Sergey V. Lavrov, the Russian foreign minister, said that while Moscow did not welcome the measures, it had no plans to respond in kind. “We do not want to act tit for tat,” he said, adding that he was sure Russia could overcome any difficulties caused by sanctions. “Maybe,” he said, “we will be even more independent and more confident in our own course.”
“We do not want to act tit-for-tat,” he said, adding that he was sure Russia could overcome any difficulties caused by the sanctions. “Maybe we will be even more independent and more confident in our own course.”
But the planned measures still fall short of full-blown sanctions on entire sectors of the Russian economy. The British remain hesitant to block off the entire Russian finance sector, while the French are particularly sensitive to a blanket ban on the arms sales. The Germans are extremely wary about severing energy ties with Russia.
The European restrictions on Russian financial institutions would only cover banks that are 50 percent or more owned by the Russian state. Restrictions on the energy sector would not apply to the Russian natural gas industry, which supplies about a third of Europe’s needs and an even larger proportion of Germany’s.