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EU Should Couple Short-Term Sanctions against Russia with Long-Term Integration Policy

Jul 25, 2014

After the shooting down of Malaysia Airlines flight MH17 over Eastern Ukraine on 17 July, the EU is expected to broaden its selective sanctions against Russia. The USA has already toughened up its sanction policy. Yet Ifo’s analysis of past experiences with economic sanctions suggests that there is little prospect of achieving a lasting de-escalation of the situation in Eastern Ukraine by implementing further sanctions against Russia.

"The success rate of economic sanctions is basically fairly sobering, especially when they are targeted against non-friendly nations," explains Ifo’s international economics expert Dr. Erdal Yalcin. Research results show that the threat of sanctions is more constructive than their actual implementation. If Russia were to estimate the losses from potential sanctions as higher than those sustained from accepting the West’s demands, then the threat of sanctions would prove more successful than their actual implementation. Since Russia is not meeting the West’s demands, Russia’s leaders are signalling their willingness to accept the consequences of tougher sanctions.

Despite the limited perspectives of sanctions being successful, they nevertheless send an important political signal in the light of recent events. "After the annexation of Crimea and the shooting down of a passenger aircraft, the EU and the USA cannot simply adopt a ‘business-as-usual’ approach", explains Yalcin.

Moreover, a critical assessment of the role of European trade policy in recent years is also called for. Thanks to the association agreements signed last month by the EU with Georgia, Moldavia and the Ukraine, the EU has effectively made it impossible for Russia to implement its only noteworthy trade policy project, namely the development of a regional customs union to cover the territory of the former USSR. In trade policy terms this represents a further isolation of Russia, whose share of world gross domestic product is expected to fall anyway over the coming decades.

"In addition to a short-term crisis policy, the EU also needs to finally reveal a long-term strategy for integrating Russia, which is losing economic importance, more deeply into the international community, and especially into the European Economic Area," says Yalcin.

Publication (in German)

  1. Felbermayr, Gabriel, Erdal Yalcin and Philipp Grübener, "Ökonomische Aspekte des Russlandkonfliktes: Ursachen, Kosten, Optionen", ifo Schnelldienst 67 (14), 2014, 35-43 | Details | PDF Download

Contact

Dr. Erdal Yalcin

Ifo Institute
Ifo Center for International Economics
Phone: +49(0)89/9224-1420
Fax: +49(0)89/985369
Email: yalcin @ ifo.de
Website

Press contact

Harald Schultz

Ifo Institute
Press, Publications, Conferences
Phone: +49(0)89/9224-1218
Fax: +49(0)89/9224-1267
Email: schultz @ ifo.de
Website


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