Obama, Allies Plan New Measures Against Russia
Comment of the Day

July 28 2014

Commentary by David Fuller

Obama, Allies Plan New Measures Against Russia

Here is the opening of this interesting article from Bloomberg:

President Barack Obama and the four major U.S. allies in Europe intend to adopt “new measures” against Russia over the fighting in Ukraine, the French president’s office said.

Obama spoke with the leaders of France, the U.K., Germany and Italy by telephone today, as the Ukrainian government made further advances in the eastern part of the country against pro-Russian rebels. A spokesman for the separatists said their leader had traveled to Moscow for an unspecified period.

“Despite numerous appeals to President Putin, Russia has not effectively put pressure on the separatists to force them to negotiate, and has not taken the concrete steps asked of it to control the Ukraine-Russia border,” according to a statement from President Francois Hollande’s office in Paris. “The five heads of state and government confirmed, under these conditions, their intention to adopt new measures toward Russia.”

The U.S. says the crash of Malaysian Air Flight 17 on July 17 that killed all 298 passengers and crew was probably caused by rebels using a Russian-supplied surface-to-air missile. The disaster has deepened what was already the worst standoff between the U.S. along with European allies and Russia since the end of the Cold War. Russian President Vladimir Putin denies his government is helping the separatists.

David Fuller's view

Will further US-European sanctions against Russia increase pressure on Putin, or be little more than another slap on the wrist?  We may be about to find out and Russia’s dictator is currently betting on the latter. 

I think the circumstances justify tough sanctions, and if so, they would certainly create problems for Putin, particularly if they were maintained beyond the short term.  However, sanctions would obviously also cause some pain for the countries carrying them out, and they are also an invitation for reprisals.

For international investors, even the prospects of EU sanctions against Russia and the possibility of reprisals are resulting in temporary caution, for the obvious reason that they will not help GDP growth and corporate profits.  However the risk is not reflected evenly.  Russia remains weakest and the MSCI EM Eastern Europe Index is temporarily moving back towards the lower side of its range.  In contrast, Ukraine remains in recovery, which is hopefully justified.  Scandinavian indices remain among Europe’s bull market leaders as you can see from Denmark, Finland, Iceland, Norway and Sweden

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