Editorial: the multi-edged sword of sanctions

Sanktsioonid, sanktsioonid... PHOTO: Karikatuur: Urmas Nemvalts

When in the 1980ies the Reagan administration imposed trade-sanctions on the Soviet Union because of events in Poland, the Kremlin propaganda called these meaningless and assured the USA it would just buy what it needed from other nations in the West. Even in the days of Jimmy Carter, there were restrictions because of Afghanistan – to no avail.

Now, as the USA and the EU have piled on sanctions because of Ukraine, Moscow basically talks the same talk. During discussions regarding the defence industry, on Monday, President Putin underlined that «hardships must, in the end, work for our good as we will have to launch domestic production where we didn’t have it as yet». Echoed  Sergei Lavrov, the Russian foreign minister: «We will overcome the difficulties that may occur in certain spheres of the economy. Possibly, we will add independence and confidence in our strength.»

Even so, the Soviet Union was a case by itself, quite weakly integrated into the international economy with all relations controlled from the top. Now, we have to do with a modern Russia which is in need of investments in vital sectors of the economy, with banks that have assumed huge foreign loans, and, finally, with people calling on their iPhones, draw on VISA and MasterCard credit, and desire to take time off in the Riviera or bathe in Spanish seaside sunshine. Probably opting to keep rather mum, out of fear, Russian businessmen and officials feel that the now-familiar opportunities and benefits are increasingly on the balance.

The fresh round of sanctions, at long last agreed by Europe and the US, is more serious and signals a deepening isolation for Russia. Who would wish to risk his money in a country where the next news could be restrictions or a freeze on cash flow?

Russia’s former finance minister Alexei Kudrin, whose views may be deemed as moderately liberal but who generally has avoided directly confronting Mr Putin, warned in a longer interview to news agency ITAR‑TASS, a week ago, that if the West imposes serious sanctions targeting definite sectors of the economy, Russia may go into recession.

Should Russia militarily intervene in events of Ukraine (up to now, this has been done covertly or with Russia at least denying it has intervened), Mr Kudrin thinks it would equal cutting 15 to 20 percent off of inhabitants in Russia.

After the flight MH17 got shot down, the mood in Europe has shifted to the detriment of Mr Putin and, increasingly, the public opinion is against business as usual as well. To come out of the corner with minimal losses, the ball is in Russian leaders’ hands. «Where do we go?» they might ask. «Into a deeper isolation yet, or towards minimising the losses?»