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WorldViews | Analysis

U.S. sanctions against Russia are also hurting Germany — a lot

By Rick Noack

December 14, 2017 at 7:06 AM

The skyscrapers of Moscow City business district, center, stand beyond the illuminated towers of Red Square and the Kremlin in Moscow in 2014. (Andrey Rudakov/Bloomberg)

BERLIN — As the West tightens its sanctions against Russia, the target appeared to be clear: Russia.

But a new study by European economists released on Thursday shows that the West is also paying a hefty price for its sanctions due to retaliatory measures, the inaccessibility of loans and a more general perception of a loss of trust.

As another deadline is approaching for the United States to decide on new sanctions against Russia, it may be worth considering that it is America’s allies in Europe that are paying the biggest cost for these measures, according to the German IFW institute’s assessment, which is so far most comprehensive study of the matter.

The study says the sanctions resulted in $114 billion worth of lost revenue between early 2014 and the end of 2015, but the pain was shared almost equally between Russia, who lost more than $65 billion and the United States and European Union, which together sustained more than $50 billion in losses.

At least 90 percent of those lost exports were borne by members of the European Union. In particular, the organization’s economic powerhouse is shouldering the lion’s share of the losses.

“Germany accounts for almost 40 percent of the West’s losses while other geopolitically significant stakeholders such as the United Kingdom, France and the United States are much less affected,” European economists Julian Hinz and Matthieu Crozet wrote in their study.

The E.U.’s continued commitment to the measures is an indication of how serious of a threat its member states perceive Russia to be. The country has been accused of election meddling in the United States as well as in Europe and its military exercises have raised worries in eastern and central Europe. In Scandinavia, a number of nations have taken preemptive measures to defend themselves against the theoretical scenario of a Russian invasion by reintroducing conscription or expanding military bases and shelters.

Western sanctions against Russia were agreed to in March 2014 during the crisis in eastern Ukraine, in which Russia actively supported rebels and later annexed the peninsula of Crimea. The move was widely considered to be a violation of international law and of Ukraine’s sovereignty.

The Russia sanctions have posed a particular dilemma in Germany, however, where lawmakers have attempted to find a balance between seeking to punish Russia while trying to uphold the expansive trade ties between the two countries.

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White House press secretary Sarah Huckabee Sanders spoke at the daily press briefing on Aug. 2. (Reuters)

Geographically and historically, Germany has long been a closer partner of Russia than any other major European nation. The leadership of the country’s formerly communist east maintained close ties to the Soviet Union until German reunification. A significant number of Germans with Russian origins still live in the country’s east where they constitute a major support base for the pro-Russian and far right Alternative for Germany (AfD) party. Geographically, Germany also heavily depends on Russian gas exports and previous German leaders have considered themselves a political link between the West and the Kremlin.

“Germans on the left and the far right have always had a weak spot for Moscow — [perhaps because] the relationship seemed to be on more equal footing than with the U.S. which remains the only superpower,” Stephan Bierling, an international politics professor at the University of Regensburg, said in August.

Preserving those ties has become much more uncomfortable for Germans since the Russian annexation of Crimea, however.

“If Putin had not invaded Crimea and eastern Ukraine, many Germans would see him as a natural ally in times of transatlantic estrangement,” Bierling said. A 2014 opinion poll in Germany still found that nearly 40 percent of the country’s population accepted Putin’s annexation of Crimea.

A prominent supporter of such pro-Russian attitudes is former German chancellor Gerhard Schröder — Merkel's predecessor for seven years. After being defeated by Merkel, Schröder opted for a career in the Russian business world. He has spent much of the past decade working for the Russian energy industry, serving as a board member of several consortia in which the Russian government-controlled energy company, Gazprom, is either the majority or sole shareholder. His astonishing career in the Russian energy industry reached new heights this year when the former chancellor became chairman of Rosneft, Russia’s largest oil company — and one in which the Kremlin also holds a controlling stake.

Schröder’s ties reflect a wider willingness among some German politicians and businesses to repair relations with a country perceived as an enemy elsewhere in the West.

In May this year, German businesses celebrated an upswing in trade with Russia despite the ongoing sanctions. (Those numbers are not yet reflected in the IFW institute’s study). Most of the lost export revenue in the West has been due to a loss of trust among Western banks in Russian businesses and not due to countersanctions imposed by the Kremlin onto Western products. Hence, German businesses have already been able to reestablish some of their previous trade ties without violating Western sanctions by lobbying in favor of more normalized trade and lending practices. Efforts to improve relations with Russia have also recently been supported by Christian Lindner, the lead of Germany’s pro-business Free Democratic Party, and members of the mainstream Social Democratic Party.

Since the sanctions’ introduction in 2014, German business have lobbied to keep the impact on Russian companies as limited as possible. And with relations between Europe and the Trump administration now souring, German politicians appear increasingly willing to listen.

Read more: 

He used to rule Germany. Now, he oversees Russian energy companies and lashes out at the U.S.


Rick Noack is a foreign affairs reporter based in Berlin. Previously, he worked for The Post from Washington as an Arthur F. Burns Fellow and from London.

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