Dialog Europe Russia

Yegor Gaidar Prize 2018 awarded to Wolfgang Schüssel

The Yegor Gaidar Prize 2018 for "Outstanding Contributions to the Development of International Humanitarian Ties with Russia” was awarded to Wolfgang Schüssel, Federal Chancellor of the Republic of Austria (2000-2007), Minister of Economy of the Republic of Austria (1989–1995); Vice-Chancellor and Minister of Foreign Affairs (1995-1999); ex-president of the Council of the European Union.

The premium is 500 thousand rubles. Mr. Schüssel decided to transfer the prize to a Russian charitable organization, the Vera Hospice Relief Fund.

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News Highlight

Not the Time for Tough Sanctions

December 26th, 2018
Sergei Dubinin
Vedomosti

The scale of the current US economic sanctions against Russia is incomparable with the sanctions against Iran.

The most obvious negative consequences of the introduction of sanctions by the United States and its allies for the Russian economy today is the situation of uncertainty and unpredictability for doing business. The very prospect of an escalation in the sanctions is destroying the business climate in our country. These expectations have already long since been taken into account by the market players on the stock exchange, and this has led to a substantial decline in the capitalisation of Russian companies on the securities markets.

The same process of growing negative expectations is reducing the investment attractiveness of the Russian economy for potential "new money". Investments in fixed capital both by foreign and domestic investors were at a minimum in 2015, after which they grew slowly, and in 2018 they reached the level of seven years ago. Direct foreign investment in Russia's economy in 2013 reached 69.2bn dollars, in 2017 it halved to 26.7bn dollars, and in the first six months of 2018 it comprised 7.3bn. And in fact, a significant proportion of direct foreign investment is essentially also the money of Russian businessmen, brought back to Russia via Cyprus and the Netherlands. The investment is maintained at the level of simple reproduction and not of economic growth.

The problems started back in 2012-2013, before the introduction of sanctions. However, it was under the influence of the sanctions that they acquired the status of stagnation.

It can be seen clearly how these threats find concrete expression at the level of individual people and businessmen from the example of the case of Valery Gapontsev, a citizen of the United States, a scientist, and a person featuring on the Forbes magazine's list of Russian billionaires, which at the beginning of 2018 was transformed into the "Kremlin list" of oligarchs close to President Putin, drawn up by the US Department of the Treasury. Gapontsev was not hit by personal sanctions but the actual appearance of his name on this list caused numerous problems for his business in the United States. Contractors, creditor banks, officials allocating public contracts, categorised his IPG Photonics as a "toxic" company, despite the fact that 98 per cent of its production capacity was on the territory of the United States. In my opinion, Gapontsev was only on the list of "Putin's oligarchs" because he actively cooperated with the Skolkovo Foundation, the MFTI [Moscow Institute of Physics and Technology], and Rosnano. He recently filed a case with the American courts against Steven Mnuchin, the US Secretary of the Treasury, demanding the retraction of his link to the notorious list and compensation for his losses. Let us see what happens. But every businessman today cannot avoid taking into account such a threat of unpredictable consequences of the sanctions for his business.

And it is for this that the principle of the American "secondary sanctions", which threaten those who continue economic contacts with individuals and firms from the sanctions list with fines of billions of dollars, are designed.

The United States' sanctions menu is quite large. In the near future, President Trump's administration will have to decide on the second stage in the sanctions against Russia within the framework of the Chemical and Biological Weapons Control and Warfare Elimination Act (CBWE Act Sanctions). The introduction of a ban for American banks on carrying out operations with Russian banks in US dollars and the freezing of their dollar assets by presidential decree is possible; a ban for all American companies on acquiring Russian government debt instruments is possible.

A new application of the law On Countering America's Adversaries Through Sanctions Act (CAATSA Act), within the framework of which the sectoral sanctions operating against Russia banks and oil companies today were introduced, is possible: for example, the terms for all types of credit provided to Russian contractors and the deferral of payment may be reduced to 14 days. Two draft laws - the Defending Elections from Threats by Establishing Red Lines Act (DETER Act) and the Defending American Security from Kremlin Aggression Act (DASKA Act) - which duplicate one another in many ways, are waiting for consideration in the Senate. The general mission of their initiators: to force the White House to continue the escalation.

It is important to understand that the scale of the current US sanctions against Russia is still incomparable with the sanctions against Iran, for example. And, in my opinion, tougher sanctions measures that could inflict the maximum damage on our country - completely cutting Russian banks off from the SWIFT system, a ban on American and all non-Russian companies acquiring Russian oil and gas - will not be introduced, neither together nor separately.

Firstly, such a ban and disconnection from payments would inevitably have to be applied as an "all-in-one". It is necessary to plan for supplies of oil and gas: you cannot cut off the payment system and then continue to count on the export of hydrocarbons from Russia. Our oil represents one third of the volume of the world market. Our gas comprises 40 per cent of the consumption of Western and Central Europe. There are no alternatives to these energy resources today. It is possible that the situation will change in the future, but not soon.

Secondly, it is pointless to use the entire load of sanctions ammunition today. After all, it is the preservation of the threat of their expansion that creates the atmosphere of uncertainty for Russian business that was discussed above.

Thirdly, retaining an unused arsenal of the toughest economic sanctions is meant to restrain the policies of the Russian authorities at points of potential and already existing conflicts. Their full-scale introduction simply unties the Kremlin's hands. If all of the possible sanctions had already been used because of the incident in the Kerch Strait, the result would be that whatever is done, things will not be any worse for Russia, so it would be possible to think about military operations of a different scale as well, from Kharkiv and Kiev to Odessa. Is Nato prepared for a nuclear war in order to stop this? I hope that this question will remain rhetorical.

Fourthly, the use of the tough scenario of sanctions can only be effective with the full support of all the allies - but it is not there, and the struggle surrounding the Nord Stream 2 project is an obvious illustration of this.

Another important issue. Recently, during a conference in Moscow where American lawyers explained to us how the sanctions worked, I asked a question: could a decision on a ban on operations in dollars with Russian banks lead to a freeze in the dollar deposits of Russian citizens in Russian banks because of the blocking of their correspondent accounts in US banks? An honest answer was given: there are two "schools" in America, some experts are attempting to demonstrate that the sanctions should not inflict any direct damage on the population, others, on the contrary, think that the wider the list of depositors affected, the worse it is for the banks, the more effective the sanctions are. It will be a political decision.

Yes, the management of the Bank of Russia and the heads of the state-owned commercial banks have said many times that they are ready for sanctions and the dollar deposits of physical persons will be repaid in US dollars in any event. But personally, I have long since closed my dollar deposits and transferred them into deposits in euros or roubles.

Finally, the last point. Having read both this and many other articles about the sanctions, a large number of Russians will probably say: "That's good, let's return to a closed economy. That is how we lived in the USSR - and we will live now!" We will live, of course, the only question is how. We need to be prepared for a return to the Soviet way of life in everything: from stagnation in technologies to queues for food. Any honest engineer will confirm that when investing in industrial production he would prefer Siemens or Pratt and Whitney electricity turbines, it is better to restock the machine pool with deliveries of equipment from Japan or Germany, and so on. Incidentally, this was also the case during the Soviet era.

In the agrarian sector, the success of which has so delighted us in recent years, it is also important for us to cooperate with the developed economies. After all, we buy seed grain, young livestock, and fertilised salmon eggs for fish farms on the world markets today. I am sure: it is still better for all of us to seek accords to resolve conflicts and not to aggravate them from one day to the next.

Plan for Ukraine’s Reconstruction in the East (PURE)

The purpose of this Memorandum is to propose a strategy to reframe the discussion of the conflict in the Donbas and prepare a political foundation for post-war stability in Ukraine. This might be done by moving the focus of the Normandy Group from military de-escalation to economic reconstruction. The Minsk Process has succeeded so far in stopping the war, but it offers no framework for the reconstruction of those parts of Ukraine which were heavily damaged during one of the worst military conflicts in Europe since decades. De-escalation has so far not led to a lasting peace and restored prosperity. The Minsk Process is missing this last chapter: a credible Plan for Ukraine’s Reconstruction in the East.

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