On the evening of March 14, the EU countries approved the fourth package of sanctions designed to stop Russian aggression against Ukraine. They will enter into force upon publication in the Official Journal of the EU. A ban is introduced, in particular, on the export to Russia of any luxury goods from Europe. As European Commission President Ursula von der Leyen said after the EU summit last Friday, “those who support Putin’s war machine should no longer be able to enjoy their luxurious lifestyle.”
In addition, European countries are refusing to import products of Russian ferrous metallurgy, depriving the country of one of the most important sources of foreign exchange earnings. The ban also includes new investments in the Russian energy sector. And by mid-May, a detailed plan should be ready for Europe to completely abandon Russian oil and gas by 2027.
Finally, a new package of European sanctions, which have already been agreed with the US, Canada, Japan and other countries, provides for the suspension of Russia’s membership in the IMF and the World Bank. There is no procedure for exclusion of a country from the World Trade Organization. However, Western and other countries may cancel the most favored nation treatment in trade, after which participation in the WTO will become meaningless for Russia.
Someone, succumbing to jingoistic moods, may be naive to think that Europeans are not fully aware that the financial and commercial blockade of Russia (and now we are talking about a phased severance of all economic ties) will deal a serious blow to Europe as well. , and around the world. However, it is not. Both in Brussels, and in Berlin, and in Washington, they perfectly understand what losses they will have to take. If it were only a matter of punishing the Putin regime for aggression against a neighboring country, it would not have come to the fourth or even to the third package of sanctions.
But the purpose of international sanctions now is to bring the Russian economy to a state in which the continuation of the war will be impossible. The likely economic loss of the West or another global crisis is regarded as a lesser evil compared to a much more significant military threat.
The head of European diplomacy, Josep Borrell, said that the EU fears that Putin will not stop in Ukraine. If he takes aggressive action against one of the NATO countries, the Third World War will not be avoided.
And in Russia, it seems, so far, few people realize that the Rubicon has been crossed and a return to pre-war life in the foreseeable future is hardly possible. Both the war and the unprecedented restrictions that followed it are perceived by almost everyone as “temporary hardships” that simply cannot last. Back at the end of February, the vast majority were sure that a week or two would pass, a month at the most, and everything would work out somehow. An irrational, but unshakable belief in a “blitzkrieg”, followed by the lifting of restrictions and a return to “peaceful” life. Society turned out to be simply unable to realize, much less accept, the full scale of the catastrophe that had befallen it.
Let me give you one illustrative example. The telegram channel of the Money in Freedom program periodically asks whether Russia is in danger of default. Why people are interested in this is more or less clear. The most devastating crisis of the post-Soviet economy hit Russia in August 1998. Then the government of Sergei Kiriyenko announced a default on all external and internal obligations of the state and the devaluation of the ruble. This was followed by massive bank failures and a massive drop in living standards in Russia. The country has been following the course of negotiations with the Paris and London clubs of creditors on the restructuring of the public debt for several months with tension. And when compromises were reached, everyone breathed a sigh of relief. The words “default” and “devaluation” have firmly entered the lexicon of Russians and have become an expression of the worst thing that can happen to the economy.
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In 1998, Russia still remained part of the world economy. After the restructuring of debts, foreign investments poured into Russia. The economic recovery in 1999-2007 proceeded at an unprecedented pace. The goal of doubling GDP in 10 years looked quite feasible. Real disposable incomes of the population grew at a faster rate.
Now the situation is fundamentally different. No one has any doubts that the government will be able to pay off its ruble obligations: the Bank of Russia will print as many rubles as it needs. Whether Russia can service sovereign debt denominated in foreign currencies is absolutely irrelevant. Nothing depends on this now. In the context of the ban on financing the Russian public debt, this does not change anything. Yes, and to borrow currency, which is still impossible to use because of the imposed on the Bank of Russia and the National Welfare Fund, is also stupid. You can also forget about foreign direct investment. Especially after the discussed decision to nationalize the assets of companies that have announced the suspension of their activities in Russia.
And most importantly, even the end of hostilities will not lead to the lifting of international sanctions. Ironically, in order to lift the international blockade of Russia, Western countries will need reliable guarantees that it has ceased to pose a military threat to them. And for this, it will not be enough to withdraw all Russian troops from the territory of Ukraine, including the Donetsk and Lugansk regions. And even returning Crimea, I think, will not be enough. It will require the same demilitarization and denazification that Putin demands from Ukraine.
Simply put, Russia will have to follow the path that Germany took after the defeat in World War II – with the Nuremberg Trials, lustration, reparations, a legislative ban on weapons of mass destruction and the participation of the army in hostilities outside the country. For obvious reasons, the current authorities cannot try this option on themselves. And this means that Russia runs the risk of remaining a “plague hut” for the developed countries for a long time.
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