War in Ukraine: EU imposes sanctions to "asphyxiate the functioning of Russia"

After the United States, the leaders of the European Union meeting in summit, Thursday evening, toughened the sanctions against Russia after a first salvo of measures.

“Russian leaders will face unprecedented isolation,” said Commission President Ursula von der Leyen.

And Josep Borell, the head of EU diplomacy to add: "This is the toughest set of sanctions ever implemented".

“I am not sure that President Putin has taken the measure of the extent of the sanctions decided.

It is a question of asphyxiating the functioning of Russia ”, reacted this Friday morning Jean-Yves Le Drian on France Inter.

“The package of measures announced is quite spectacular.

It corresponds to the gravity of the situation”, continued the Minister of Foreign Affairs.

Read alsoWar in Ukraine: missile fire, armored vehicles north of Kiev ... what we know about the ongoing fighting

Concretely, the European Union will in particular drastically limit Russia's access to European capital markets, hindering and increasing the cost of financing its debt.

In other words, in a coordinated move, the United States and Europe have decided to prohibit Russia from raising new debt in any currency in their markets.

The idea is to asphyxiate Russia financially and permanently deprive it of foreign resources.

“We are putting in place sanctions on Russian sovereign debt.

The government can no longer raise money in the West, nor can it swap its debt in Europe,” US President Joe Biden said on Tuesday evening.

EU sanctions will 'drive up inflation, accelerate capital outflows and gradually erode the country's industrial base',

The package of massive and targeted sanctions approved tonight shows how united the EU is.

First, this package includes financial sanctions, targeting 70% of the Russian banking market and key state owned companies, including in defence.

https://t.co/iKVGfnafKp

— Ursula von der Leyen (@vonderleyen) February 25, 2022

If the result can weigh on the value of the ruble in the short term, and by snowball effect on the purchasing power of Russian consumers, especially for imported products, Russia can also very well turn around and get closer to other partners like China to find funding.

Moreover, Russia has a veritable fortune with a foreign exchange reserve estimated at nearly 560 billion euros and a sovereign wealth fund of around 160 billion euros.

A woolen stocking which should enable him to cushion the shock of the sanctions for a certain time.

Prohibited exports

The European Union has also decided to reduce Russia's access to "crucial technologies", by depriving it of electronic components and software, so as to "severely penalize" its economy, added Ursula von der Leyen.

This concerns in particular the ban on the export to Russia of aircraft, parts and equipment of the aeronautical and space industry, as well as refining technologies for the oil industry.

These restrictions will also affect dual-use goods (civilian and military).

The idea is also to reach the elites in Russia.

EU banks will be banned from accepting deposits from Russian citizens of more than 100,000 euros and several Russian state companies will have their access to European funding blocked.

This will also go through the freezing of assets or bans from the territory for personalities deemed to be close to Vladimir Putin.

"The impact will be maximum on the Russian elites," assured Ursula von der Leyen.

Incidentally, Belarus, accused of being involved in Russian operations, will also be hit with additional sanctions.

No blocking of the Swift interbank system

But the European Union has not gone all the way.

Ukrainian President Volodymyr Zelensky had called for blocking Russia's access to the Swift banking messaging system to financially isolate it from the rest of the world, like Iran did in late 2019. Currently, some 300 Russian banks and institutions use this system for their interbank fund transfers.

Neither the United States nor the European Union have yet pushed this lever, which would in fact be the most penalizing.

By crossing this line, several states including Germany fear that Russia will suddenly cut gas supplies.

However, Germany is 60% dependent on Russian gas.

Read alsoCrisis in Ukraine: why gas and oil prices could rise again

German Finance Minister Christian Lindner explained on the ARD television channel that such a measure would entail “a high risk that Germany will no longer receive deliveries of gas and other raw materials from Russia.

Italy, Hungary, Cyprus, Austria, Slovakia and even Latvia are in the same situation as Germany.

"Pardon me for the expression, but we don't give a damn about all their sanctions," the Russian ambassador to Sweden, Viktor Tatarintsev, warned bluntly in an interview with the Swedish newspaper Aftonbladet on February 12.