The West lost: Austrian press explains how sanctions turned to Russia’s benefit: “Only the West has clearly lost materially.”


April 26, 2016 – Fort Russ News –

– Eduard STEINER in Die Presse, translated from German  by Tom Winter
Note: This appears tomorrow (April 27) in RusVesna, in a pruned form. As usual, Fort Russ goes to the original source, which appeared in print April 25. This version is unvarnished. — Tr.

No bananas, but about every other produce is home-grown

Russia: Who ultimately benefits from the sanctions? [This is the Austrian headline. The headline above is the RusVesna neadline]

The sanctions against Russia have been in force for almost three years. They have caused collateral damage in Russia and in the EU, but they have been good for Putin and the establishment.

When EU Foreign Affairs Commissioner Federica Mogherini was on her first visit to Moscow yesterday, she noted that the sanctions imposed by the EU in response to Russia’s interventions in Ukraine in 2014 persisted. However, she can not have gained a clear picture of how they are actually working out.

This is true even in Russia itself, as was lately revealed again. Former finance minister Alexei Kudrin last week countered the official view that the sanctions can not affect the country, rather, even strengthen the economy, and that the recession of the past two years was almost exclusively due to the drop in oil prices. Kudrin, who is highly esteemed by Kremlin chief Vladimir Putin and enjoys a certain leeway, spoke of a “very painful” effect of the sanctions in addition to the oil price decline. “They have a predominantly negative effect on our market.” Last year, Kudrin had a rebuffle from Putin when he proposed to reduce geopolitical tensions in favor of GDP growth.

Experts agree that the sanctions simply strengthened the negative effect of the oil price declines that started in mid-2014. Just as they were designed – trade and financing disadvantages for those closest to Putin, an export ban for double-use goods, and technology to support hard-to-reach oil deposits – these account for just 10 percent of the Russian economy, says Andrej Movtschan, head of the Economic Department in the Moscow Carnegie Center. The World Bank estimates that the sanctions cost the Russian GDP about half a percentage point of growth.

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Certainly, the limited access of Russian firms to the western capital market hurts and narrows the scope even now, as a delicate upswing begins. The ruble devaluation caused by oil price declines and by the geopolitically motivated capital inflow has made the imports more expensive. In the agricultural sector, they came to a standstill because Russia imposed an import embargo in response to the sanctions.

This was good for the long-neglected Russian agriculture. Consumers had to switch to local products. Russian agrarian production grew 2.6 and 4.8 percent, respectively, in the 2015 and 2016 recession years. For pork and poultry, the country became self-sufficient, and also became the largest exporter of cereals. There was an increase of 30% in the case of greenhouse-farming. The state is massively supporting the sector, with the private sector investing billions.

The regime
This does not happen without collateral damage to one’s own population. The quality of their own products remains behind those of the products from the West, while shortages have led to significant price increases. The Russian economist Constantine Sonin, who teaches in Chicago, said: “They reduce the prosperity of the people without shattering the regime.

In fact, the regime has hitherto made no attempt to intervene geopolitically anywhere. Yes, living standards and real wages have been declining for several years. The GDP per inhabitant has fallen to the level of 2007. But Putin is fine. More, according to Movtschan: Because of the sanctions he could push the economic crisis into the shoes of the West. In addition, it became risky for the establishment to hold assets abroad, giving Putin more control over his people.

They are richly rewarded in part. “Gennady Timchenko, another old friend of Putin, has monopolized the salmon trade, raised prices by more than 200 percent, and thus made his chronically deficient fishing company into a superlucrative business.”

Winners and losers 
The sanctions have led to many victories in Russia. It is striking that now ten entrepreneurs from the agricultural sector will find themselves in the Forbes list of the 200 richest Russians. Only the West has clearly lost materially.

 According to a study by the Austrian Economic Research Institute at the end of 2016, the export decline to Russia in 2015 was associated with a gross value added of around 40 billion euros and about 900,000 jobs in the EU. Of this, 44 percent is due to the sanctions, the rest to the poorer economic situation in Russia and the currency deterioration. For Austria, a loss of EUR 1.5 billion has been calculated, which is linked to 20,000 employment contracts. The share of sanctions on the Austrian export decline is 36 per cent.

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