With little fanfare, Europe managed to extended its sanctions on Russia through the end of January. Reuters:
The six-month extension was agreed by ambassadors from the 28 EU nations meeting in Brussels.
Ratification of the decision by EU foreign ministers meeting in Luxembourg on Monday is expected to be a formality. The procedure means there will be no formal motion on Russia at an EU leaders’ summit in Brussels at the end of next week.
The measure passed in large part due to the efforts of the European Council President Donald Tusk, who way back in March hammered out an agreement which stipulated that sanctions should stay in place until the Minsk agreement was fully implemented. Nonetheless, worries persisted that countries like Greece and Cyprus, or even Italy or France might break ranks with their more hawkish colleagues and call for an easing of the measures. But with violence in eastern Ukraine flaring once again, something approaching a quiet consensus appears to have emerged in Brussels.
Though there is circumstantial evidence that many Russian companies are skirting many of the EU’s sanctions to buy disallowed goods, and while it appears that the source of the most acute pain for the Russian economy has been falling energy prices, the sanctions are still an effective policy tool, especially when applied to the financial sector. As Vladislav Inozemtsev wrote for us in the March/April 2015 issue:
The Western ban on issuing new loans to major Russian banks and a number of state-owned corporations has put [heavily indebted Russian firms] in a very difficult position. They have until the end of 2016 to repay about $270 billion in loans and interest, at least $200 billion of which they had hoped to refinance. Lacking that option has caused a sharp decline in new investment; corporations have lined up to obtain loans from state reserve funds instead. But the rates are high, the capital is limited, and they still need to buy dollars to repay their Western creditors.
Vladimir Putin’s spokesman shrugged his shoulders, vowing to extend the reciprocal Russian food import bans when EU leaders make their decision official on Monday. And Russia’s finance minister shrugged his shoulders, saying that the sanctions extension had already been factored in to the economic planning his ministry had done. But that’s putting a brave face on things: with energy prices not predicted to rebound to earlier levels any time soon, and with the financial sector sanctions adding additional drag to the economy, it looks like the Kremlin is going to have to grin and bear it for at least another seven months.