The extent of the sanctions imposed on Russia simultaneously by the United States and the European Union suggests a more painful economic future for all stakeholders. But we’ll take it.
The range of measures levied by the European leaders and their U.S. counterparts belong to the so-called Level 3 category. To illustrate just how seriously these leaders intend to make Vladimir Putin listen to reason or bend him to their will outright, it is important to note that this sanction level is just below one known as nuclear sanctions, a strong term applied by analogy to the balance of terror that prevailed during the Cold War. However, today, when we speak of “nuclear sanctions,” we are not talking about pressing the button, but rather banning the purchase of Russian gas and oil. Doing so could cause an economic explosion in Russia, Europe and to a lesser extent, the United States.
Of all the punishments to choose from, those targeting the banking sector will do the most damage. From now on, Russian companies will find it much more difficult to finance their foreign debt, which totaled $650 billion at the end of 2013. What will happen next? In the short term, the Russian government will be forced to draw on its reserves of about $160 billion to recapitalize the public banks meticulously targeted by the EU and the United States. These reserves will evaporate like snow in the sun for the brutal reason that foreign debt is expected to reach $100 billion by the end of 2015. In the end, the consequences will be more severe than for the country’s current economy, which is showing signs of weakening. Gross domestic product growth in the first half was nothing, and close to $76 billion in capital has been “exiled,” while foreign investment fell by 50 percent.
However, regarding the amount of sanctions imposed, we can deduce a lesson that’s a little … how shall we say … amazing! For a long time U.S. and EU leaders were not on the same page. It has been ages since they’ve displayed such agreement and demonstrated an understanding of the many circumstances at issue. This is because these sanctions will also hurt the French banks, which are the most vulnerable with respect to Russia, as well as British, German, French and American business and technology firms. In short, everyone is aware that there will be consequences on both sides of the Russian border, and that economic recovery remains tentative everywhere in the West.
It has been 25 years since the EU and the United States joined forces so firmly and assuredly. It is likely that the explosion of the Malaysian Airlines jet, combined with reactions by President Obama and others, served as the tipping point. Prior to the airline tragedy, Putin was more or less a creep, but just a creep. Since the downing of the plane, it is as if Putin has crossed a line beyond which his very status as head of state is questionable.
In this story full of economic shock and military fury, we must finally choose the option that is likely to transform Putin’s imperial dream into a pile of confetti. The halt imposed on technology transfers will reduce his military modernization program to nothing. To put it in simplest terms: so much the better. For we all know, since his return to the presidency, Putin has helped tighten the rope with which the West has been furiously encircling Russia.
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