Good Example Of The Sanctions On Russia Affect Other Economies Research Paper
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Russian Federation’s undemocratic actions in Ukraine and the annexation of Crimea through military interventions in the region produced an international echo, as United States and European Union sanctioned the former Soviet Union. The sanctions limit Russia’s economic development, by prohibiting the imports and exports of goods, services and technology to or from other European and North American countries. The EU and U.S. sanctions on Russia also imply restricting export and foreign direct investment in the country or banning the “sectorial cooperation and exchanges with Russia” (European Union, “EU Sanctions against Russia”; U.S. Department of State, “Ukraine and Russia Sanctions”). Moreover, state owned Russian companies (five major financial institutions, three Russian energy companies and three state defense entities) are subjects of sectorial cooperation restrictions (European Union, “EU Sanctions Against Russia”). These sanctions are a reflection of the international discontent over Russia’s violation of the democratic principles, as it threatened the integrity of Ukraine through the violent annexation of Crimea (European Union, “EU Sanctions against Russia”; U.S. Department of State, “Ukraine and Russia Sanctions”). In the same time, these sanctions have significant echoes in other economies, which are affected by the economic embargo, financial bans, restrictions on technological, goods and services exchange and the prohibited transnational cooperation with Russia.
Thesis Statement: More than sanctioning the Russian Federation for its undemocratic behavior towards Ukraine, the international measures imposed by United States and European Union have significant implications for the economic evolution of other EU and non EU states.
Demonstrate an understanding of the complexity of your chosen issue
The sanctions on Russian Federation represent a complex issue, because the situation does not solely affect Russia, but other countries’ economies with which Russia had import – export economic relationships.
The sanctions against Russia for attacking Ukraine and annexing Crimea returned an immediate answer from the state’s President, Vladimir Putin, who fired back and imposed economic sanctions on alimentary products imported from EU, Norway, Canada, United States or Australia, affecting the economies of these areas (Ernst & Young, 2014). Europe countries such as Spain, Poland or the Baltic states face the outcomes of the power games between the West (EU and U.S.) and Russia, as their agricultures suffer from the counter – sanctions reforms that Russia imposed on Europe (Klikushin, 2014). Moreover, in addition to losing business that amounts to approximately $11 billion annually, the European countries will also experience indirect losses (United Nations, 2015). The Russian imposed food import ban will hit the logistic sector (suppliers, transportation) and the farmers who will pressure the state for bank loans, further generating non – performing loans (United Nations, 2015).
Prior to the imposed sanctions on Russia, the state absorbed 5% of the euro area’s export, leaving now economies like Germany with a loss of an important market for which it provided technology and automotive components, as the main goods and services (Sputnik News, 2014). Finland is severely affected by the limitations and restrictions imposed on Russia’s exporting and importing goods, services, technology and arms. Because of the sanctions, Finland loses one of its main markets for diary products export (Eilersten, 2014). The sanctions on the three major Russian oil companies generated serious negative consequences on the Baltic States and Finland, because they lose transit revenues (United Nations, 2015).
Demonstrate an understanding of why your chosen issue is important and controversial
In the current EU economic context, marked by instabilities that persist for several years, the Russian crisis threatens to deepen the economic downturn in Spain, Poland or Cyprus. Likewise, it seriously affects the economies of Germany, Finland, Norway and other countries for which Russia was an important foreign market. This situation would weaken even more European countries and EU as an international power. In consequence, a weak economy would lead to decreased political security and implicitly to euro instability, which can further produce financial repercussions on the banking system. A new wave of economic crisis could result out of the tensions caused by the sanctions on Russia, which would primarily affect EU, leaving an economic and financial advantage for United States. The U.S. and EU sanctions on Russia represent an important and controversial issue because it could generate a new global crisis. Moreover, in the realm of this possibility, a new cold war between United States and Russia could contour (Chung, 2014).
Furthermore, as Russia’s economy continues to decrease as a result of the depreciation of its ruble currency, Putin’s strategic move is to invest in non-productive industries such as the army, creating unproductive jobs, while preparing for new potential military confrontations (Chung, 2014). Therefore, the controversy on the sanctions imposed against Russia imply that Russia might start a new war against other nations, including the democratic leading countries, while facing new waves of economic crisis.
Demonstrate an understanding of multiple perspectives related to your chosen issue
While the ING economist Carsten Brzeski and the euro – zone analyst Peter Vanden Houte (in Vara, 2014) consider that Russia will experience more severe consequences from this silent economic war, the situation might not be so drastic for Russia, as other studies reveal. A recent report prepared by United Nations (2015) indicates that Russia has the opportunity of importing food from Latin American countries, such as Argentina or Brazil, or non-EU European states like Serbia and Turkey. The International Observer also punctuates Russia’s strategic position of threatening Europe’s gas supplies by finding alternative paths to avoid Europe and still gain from gas exports in important markets such as China (Klikushin, 2014).
Russian Federation’s case takes a new perspective when discussing about democratic principles and modern politics. The Kazakhstan President, Nursultan Nazareb catalogues the U.S. and EU sanctions on Russia as “barbaric”, arguing that the West is hitting in innocent countries like his own, by imposing severe actions against the economic exchange with Russia (Radio Free Europe Radio Liberty, 2015).
There are other perspectives on the sanctions imposed against Russia, which reach the level of a new war of terror between Russia and the Occident (EU and United States). Targeting to discourage similar undemocratic actions coming from Russia against Ukraine or other state(s) and to de-escalate the current situation in Crimea, the international forces imposed a political and not an economic reform, meant to further establish new foreign policy status quos (Vara, 2014). The punishments against Russia are purely political and not economic in nature, meant to hurt Russia and to limit its power (Vara, 2014).
The political dynamics between the punishers and the punished take new proportions in the advent of the imposed sanctions on Russia. Russia threatens to stop alimenting gas to Europe, moving its entire gas business to China, while Europe sabotages the construction of the South Stream gas pipeline through Serbia and Bulgaria, which determines Russia to rethink its gate route through Turkey (Klikusin, 2014).
Demonstrate an understanding of the societal implications related to addressing the issue
There are collateral victims of this war of terror and power, such as the European countries that suffer the consequences of this political chess game. Most importantly, the sanctions on Russia will affect the big international businesses that will be discouraged to venture in further investments in Russia, negatively impacting the business environment in EU and U.S. alike (Vara, 2014).
Increased prices for goods, services and technology for the Russian population, a potential new economic crisis in the euro-zone with inaccessible and unproductive loans and high unemployment rates in Russia and EU or other Europe countries are only a few of the social consequences of the sanctions (Vasilyeva, 2014). The slowdown of Europe and Russia’s economy is expected to occur as a result of the sanctions and counter – sanctions, having no significant negative effect on United States’ economy, for which Russia is only the 28th international market as importance (Ellyatt, 2015; Vasilyeva, 2014).
Directly linked to economic slowdowns, the sanctions generally cause currency depreciation, inflation and impose pressure on banks for diminishing the interest rates, as the Chief Executive of the VTB Bank informed CNBC (Ellyat, 2015). Indirectly connected with the export limitations resulting from the U.S. and EU punishment against Russia, the share of domestic value added is decreasing, affecting the overall country’s economy, as it impacts the wages payment, the profits and taxes (Finland Ministry of Finance, 2014).
International Monetary Fund describes the expected effects of the economic slowdown stating that the per capita income gross domestic product will decrease and trade, capital flows and employment (macroeconomic indicators) will drop (Arieff, Weiss & Jones, 2010). The tensions between the West and Russia might also degenerate into military conflicts, implying new bloodshed for the population of the countries involved in the Russian sanctions crisis. In the meantime, the Russian threat over Ukraine’s integrity, stability and democracy still persists, because the former Soviet Union holds Ukraine as its strategic move against United States’ actions of decreasing the price per barrel, which alarmingly hits Russia’s economy. The International Observer notes that because Putin has no other tactic on hitting United States’ economy, which blatantly pushes Russia towards recession, the Russian President has the alternative of only worsening the current situation in Ukraine (Vasilyeva, 2006). At a social level, such actions could only generate negative effects for the populations of the countries directly involved in the issue, which can result in strikes or local revolutions, further deepening the social and economic tensions and imbalances.
Criticisms against U.S. and EU sanctions on Russia define the Western actions as hypocrite, as they do not reflect the society’s desires and economic welfare, arguing that the Ukraine’s case was only a pretext for faulting Russia’s economy (Putin in Klikushin, 2014; Thinny, 2014). To confirm the hypocrisy of the sanctions imposed on Russia, the former Soviet Union punctuates that the natural gas, Russia’s most important product exported to Europe, was not included in the sanctions (DW, 2014).
Summary and conclusion
There are many perspectives on the outcomes and consequences of the U.S. and EU sanctions on Russia for annexing Crimea and threatening Ukraine’s integrity. These vary from economic slowdowns, GDPs stagnation and depreciations, to decreased per capita income for Russian inhabitants, a new cold war or potential military interventions. While the U.S. and EU sanctions against Russia were issued as punishments for discouraging similar political conduct and de-escalating the situation in Crimea, from an economic perspective the sanctions only cause losses for the European countries and Russia. United States is out of any serious direct negative consequence at the moment, as Russia does not represent an important market for the North American state. However, Putin’s strategy is to pressure United States by fostering partnerships with the other BRIC countries, staking on a strong collaboration with China, with which it would create a new superpower partnership against U.S. Balance of power or global threat, the evolution of the sanctions crisis will indicate how the envisioned partnership Russia – China will impact the world and the major economies of Unites States and Europe.
Arieff, A., Weiss, M.A. & Jones, V.C. (2010) The global economic crisis: impact on Sub – Saharan Africa and global policy response. Congressional Research Service.
Chung, F. (2014) The cold war is back and colder. News.com.au. Retrieved from http://www.news.com.au/finance/economy/the-cold-war-is-back-and-colder/story-e6frflo9-1227159436375.
DW (2014) Russia: “short – sighted” sanctions will backfire on US, EU. DW. Retrieved from http://www.dw.de/russia-short-sighted-sanctions-will-backfire-on-us-eu/a-17823093.
Eilersten, H. (2014) Sanctions on Russia hurting Finland’s economy. Highnorth News. Retrieved from http://www.highnorthnews.com/sanctions-on-russia-hurting-finlands-economy/.
Ellyatt, H. (2015) Sanctions on Russia are “economic war”. CNBC. Retrieved from http://www.cnbc.com/id/102382917.
European Union (n.d.) EU sanctions against Russia over Ukraine crisis. Europa.eu. Retrieved from http://europa.eu/newsroom/highlights/special-coverage/eu_sanctions/index_en.htm#5.
Ernst and Young (2014) Doing business in Russian Federation. Ernst & Young Global Limited.
Finland Ministry of Finance (2014) The economic effects of the EU’s Russia sanctions and Russia’s counter sanctions. Snellmaninkatu: Ministry of Finance.
Klikushin, M. (2014) Top Russian banker and Putin confidante threatens US with “war”. International Observer. Retrieved from http://observer.com/2014/12/top-russian-banker-and-putin-confidante-threatens-us-with-war/.
Radio Free Europe Radio Liberty. Nazarbaev calls U.S., E.U. sanctions on Russia “barbaric”. RFERL. Retrieve from http://www.rferl.org/content/kazakhstan-russia-sanctions-us-eu-nazarbaev/26841705.html.
Sputniknews (2014) Anti-Russia sanctions counter-measure hurting EU members economies: UN. Sputniknews. Retrieved from http://sputniknews.com/business/20141211/1015717035.html.
Sukhaparova, I. (2014) Sanctions effect: Russia to change its economic partners for the better. RT. Retrieved from http://rt.com/op-edge/russia-switches-to-brics-sanctions-357/.
Thinny, M. (2014) The EU and USA are not representing the general publics opinion by employing sanctions on Russia. TED. Retrieved from http://www.ted.com/conversations/23523/the_eu_and_usa_are_not_represe.html.
United Nations (2015) World economic situations and prospects 2015. New York: United Nations.
U.S. Department of State (n.d.) Ukraine and Russia sanctions. U.S. Department of State. Retrieved from http://www.state.gov/e/eb/tfs/spi/ukrainerussia/.
Vara, V. (2014) Hurt Putin, hurt yourself. New Yorker. Retrieved from http://www.newyorker.com/business/currency/hurt-putin-hurt.
Vasilyeva, N. (2014) Russia warns of recession in 2015 amid sanctions and low oil prices. Huffington Post. Retrieved from http://www.huffingtonpost.com/2014/12/02/russia-recession_n_6255810.html.
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