The Sanctions Debate

BERLIN/MOSCOW (Own report) – In the prelude to Chancellor Merkel’s visit to Russia, German business associations and foreign policy experts are urging that the policy of sanctions be ended. They argue that sanctions practically have become ineffective, since Russia’s economy has withstood these trade restrictions and is now even recovering. The boycott has also damaged the EU’s image and that of the USA in Russia and, even though intended to weaken, it has helped to stabilize the Russian government. Moreover, Russian orders, that German businesses had once expected, were increasingly going to competitors, for example in China – and are ultimately lost. However, German economists still see Russia as a lucrative market. According to an analysis by the Bertelsmann Foundation and Munich’s ifo Institute, a free-trade agreement between the EU and the Eurasian Economic Union (EAEU), congregated around Russia, would generate a growth of 45 billion euros. Government advisors recommend that the sanctions policy be gradually ended. This would not eliminate the prospect that Moscow, at any time, could be forced to its knees with an arms race.

Russia on the Rise

In the run-up to Chancellor Angela Merkel’s talks with Russian President Putin in Sochi today, business representatives have indicated that the EU sanctions against Russia are no longer achieving the desired results. The German Chambers of Industry and Commerce (DIHK) have noted that, following the imposition of the sanctions in 2015, the Russian economy had slumped by 3.7 percent.[1] However, this decline was only due in part to sanctions. It was mainly due to the fact that the oil price – on which the Russian economy is heavily dependent – was simultaneously cut in half. According to the World Bank, the sanctions accounted for only 0.5 percent of the losses to Russia’s GDP. In the meantime, the Russian economy has recovered, notes the DIHK. The International Monetary Fund (IMF) expects a 1.5 percent growth in 2017. With its counter-sanctions – banning EU agricultural imports – Moscow has even succeeded in initiating a diversification of its economy. Already in 2015, the share of the agricultural sector in Russia’s economic output rose to 3.9 percent. Today, Russia earns more with its agricultural exports than with arms exports.

Permanent Losses

Adverse Effect

Eurasian Free Trade

Incentives to renew business with Russia are becoming stronger. Not only associations such as the German Committee on Eastern European Economic Relations and the German Chambers of Industry and Commerce are lobbying in this sense. Recently, the influential Bertelsmann Foundation and the Munich-based Institute for Economic Research (ifo) compiled a study dealing with the possibility of a free trade agreement between the EU and the Eurasian Economic Union (EAEU) congregated around Russia.[8] An EU-EAEU free trade agreement could generate overall “growth impulses of up to 45 billion euros” for the EU, they predict. Not only eastern EU nations, such as Slovakia or the Baltic countries would benefit. Germany would also benefit “considerably.”[9] One could begin with the “harmonization of technical standards.” A free trade agreement ultimately presupposes an end to sanctions.

Gradually Lift

Arms Race

Because of global rivalry that has intensified due to Russia’s partial resurgence, a renunciation of the sanctions policy would by no means signify the beginning of a new partnership with Russia. ( reported.[11]). Strategic tensions between NATO countries and Russia have recently found expression in the deployment of NATO armed forces at Russia’s western border. From Moscow’s perspective, in the long run, this deployment could have more serious consequences than the current economic sanctions, as was recently pointed out by the DGAP. In the latest edition of its magazine, “Internationale Politik”, Washington is already spending “eight times more on its military and arms than Moscow.” Just like during the Cold War Russia could not “meet the challenge” of an “arms race with the USA.”[12] The deployment of NATO’s armed forces at Russia’s western border – encouraged by Berlin – could serve as an important lever to relaunch the arms race.[13]

Full article: The Sanctions Debate (German Foreign Policy)

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