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Ukraine: US and Europe fail, crisis deteriorates

Ukraine: US and Europe fail, crisis deteriorates

It is now two weeks since the downing of MH17 over rebel-held territory in eastern Ukraine. In that time we have witnessed frenetic activity by leaders in Europe, the US and Australia. But amid the flurry of diplomacy, little seems to have changed for the better, either for the investigation or for the conflict more generally.

If anything, the situation is even uglier. International investigators are still being held back from the crash site, even though they have the backing of an Australian-drafted UN Security Council resolution supported by all Permanent Members. The Ukrainian Government's decision to launch an offensive towards Donetsk has put the crash site dangerously close to the battle zone. Ukraine faces fresh elections after its governing coalition collapsed. And Western pressure on Vladimir Putin has not shifted his resolve one iota. According to recent reports, Russian military aid to Ukrainian separatists has actually increased.

One glimmer of hope for Western audiences has been the broad sanctions regime Brussels and Washington have just announced, which certainly appears to be a more robust Western response to continued Russian defiance over its role in Ukraine's civil war.

Prior to the downing of MH17, the EU and US had embarked on a minimalist 'first line' of sanctions that focused on individuals close to the Kremlin. The aim was to put pressure on Putin by taking aim at his entourage. But asset freezes and travel bans against prominent politicians and businesspeople were largely ineffective. Russian parliamentarians named on the 'no fly' list wore their status as a badge of pride. And while the US claims to have made Russia 'weaker' by engendering an estimated $100 million in capital flight, the sanctions did little to dampen Putin's resolve.

Indeed, US sanctions of any kind on Russia are largely symbolic, given the absence of any real trading relationship between the two nations. The EU's 'sectorial' sanctions on energy, arms sales and finance, on the other hand, have more promise. The Brussels-Moscow trade axis is more than ten times larger than the US-Russian relationship. And the EU's sanctions go much further than before, targeting core Russian businesses. [fold]

They restrict the sale of technology for oil exploration, which hampers Russia's desire to exploit its contested claims in the Arctic Circle. They include a ban on weapons sales, estimated at some €20 billion annually. And they forbid Europeans from buying debt or equity in state-owned Russian banks, except for short-term trading. The list of embargoed individuals has also grown.

But these sanctions won't go anywhere near far enough to deter Putin. At best, they are a small PR victory. At worst, the length of time taken to negotiate them will only reinforce Putin's calculation that Europe is divided.

To begin with, these sanctions don't lock the EU into a long-term course since they are reviewed every three months. Actual energy trading will continue, and the focus on oil exploration leaves Russia's gas sector unmolested. A crucial compromise to win the backing of Paris was that the military embargo could not be retroactive. That gave the green light to a 2011 French deal to sell Russia two Mistral helicopter carriers at a price of €1.2 billion.

The aspects of this package with the most teeth are the EU's financial sanctions. Putin will find it harder to obtain credit, which will drive Moscow closer to Beijing. China is likely to charge a steep price for that credit, as it did during the global financial crisis. Even so, Russian Foreign Minister Sergei Lavrov's response that Russia would not bother engaging in 'hysterics' with tit-for-tit sanctions was a sure sign that Moscow is confident in Europe's fragility. Just like Kosovo and Chechnya in the 1990s, when the tokenistic suspension of Russia from the Council of Europe and the NATO dialogue process lasted a mere six months, Russia intends to simply wait Europe out.

In fairness, the EU's response had to be carefully negotiated. Internal wrangling, coupled to a precarious economic position, each played a strong role. There are already concerns that the total cost of the sanctions might drive the EU into recession. Opinion polls in Germany put support for tougher sanctions against Russia at 52%; a majority, but by no means a convincing one. Angela Merkel was extremely reluctant to impose broad sanctions that would hurt Germany's high-technology sales, especially in computers and advanced machinery. That is why the initial call for a ban on 'dual use' technologies was watered down to 'military end-users'.

Hence the brunt of the pain from sanctions will be felt in London's financial district. This is unsurprising as well. The UK, with a low stake in Russian gas imports, is the nation with the least to lose in terms of vulnerable overdependence.

But the upshot is that Western responses – whether justified or not in their assessments of Russian culpability – have been monumentally weak. Faced with the opportunity to send a clear message to Moscow, Europe and even the US have settled once again for half measures.

All of this suits Putin very nicely. Caught between a thirst for Russian gas and domestic vacillation, the EU may score points in the propaganda war, but it has failed strategically in an important test of its resolve. As the war in Ukraine drags on, any hope that some good might come of the MH17 tragedy must now be nearly extinguished.

Photo by Flickr user Jeroen Akkermans.

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