EU unity over Russia sanctions falters as Europe’s economy wilts By Reuters

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© Reuters. FILE PHOTO: European Union flags fly outside the EU Commission headquarters in Brussels, Belgium, September 28, 2022. REUTERS/Yves Herman

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By John O’Donnell

BRUSSELS (Reuters) – European Union solidarity over sanctions on Russia has begun to falter as jitters over the impact on Europe’s battered economies weaken the decision to punish Moscow for its war in Ukraine.

EU leaders agreed on Thursday on a package of nine sanctions but negotiations have been heated, with Poland and Baltic states pushing for tougher measures, while western countries, such as Germany, were more skeptical.

Others, such as Belgium and Greece, as well as Hungary, which still relies heavily on Russian energy imports, are pushing back against further measures, EU diplomats told Reuters.

“It will be difficult to impose sanctions that hit Russia hard enough, without causing excessive damage to the EU,” a spokesman for the Belgian government said before the agreement at a summit of EU leaders.

After Russia invaded Ukraine in February, starting the biggest conflict in Europe since the Second World War, the European Union showed solidarity and responded with swift measures against Russia, unusual in the 27-nation bloc where conflicting voices often turn discussions into race meetings.

Sanctions have been imposed on a list of Russian companies and individuals, while overflights of Russian airlines have been banned and business with several Russian banks has been banned.

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But finding the same place now has become difficult.

After this week’s talks, Lithuanian Foreign Minister Gabrielius Landsbergis described the latest sanctions deal as a “missed opportunity”, saying he was disappointed that EU countries were spending more time discussing exemptions than tougher measures.

The latest moves have targeted facilities linked to the Russian military, cracking down on drones and freezing the assets of two Russian banks, among other measures.

But problems were heard during the talks. Lithuania and others opposed measures to protect the carve outs to free the Russian oligarchs involved in agriculture and fertilizers, although that dispute was finally dismissed, the sources said.

Poland and the Baltic states, closer to the front line, have circulated a proposal in recent weeks on far-reaching sanctions, including on Russia’s gas and nuclear industries, as well as controversial exemptions, such as Russian steel and diamond sales.

‘NOT GOOD’

Others in that group want Gazprombank, which is central to Russia’s energy payments, to be targeted, one person familiar with the matter said. This person said that many countries are hesitant but added that these issues will be discussed in 2023.

For some European politicians, such as those in Poland who face a fight on their doorstep, the reluctance of other countries to support tougher measures has proved troubling.

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“We will demand that Germany change its policy. It is wrong for Germany to rely on Poland to protect it from the threat of war,” said Radosław Sikorski, a former Polish foreign minister and now a member of the European Parliament. “Just because you’re rich and big doesn’t mean you’re always right.”

Russia says sanctions have increased against the West, driving inflation as energy prices rise. Moscow says its economy is strong.

Currently, the EU’s existing measures are not always watertight. The EU has imposed a price on Russian oil shipments to the sea, but its crude is selling below that level, so profits still flow to Moscow.

The cap was imposed as an additional penalty on Russia but some officials say the main effect is to water the bloc’s curbs on the oil trade as, if the price remains below the cap, European insurance can underwrite Russian exports.

The oil cap – designed to align the entire EU and the United States – was adjusted in a nod to Greece and Cyprus, which have large tanker fleets, people familiar with the matter said.

European diplomats and officials, speaking during talks this week, told Reuters that the bloc was approaching its limits.

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“Now we have to be careful with the sanctions, so that we don’t go as far as to completely destroy the European economy,” said Edita Hrda, the ambassador to the European Union of the Czech Republic, which holds the presidency of the EU.

“If we push some measures against Russia, it can call other political leaders their jobs. We need to give the countries time to adjust. We need a successful Europe to help Ukraine,” said Hrda, who was the chairman of the meetings of the EU countries. including those setting the status of recent sanctions.

Hungarian Prime Minister Viktor Orban has campaigned domestically against the sanctions, using posters depicting the punitive measures as explosives that are destroying Hungary’s economy.

Some are more specific, while others have half an eye on future relations with Russia after the end of the war.

German Chancellor Olaf Scholz said this month the EU would “tighten sanctions against Russia as long as Putin continues his war”.

He also said that relations are now “reduced, reduced, reduced” but there should be an opportunity for economic cooperation again “with Russia ending the war”.

(Writing by John O’Donnell; additional reporting by Andrius Sytas in Vilnius and Krisztina from Budapest; editing by Edmund Blair)

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