Gastbeitrag von Benedicte Berner: The EU and Russia

The author is a political scientist and Associate of the Davis Center for Russian and Eurasian Studies, Harvard University

Russia is on the European Union's agenda. On February 22, foreign ministers will discuss possible additional sanctions against Moscow, and at the end of March, an EU summit will hold a “strategic discussion" on EU's relations with Russia, with a need to review the results achieved with previous policies, consider new measures and Russia's possible response. The United States under a new administration will certainly seek to actively influence this process. 

Can Western policy help to influence the situation in Russia? 

The sanction policy

Following the annexation of Crimea, the military intervention in Ukraine and in particular, the downing of the Malaysian aircraft MH-17, the EU, the United States and a number of other countries imposed in 2014 sanctions on Russia. Their main purpose was to prevent the Kremlin from escalating its military aggression, to demonstrate that normal relations required respect for international law and European values, and to get Russia into negotiations on a political solution in Ukraine.

The idea was not to permanently damage Russia's economy, which would also have been both difficult and counterproductive when it comes to one of the world's largest exporters of raw materials such as oil and gas. Exports of weapons and military equipment were banned, as were technically advanced equipment for oil production. Even more important were restrictions on lending to the largest Russian banks and to oil and gas companies. The country was largely disconnected from the global capital market. Foreign investment in Russia froze. A number of people linked to the Crimean annexation and intervention in Ukraine were banned from entering the EU.

Counter Sanctions

Moscow responded with its own counter-sanctions, which affected the Russian people more than the Western measures in that they practically paralyzed the import of Western agricultural goods and forced Russia to replace them with increased own production or imports from China. The result was worse and more expensive food for the Russian consumer, declining interest among Western European companies for the Russian market while at the same time reducing Russian dependence on the West. Trade between the EU and Russia fell sharply; from EUR 322 billion in 2012, it amounts today to some EUR 240 billion.

Additional sanctions were imposed on Russia after 2014, through initiatives in the US Congress, despite passive opposition from former President Trump.

New Sanctions

In autumn 2020, following the assassination attempt on Navalny, the EU decided on new sanctions against a number of politicians, officials and other Putin henchmen in Russia: they were banned from entering the EU, their assets were blocked and Europeans were not allowed to do business with them.

Following the recent sentencing of the opponent Alexeï Navalny to nearly three years in prison, the expulsion of three European diplomats from Moscow and the chilly response of Russia´s Foreign Minister, Sergei Lavrov to Josep Borrell, the EU's foreign minister, during the latter´s visit to Moscow on February 5, the EU is again faced with the difficult issue on how to handle its policy towards Russia.

 Do sanctions work?

“Those sanctions have very little effect on our economy and mainly make us produce our own foodstuff” claims Putin in his statements directed to the west while blaming, in domestic propaganda, the poor economic growth of his country on i.a. precisely these sanctions. How hard they actually hit the Russian economy is difficult to assess. The country has certainly had a recession or very weak growth since 2014. But economic development was anemic even before sanctions were put in place. By 2008, the successful old oil and gas export-driven economic model practiced during Putin´s first eight years was exhausted and no new modern, investment-based model had been developed - on the contrary. The nationalization of profitable industries, legal uncertainty and corruption became crucial obstacles to dynamic growth. Real incomes have decreased and the gap with the technically leading countries is widening.

In addition, in mid-2014, the price of oil fell from a maximum of $ 115 per barrel (159 liters) to below $ 30, which drastically reduced the inflow of currency and led to a halving of the value of the ruble.

It is likely that the fluctuations in oil prices and the lack of economic policy reforms have had a greater impact on Russia´s GDP since 2014 than foreign sanctions.

Russias economic importance for Europe

The partnership with China, which the Kremlin claims is an alternative to cooperation with the West, does not compensate. China may want to cooperate politically and militarily with Russia and increase its trade with Russia but does not see this country as an equal economic partner and only invests in individual energy projects.

For the European powers, Russia as an economic partner has thus diminished in importance. Economic relations between the EU and Russia are completely asymmetric. About 4% of EU countries' exports go to Russia (in 2012 it was 7%). Of Russia's exports, about 40% go to the EU (in 2012 it was 50%). The threshold for further sanctions has therefore lowered, but the appetite for such action is still limited as EU Member States are divided over their policies towards Russia. Poland and the Baltic States practice harsh language with demands for tough action. President Macron of France has, for political reasons, been the promoter of a strategic dialogue - "we can not close the gate to this vast country and push it into China's arms", although he has taken a tougher stance since the crisis over Belarus and the assassination attempt on Navalny. Italy, Spain, Greece and others sympathize with the dialogue arguments and have their own bilateral interests in Russia.

Russian-German and Chinese-German economic relations

For the leading country in the EU, Germany, which has long dominated economic relations with Russia, that market is no longer a heavy political factor. In 2019, less than 2 percent of German exports went to this country. Consequently, the German business community does not form an important pressure group for better relations with Russia. The contrast to how one reacts to the far harsher authoritarian China is striking. China receives almost 10% of German exports. Chancellor Merkel's commitment to an EU-China investment agreement has therefore been large and crucial. Politically, however, every German Chancellor is forced to do his best to seek to involve Russia in pan-European cooperation. Although the German political debate is now marked by harsh criticism against Putin's Russia, the Moscow-Berlin dialogue has been an important part of European security policy, and the Berlin government must seek to pursue it. If Germany were to join extended economic sanctions and also allow the Nordstream project, one of the few important cooperation projects between Russia and Western Europe, to capsize, the Russian reaction would surely be sharp.

Bilateral relations

The fact that relations with the West are already frozen and the economic interest in improving them on both sides is lower than before, increases the Russian regime's determination to offer resistance to new sanctions. Today Moscow regards relations with the EU to have less importance than ten years ago. Russian foreign policy and trade relations are being oriented to new partners. The attitude is that EU is not a strong actor in international politics. The Kremlin prefers to deal bilaterally or with small constellations of states principally Germany, France and possibly Italy. In this manner the EU can be divided and states like Poland and the Baltic countries taking a more negative stance can be sidestepped.

The Power of the Putin regime

To assess the possibilities of how western policy can today help to influence the situation in Russia, there is a need to analyze the power of the Putin regime. The opposition can have no real power unless it gathers around an alternative policy - a new constitution, an economic system other than the corrupt state capitalist one and a West-oriented co-operation program. So far, it has not done so. Navalny has not devised such a program and his recipe for the parliamentary elections this autumn, to bundle all anti-Putin forces from the far left to the far right, is criticized by other opposition politicians. The regime´s response to the demonstrations shows how the Kremlin is ready to use the entire coercive apparatus to achieve a positive election result this autumn- it tightens the laws, strengthens the security forces and loads the propaganda with arguments about how the opposition is supported by the Western powers. Leaders of the opposition have been identified and arrested making it more difficult to organize resistance in the parliamentary elections. In the atmosphere created here, both domestic and foreign enemies will be portrayed as a threat to the nation and Navalny will be a symbol of this.

In this context, what are the options for the EU? 

a) Tougher sanctions?

Russia and its regime are likely to be affected only by far more radical economic sanctions than the current ones or possibly by expanded use of the targeted measures already in place.

Financial sanctions could hit hard if the EU completely restricts access to the capital market for Russian companies and banks. Import and export bans can be applied as already is the case for certain technical products of importance to the oil industry as well as to weapons and military equipment. Targeted sanctions against companies or sectors may be effective. In particular, the sanctions in the oil and gas sector may work in the long run as they lead to poorer prospects in this area central to Russia. The technically demanding production of oil in the Arctic is particularly vulnerable. Gas exports can be affected by stopping Nordstream 2. However, several important member states are major importers of Russian gas and oil and sanctions in this sector can be counterproductive.  Additionally it is clear that all Member States of the Union are unlikely to be able to agree on any new radical economic coercive measures against Russia. Those that already apply are renewed regularly but without any conviction that they are actually yielding any positive results.

A list of persons belonging to the leadership in Russia

Targeted sanctions hitting the leadership in Russia can be both more effective, less costly for the EU and more acceptable to all Member States. A first step is sanctions against those responsible for the assassination attempt on Navalny. As early as October, the EU sanctioned Alexander Bortnikov, the head of the FSB, the Russian security service, Sergei Kiriyenko, a former prime minister and now deputy prime minister in Putin's presidency, and four other senior officials and politicians. Navalny himself and the British unofficial intelligence agency, Bellingcat, have been able to identify other persons who should be added to the list if nothing else to prevent them from entering the EU for further acts of violence.

A list of Putin´s friends and corrupt oligarchs

Another natural target group is Putin's circle of friends of corrupt oligarchs and officials. Several of them are already on the western blacklist. The purpose and point of these sanctions is to demonstrate that Putin cannot protect even his closest associates and that they are harmed by his aggressive policies. Russian opposition figures are probably the ones who can best judge which people should be subjected to these measures, and Navalny has published a list. Of course, this is not without problems either - sanctioning an oligarch means that his company falls under the sanction rule. Both the EU and the US experienced this when sanctions were imposed on Putin's related aluminum king, Oleg Deripaska, which led to disruptions in the global aluminum market.

What is already happening but which can be intensified is to stop Russian illegal financial flows to Western banks by requiring transparency for private investments from Russia in the EU. The Putin-linked upper class should not be able to use their luxury properties and bank accounts in the West undisturbed. Restrictions that already apply can be extended. A country that is often at the forefront of criticism of Russia, namely the United Kingdom, should be particularly committed as the Russian financial elite has concentrated its wealth there. Such measures can probably hurt. If they are implemented with force and transparency, they can get a good response in Russian opinion.

The importance of the  United States

The EU's sanction decision does not take place in a vacuum. The United States plays a key role in all discussions about sanctions and political relations with Moscow. US-Russia trade balance is insignificant; with no own important economic interest in Russia, the United States reserves its right to punish companies in third countries cooperating with Russia, in violation of US sanctions. This measure has been an effective obstacle to expanded economic cooperation for European companies with Russia and other US-sanctioned states and the EU offers little resistance to US extra-territorial claims. Though the Biden administration has renewed for five years the strategic nuclear weapons (START) treaty, it has also announced a tougher stance against Russia. The US administration wants to cooperate with the EU on Russia's policy, but on its own terms. This primarily means an attempt to stop the Nordstream 2 gas project, in which Germany is a key player. So far, Merkel maintains her support for the project, but pressure is mounting to stop it. Germany is here in a delicate and complicated decision process: on the one hand it has an important need for gas especially given the necessity to exit lignite coal and the closing of nuclear power plants; on the other hand, cancelling the project has important political effects and also risks major claims for damages.

b) A strategy with instruments other than just sanctions?

 If only much tougher and targeted economic sanctions can possibly be an instrument for influencing Russia, it remains, as mentioned earlier, doubtful whether all EU member states would unite on such a course and ultimately whether they would lead to any positive results.

Indirect pressure options can be just as effective. One example is the strengthening of the Eastern Partnership with post-Soviet states. The EU can also show that it is prepared and capable of reducing its dependence on Russia in the field of energy. Active measures to counter and punish cyber-attacks should be another part of the EU arsenal.

Sanctions combined with an active dialogue

Such policy should be combined with an active dialogue with Russia on issues of common interest such as arms control, the non-proliferation of nuclear weapons, the climate issue, the Iran negotiations and the dialogue on military security in Europe. To be effective, this requires a joint action by Europeans and Americans but in such case decisions should be made jointly and not dictated by Washington.

The EU should also show that it distinguishes between the Kremlin regime and Russian society. Opinion polls show that the Russian people are tired of the confrontation with the West and do not see the United States or Western Europe as enemies at all.

Cooperation with  the Russian society

The anti-Western rhetoric of Russian propaganda could be countered with a leading theme: "Russia belongs in Europe", implying increased cooperation and more contacts trying to get Russia into an international circle of states that have reasonably common values. Europe is where Russia has its roots. The Eurasian allure with a closer connection to the economic giant China is not natural for Russia - it is probably a thesis that can be adopted by the majority in broad circles in Russia.

The combination of pressure and cooperation is certainly difficult, but the alternatives are worse, especially in the longer term. Measures against the Kremlin can be combined with proposals for major projects to benefit Russian society. Cooperation in culture, science, sports and youth exchange are ideas that already exist, especially on the German side, but which should also be addressed by other western countries. Western European states can offer the younger generations in Russia positive experiences: visa exemptions, broad exchange programs for schools and studies, internships in companies in the EU, cultural funding and much more. In short: give young people in Russia more opportunities to get to know realities other than the authoritarian society in which they live. The civil society in this vast country should receive all the support the EU can offer.