Published : 2014-03-05 19:49
Updated : 2014-03-05 19:49
Walk into a supermarket anywhere in Russia and you’ll find shelf upon shelf stocked with familiar European brands, from Barilla pasta to Danone yogurt.
Under President Vladimir Putin and his predecessors, Russia has singularly failed to develop its domestic industries, and has imported ever-larger amounts of consumer goods from Europe, its top trade partner. They include Dior handbags and BMW autos, but also huge amounts of staples from toilet paper to chocolate bars.
If the European Union truly wanted to express anger at what’s happening in Crimea, it could cut off some of this trade. The last time Russia didn’t have soap or toilet paper was in Soviet days, and that precipitated the collapse of the USSR.
The EU has the authority to take such a drastic step. Under article 215 of the Treaty on the Functioning of the European Union, it can interrupt economic and financial relations with any country to advance foreign and security policy. More than 30 nations are currently subject to EU restrictions, many of which are export bans on equipment that could be used for internal repression ― for instance, in Iran and Belarus. But Europe has also kept companies from operating in countries such as Burma, and it continues to maintain sanctions on individuals, such as Serbian and Tunisian former leaders.
Russia could easily be subjected to such pressure; the EU exported about $300 billion worth of goods there in 2012, an increase of 33 percent from 2010. In fact, for a number of European companies enduring sluggish growth at home, Russia has been a zone of opportunity. It is now the largest market for the French yogurt maker Danone. The German automakers Daimler-Benz, BMW and Volkswagen all report buoyant demand for their cars there; Mercedes alone sold about 40,000 vehicles last year. And the Italian pasta maker Barilla is targeting Russia for a major expansion of its pasta sales. While some European producers are now making some of these goods in Russian plants, most of them are imported.
Another strong sanction would be a ban on new investment in Russia: The EU provides as much as 75 percent of the foreign direct investment there.
EU foreign ministers met on Monday and brandished the threat of such sanctions, but delayed any formal decisions. Their most likely course of action will be to suspend the same talks on a trade and partnership agreement that they cut off temporarily in 2008, when Russia invaded Georgia ― talks that still haven’t led to an accord. But this probably won’t be any more effective than it was last time.
This time around, however, Western countries have a new weapon: the Magnitsky Act. This law, passed by the U.S. Congress in 2012, was meant to punish Russian officials responsible for the death of Russian lawyer Sergei Magnitsky in a Russian prison. (Magnitsky had been investigating Russian tax fraud involving his investment fund, Hermitage Capital.) That same year, the British parliament unanimously voted to restrict visas and freeze assets of Russians implicated in Magnitsky’s death.
These actions were powerful enough that Russia retaliated with a law preventing American families from adopting Russian children.
In response to Russia’s aggression in Ukraine, Europe could adopt the Magnitsky principle by making life unpleasant for Putin’s oligarch friends, who have turned Europe into their playground. Over the past two decades, they have snapped up overpriced apartments in “Moscow-on-Thames” and spent their vacations on the French Riviera and in Tuscany, and they have held Champagne-soaked New Year parties in Courchevel, the French ski resort.
The simplest sanction would be to refuse to grant visas. The next level up would be to freeze their assets.
Refusing visas and freezing assets would hurt not only individuals but also a number of important Russian companies. The London Stock Exchange has become the financial home for more than two dozen of them, including Volga Gas and Petroneft.Resources PLC, the oil and gas exploration company. The largest Russian energy firms, Rosneft and Gazprom, have depositary receipt listings on the LSE.
For all these possibilities, European governments, especially Germany, are reluctant to take any punitive measures, for fear of damaging not only Russia but also Europe’s nascent recovery. At a lunch in Paris on Monday, former German Chancellor Gerhard Schroeder told German journalists, “You need to make sure you don’t hurt yourself more than those you are wanting to boycott.”
Another reason Europe is reluctant to impose more than token sanctions is its dependence on Russia for about a third of its oil and gas. Under the “Roadmap for Energy Cooperation” that the EU signed with Russia a year ago, energy imports are to increase through 2050. The Crimea crisis should waken the EU to the need to reverse this growing dependence.
But that’s a solution for the long term. For now, stopping the flow of yogurt and toilet tissue might prove a lot more effective.
By Peter Gumbel
Peter Gumbel, a Paris-based journalist, is the author, most recently, of “France’s Got Talent: The Woeful Consequences of French Elitism.” ― Ed.