EU considers ban on Russian bond-buying as part of new sanctions package

Vladimir Putin at the World Economic Forum Annual Meeting Davos 2009 [Flickr/World Economic Forum]
Vladimir Putin at the World Economic Forum Annual Meeting. Davos, 2009. [Flickr/World Economic Forum]

Europeans could be barred from buying new Russian government bonds, under a package of extra sanctions that EU ambassadors were to start discussing on Monday, sources said.

EU leaders decided at a summit on Saturday that the direct engagement of Russian troops in the war in eastern and southern Ukraine - still denied by Moscow - called for a stepping up of sanctions imposed so far unless Russia pulled its soldiers back.

German Chancellor Angela Merkel, who led the drive for a tougher EU response, said on Monday that Moscow's behaviour in Ukraine must not go unanswered, even if sanctions hurt the German economy, heavily dependent on imported Russian gas.

"I have said that [sanctions] can have an impact, also for German companies," Merkel told a news conference in Berlin.

"But I have to say there is also an impact when you are allowed to move borders in Europe and attack other countries with your troops," she said. "Accepting Russia's behaviour is not an option. And therefore it was necessary to prepare further sanctions."

The leaders asked the executive European Commission to prepare further measures within a week, building on steps taken at the end of July, which targeted the energy, banking and defence sectors.

"I'm hearing that a ban on buying Russian government bonds could be in the next package," an EU official familiar with the preparations said.

Tighter restrictions on dual use technologies with military as well as civilian applications could also be included, along with curbs on advanced energy exploration equipment, the official said.

An EU diplomat said ambassadors of the 28 member states would hold a meeting on Monday at 1300 GMT to start work on a "significant" package of steps, though no immediate decisions were expected. A further meeting is set for Wednesday.

The leaders said the Commission should include in the sanctions "every person and institution dealing with the separatist groups in the Donbass", potentially leaving a very broad area that could be targeted. The Donbass is the industrial region of eastern Ukraine where separatists are active.

However several EU countries heavily dependent on Russian gas, including the Czech Republic, Slovakia and Austria, are opposed to new sanctions, which require unanimous agreement.

"I consider sanctions meaningless and counterproductive," Slovak Prime Minister Robert Fico said on Sunday.

"Until we know what is the impact of the already imposed sanctions, it makes no sense to impose new ones," Fico said. "I reserve a right to veto sanctions harming national interests of Slovakia."

Financial sector, gas

EU diplomats said the main thrust of new steps could be financial because that would hit the Russian government rather than citizens. It could be coordinated with the United States, whose measures have focused on the financial sector.

Two diplomats said they did not rule out a ban on the purchases of Russian sovereign bonds to make it more difficult for the Russian government to finance itself on markets.

The measure, however, might have little direct impact on Russia in the near term, as it has limited borrowing needs. Rich from oil and gas revenues, Russia has cancelled many domestic bond auctions as the Ukraine conflict has pushed up its borrowing costs above acceptable levels.

It has halved its domestic borrowing plans to 435 billion roubles ($12 billion) this year and has already raised more than half of that lower sum. Foreign buyers so far accounted for a quarter of the sales.

Russia has no plans to tap foreign markets this year. It still plans to raise $7 billion abroad in 2015, but the Russian finance ministry has said the borrowing may not be needed. The ministry did not return calls asking for a comment on Monday.

The yield on 10-year rouble-denominated bonds is now 9.79%, up from 8.3% at the start of July and 7.7% at the start of the year. But the yield on the benchmark dollar-denominated bond is 5.03%.

"It is impossible to tell the impact until we know the specific measures, if any," said Jan Dehn, head of research at emerging markets focused fund manager Ashmore Investment Management in London.

"But we can see from the PMI number today that Russia has considerable resilience. It also has high reserve levels, low debt, and a flexible exchange rate. By contrast, Europe's economy seems to be crumbling," Dehn said.

In July, the EU banned Russian state-owned banks from raising capital or from borrowing in EU markets.


Moscow has retaliated against sanctions by banning most food imports from Europe and the United States. One risk of a ban on buying Russian sovereign bonds is that the Kremlin could hit back by dumping European government bonds, of which Russian state institutions have significant holdings.

Asked about whether Russia could be cut off from the international money transfer system known as SWIFT, one diplomat said the idea had been floated several months ago, but that there was opposition to it among several EU countries.

"The problem is that while it would probably work well in the short-term, as in the case of Iran, in the long-term it would trigger the creation of an alternative system to SWIFT and the setting up of two alternative world transaction systems and nobody wants that," the diplomat said.

The July sanctions also hit equipment for the oil and defence sectors, and the sale of "dual use" technologies to military end-users. That restriction could now be broadened.

Russia's gas sector, which powers European industry and lights its cities, has been spared so far. Moscow is the world's biggest exporter of gas and second biggest exporter of oil.

But the new package could also include high technology for gas excavation, another EU diplomat said.

"It would make sense to target high-tech gas technologies when it comes to possibility of further sanctions against Russia as it would impact Russia's gas project signed with China," the diplomat said.

Russia signed a $400 billion gas deal with China in May and started the construction of one of the world's biggest pipelines to deliver it. One aim of the deal is to lessen Russia's reliance on European customers.

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wavettore's picture

The Phantom War
In the Second World War, US and UK have liberated the Jewish people and the whole World to become the ambassadors of Human rights and Democracy. But after the War, with the creation of the State of Israel, one new element infiltrated those two Countries. The Ego of the winners mixed with Jewish Greed have together personified the Zionist concept. In this Biblical ideal, the “chosen people” reside at the top of one virtual pyramid and pull the strings in all Countries. In the next World War, it will be like fighting against a phantom where the invisible enemy is personified by a few individuals spread in various Countries. They dictate their will from the top of this pyramid. The conflict manipulated by the Zionists will be geographically split on two fronts: Russia, China and Arab States on one side Israel, USA and England on the other. The conspirators have already planned this War behind the backs of all people which will be forced to fight for their own Countries in their obligation as citizens. Through a strategy made of Terror and Deception, the Zionists will continue to monitor and to separate all people in hope to face many weak and divided oppositions rather than one strong and united. No weapons or protests in the streets could ever oppose such Plan. In this “carousel” orchestrated by the CIA on behalf of the Zionists, the greatest danger to Humankind is not from the CIA or the Zionists but the lack of one evolutionary change needed for us to step away from the same Direction marked in all history and to become one race distinguished from the Animal kingdom.

Jay's picture

The human race is merely a pawn between good and evil in God's plan. You make your own choices, to each according to their conscience.

Jay's picture

Each side keeps escalating the conflict. I think Putin will eventually tire of the game and take another chunk of Ukraine, after all, he has demonstrated his will to fight for it in lieu of western boycotts to negotiate.