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The Impact of Economic Sanctions

Sanctions and embargoes have proved throughout history to be political and diplomatic tools that can be mobilized to put international pressure on governments and States. The EU and US have imposed a series of economic sanctions on Russia to respond to Moscow intervention in Ukraine. And Switzerland has decided to freeze talks on a free-trade agreement with the Russian Federation. In retaliation Moscow has ban imports of Europe and the US. Of course all this has an impact on the economies concerned. European banks expect only a limited impact from those sanctions. But the Russian financial institutions should be badly hit by this crisis. For its part, the European agriculture community is more concerned about its exports of meat, dairy products and fruits. After the US, Russia is the biggest market for agricultural exports with €11.8 bn in 2013. On the other side of the table, the Minister of Agriculture estimated at €13 bn public funds that the government will have to provide to support the Russian agri-food sector in order to offset the effects of the embargo. According to Eurostat, the EU exported to Russia an amount of €120 bn of goods and imported for €206 bn resulting in a trade deficit of €86 bn in 2013. It is also important to remember that Russia is the largest exporter of oil and natural gas to the EU. For ex. 100% of the gas used in the Baltic States comes from Russia! But in reality, Russia that has an economy that is near totally reliant on its raw materials would shoot itself in the foot if it suspended the supply contracts which are in force today. Add to that, in a context in which Russia is already on the brink of recession, the fact that capital is flooding out of the country. It is for all these reasons easy to understand that both sides have a direct interest in seeing a diplomatic resolution to what is happening in Ukraine.

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