EU countries weigh possible losses from Crimea escalation


Although Moscow has not retaliated against Western sanctions yet,  EU countries are weighing the economic consequences, such measures might entail. The EURACTIV network reports.

EU leaders are meeting today (20 March) for a two-day economic summit, in which the Crimea crisis is expected to eclipse the agenda. According to diplomats, EU leaders are not expected to impose economic sanctions.

However, to remain credible, the EU will send a signal that Russia's annexation of Crimea, and its ignoring of calls for de-escalation, would not remain without response. In the event that Russia seized eastern or southern Ukraine, economic sanctions would undoubtedly be adopted. In such an instance, the Russian government has prepared legislation allowing for the confiscation of Western assets.

Latvia, Cyprus and Bulgaria have said that the EU should compensate countries hurt by sanctions. All three countries are highly dependent on Russia. Latvian Finance Minister Andris Viks said that the money should come from the EU Solidarity Fund, which normally provides financial assistance in the case of natural disasters. But EU diplomats told EURACTIV that the European Union didn’t have the resources to compensate for losses incurred by Russian retaliation.

Bulgarian Foreign Minister Kristian Vigenin said that his country was doing its utmost to immediately receive EU compensation, in the event of “negative developments”. Asked about the prospects of a major Russian-promoted project, the planned South Stream gas pipeline, Vigenin said that he did not expect anything getting in the way of its completion, adding that current developments had provided “further arguments” for its necessity.

Unlike Bulgaria, which has been pleading to minimize sanctions, its neighbour, Romania, demands “sanctions to the hilt”, in order to respond to Russia's annexation of Crimea. Romania, in fact, fears that Russia aims to make nearby Transnistria, and Romanian-speaking Moldova, part of the Eurasian Union.

In response to these challenges, Romanian President Traian B?sescu said that his country should speed up the production of shale gas, become energy independent, and make sure that it will become capable of supplying 4 billion cubic meters of gas per year (bcm/y) to Moldova. A recently inaugurated interconnector supplies 0.5 bcm annually.

Slovakia, another country highly dependent on Russian gas, has not indicated that it is concerned about its energy supply. Slovak Gas Industry (SPP) and Gazprom initialized a twenty year supply agreement, in November 2008. In 2012, the previously agreed-upon price was decreased.

But Slovak Prime Minister Robert Fico indicated that his country could not pretend it is not worried by developments in Ukraine, particularly in regards to its automotive exports. “We are currently exporting 250,000 cars to the Russian Federation, a quarter of all car exports", Fico said.

Slovakia’s oil supplies from Russia may also be affected. The intergovernmental agreement on oil supplies (signed in 1999), and protocol on transit (signed in 2000), are both about to expire at the end of 2014. The ministry of economy is currently negotiating the preparation of a new framework agreement.

Jobs at risk

In the Czech Republic, Prime Minister Bohuslav Sobotka has warned that sanctions could backfire, and threaten jobs. Sobotka said he supported seeking political and diplomatic sanctions, but that by imposing economic sanctions on Russia, “Europe would punish itself”. 

Sobotka has good reason to be concerned. The Ukraine crisis may impact an effort to build two new reactors at the Temelín nuclear power plant. France, the USA and Russia have made bids on the project. But now, Minister of Sefence Martin Stropnický, and Minister for Human Rights Ji?í Dienstbier, have said they would not support the Russian bid because of the situation. Sobotka criticized their position, saying that despite developments in Crimea, the Czech Republic “cannot stop its trade relations with Russia".

In Hungary, which is also undertaking a major nuclear power plant project, Prime Minister Viktor Orbán insists that his country is “not part of the Russian-Ukrainian conflict”. Last January, Orbán, and Russian President Vladimir Putin, agreed that Russia would build two new reactors in the city of Paks, and provide a 30-year loan worth €10 billion, covering 80% of the construction costs [read more].

Hungary's centre-left opposition has accused Orbán of being “beholden” to Putin, and has tabled a draft resolution in Parliament requesting the cancellation of the January agreement for the Paks plant. According to observers, this criticism should be understood as being election-related, as Hungarians will vote in a new parliament on 6 April.

Poland, which has been spearheading the EU’s support of the new Ukrainian government, is logically a strong supporter of sanctions.

Yet, Poland has significant export interests in Russia, and is concerned that sanctions could have a negative impact on its economy. These are somewhat mitigated by the fact that Polish exporters have prior experience in trade wars with Russia. A few years, ago Polish meat exporters had to face a Russian ban on their products, that was considered to be motivated by antagonism between the then-Polish government, and its Russian counterpart.

Energy independence at stake

Prime Minister Donald Tusk has stressed that gaining energy independence from Russia is an important goal for Poland. Regarding sanctions, he said that decisions need to be made which take into account their potential consequence for the Polish and European economy.

In Germany, Chancellor Angela Merkel’s government remains hopeful that sanctions can facilitate a diplomatic solution to the Ukraine crisis. “The federal government will not give up its diplomatic efforts to bring about a de-escalation of the crisis and maintain Ukrainian sovereignty,” said the chancellor’s spokesman in Berlin, on Monday (17 March).

But others fear negative fallout from the EU’s sanctions scheme, which could be bolstered to a third level if Russia does not budge. Earlier this month, before the Crimea referendum, Gernot Erler, the German government’s Russia coordinator, told Der Spiegel that he has “warned” against using sanctions as an instrument at this point in time, because in his view, this threatened the EU’s chance at creating a political solution to the crisis.

Energy supply concerns are also widespread in Germany, where almost 40% of gas and oil is provided by Russia. But the President of the Federal of German Industries (BDI), Ulrich Grillo, said Germany was not too dependent: “Russia has been a sensible trade partner in the past, and of course we are dependent to some extent. But I am convinced that we are not vulnerable to extortion. We can diversify and expand other supply sources.”

France doesn’t rely on Russian oil or gas to the same degree as its German neighbor, because its supply is more diversified. Unlike Germany, only a quarter of France's gas is provided by Russia.

But France sells Russia a significant amount of military goods, including aircraft, helicopters and ships, as well as luxury goods. The much-discussed sale of two Mistral-class amphibious assault warships remains planned [read more] Russia has already stated that Paris must pay Moscow over €1.2 billion in compensation, in the event that it cancels the contract.

Here, the intrigue is of a different kind. Laurent Fabius, France's foreign affairs minister, said that the Mistral project could be stopped on the condition that the UK simultaneously freeze Russian assets in the country. France believes that if it were to suffer major losses stemming from the Crimea crisis, London, where Russian oligarchs do their banking, ought to pay a heavy price, too. 


The heads of state and government gather in Brussels for March's EU Summit - their last gathering before the European Parliament elections on 22-25 May. 

Key topic is the escalation of the conflict in Ukraine: following the outcome of a referendum in Crimea on leaving Ukraine, the EU and the US imposed sanctions on a number of Russian and Ukrainian officials early this week. Russian president Vladimir Putin defied the sanctions and showed he is unlikely to lash control over the Crimea peninsula causing a fear of further escalation.

Apart from discussing a way out of the crisis in Ukraine, EU leaders will also conclude the first phase of the European Semester; discuss industrial competitiveness; debate the Commission's latest version of the proposal for the 2030 energy and climate package; and prepare an EU-Africa Summit to be held in early April.

>> See the Draft agenda here

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