COMMENT: Did the EU just blink?

By bne IntelliNews November 20, 2014

Mark Adomanis in Washington DC -


Compared to some of the bellicose rhetoric that has come out of Brussels in recent weeks, Federica Mogherini's declaration on November 17 that "Russia is for sure part of the problem, but is also for sure part of the solution" sounded amazingly accommodating.

The former foreign minister of Italy, Mogherini's appointment as the chief of EU foreign policy was roundly criticized by hawks who predicted that she would be unnecessarily soft in her dealings with Putin. While it would be unfair to put all of the credit (or blame, depending on your point of view) on Mongherini herself, her comments are an unambiguous departure from the EU's previous narrative, which held that so long as Russia continued to interfere in Ukraine sanctions would become gradually more severe. 

As if to avoid appearing overly indecisive and weak, the EU did agree on November 17 to place an unspecified number of additional Ukrainian separatists under asset freezes and travel bans. If you've seen any of the photos out of Donetsk and Lugansk, though, you'll be aware that the people doing the fighting there aren't going to throw down their weapons over the prospect of being unable to shop in Paris.

The EU, facing the opportunity to place Russia under even more severe economic strain, blinked.

So what explains the change in tone? To borrow a famous expression from Marx: a spectre is haunting Europe, the spectre of recession.

No great shape

The EU was arguably never in a particularly great position to sanction Russia. Even before Ukraine exploded, Europe still hadn’t fully recovered from the global financial crisis, and was lumbering along in a low-growth, high-unemployment funk. But European policymakers were nonetheless optimistic that even in their relatively weakened state they could easily shake off any of the economic damage that might result from a big push for anti-Russia sanctions.

It is clearly the case that the total impact of anti-Russia sanctions fell more heavily on Moscow than on Brussels: Russian growth has declined more quickly, inflation spiked more dramatically, its currency depreciated more rapidly and capital exited more rapidly. But, in retrospect, what was clearly missing from the sanctions debate was any real discussion of pain tolerance, of which side would be willing to suffer more to ensure its preferred policy outcome.

Fast forward a few months and it’s becoming increasingly clear that even the rather modest negative impact from anti-Russian sanctions could drive the Eurozone into outright recession, its third in less than a decade. There is increasing resistance within the EU to any policy that will have short-term economic costs, not just among countries that have traditionally been modestly pro-Russian in their orientation (like Austria and Greece), but even from countries that have traditionally been highly critical of Russia like the Czech Republic and Slovakia. Openly pro-Russian policies are still politically toxic in most of the continent – outside of Hungary’s Viktor Orban few have dared to publicly support the Kremlin’s position – but there is a growing reluctance to match vague denunciations of Moscow’s conduct with concrete action.

If Europe’s economy were in a healthier state, there is little doubt that it would follow a more hawkish policy towards Russia. But Europe’s economy isn’t healthy at the moment and it’s anyone’s guess as to when it will be. So long as the Eurozone is limping along with a stagnant economy, any more anti-Russia sanctions will be a tough sell politically.

Absent a dramatic deterioration in Eastern Ukraine (which unfortunately is a genuine possibility), the EU’s new policy course seems clear: continue to publicly criticize Moscow, but stay away from doing anything that could tip the continent’s economy back into a free fall.


Related Articles

Drum rolls in the great disappearing act of Russia's banks

Jason Corcoran in Moscow - Russian banks are disappearing at the fastest rate ever as the country's deepening recession makes it easier for the central bank to expose money laundering, dodgy lending ... more

Kremlin: No evidence in Olympic doping allegations against Russia

bne IntelliNews - The Kremlin supported by national sports authorities has brushed aside "groundless" allegations of a mass doping scam involving Russian athletes after the World Anti-Doping Agency ... more

PROFILE: Day of reckoning comes for eccentric owner of Russian bank Uralsib

Jason Corcoran in Moscow - Revelations and mysticism may have been the stock-in-trade of Nikolai Tsvetkov’s management style, but ultimately they didn’t help him to hold on to his ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.