Recently, Ukrainian lawmakers approved an austerity law that would make tax legislation easier and impose additional duties on imports in a bid to elevate revenue to assist for challenging the country’s economic crisis. Meanwhile, the tensions between West and Moscow intensified in March following a decision by Ukraine’s then autonomous region of Crimea to join the Russian Federation. The move triggered annoyed reactions from the European Union and the United States, both of which imposed several rounds of punishing measures against Moscow over the crisis in Ukraine, targeting the country’s banking, energy and defense sectors. Russia, for its part, has also imposed retaliatory bans. Though the Russian rouble was stabilized this week after plunging to record lows against the dollar earlier in the month, now the Russia is experiencing a turbulent crisis.
The Russian economy has terribly shaken for the first time in five years, after the falling of oil prices and economic sanctions imposed by the Western governments. In August of that year, fears of a rouble devaluation led to the downfall of Russia’s stock, bond and currency markets. What a collapse… The central bank unveiled emergency measures, but was unable to beat the markets. Oil prices have dropped below $60 a barrel, a gigantic problem for Russia, where oil and gas revenues finance more than the half of the state budget. Russian authorities are counting on the oil prices around $100 per barrel in 2015 in order to balance the economy and are forecasting a sharp recession, if prices remain at current levels. US on the other hand, plans more sanctions as Russian ruble sinks deeper. Why so? Because Western nations accuse Russia of involvement in the Ukraine crisis, by providing weapons and sending troops to help the separatist rebels. Although Russia denies these claims, the sanctions are still there. But a leading US ratings agency, Standard & Poor’s, warned on 25 December that it might downgrade Russian bonds to “junk” status in January and this fact can also be correlated with Middle Eastern policy preferences of Russia.
German Chancellor Angela Merkel told the press, at an EU summit in Brussels, focusing on the Ukraine crisis, about EU sanctions and the plummeting ruble.[i] “Western economic sanctions against Russia were imposed for specific reasons and can be lifted only if the reasons are no longer there”, she said. European leaders decided that the measure for lifting sanctions will be the territorial integrity of Ukraine and accused Moscow of breaching international law and putting the European order in jeopardy over the issue.[ii] Merkel spoke to her Russian counterpart by phone, noted that he has made many promises. However, Russia continues to ignore several items in the so-called Minsk Peace Plan and all she can do is to “hope” that a recent ceasefire will hold. So, she highlighted that they want to see Putin’s promises to be implemented.
Federica Mogherini, the EU’s new foreign policy chief, said that the bloc should launch a new “debate” with Russia aimed at ending the “confrontation” over Ukraine.[iii] She told Italy’s La Repubblica daily on Saturday (27 December) that; “The current situation is very difficult for Russia. It would be in its interest to contribute to ending the conflict. Simultaneously, we all aware of the fact that Russia plays a significant vital role not only in Ukraine, but also in Syria, Iran, the Middle East, Libya”.
The Russian ruble’s 52 percent plunge this year, driven down by dropping oil prices as Moscow also deals with international (Western) sanctions over the Ukraine conflict.[iv] Russian banks are frozen out of Western capital markets, as a result of EU and US sanctions over Russia’s actions in Ukraine. As a result, banks must turn to the central bank to help them refinance their debts, further straining resources.[v]
Dominant figures on the left and right in Berlin have voiced different opinions regarding how the EU should handle Russia’s rouble crisis and this shows how Germany is splitted by very different opinions and attitudes against Russia. The opinions expressed in this article do not necessarily reflect my own views and opinions and aiming to highlight the facts and issues pertaining the Russian crisis and Western sanctions.[vi]
Initially Wolfgang Schaeuble, the Finance Minister from the centre-right CDU party in the grand coalition, showed little empathy and understanding in an interview with the Rheinische Post daily on 24 December. He expressed his opinions; it’s obvious that they are concerned about the recent developments in Russia. But that doesn’t imply that they accept the view that Russia can impose its interests by military means. The annexation of Crimea and Russia’s perpetual violation of the ceasefire in Ukraine cannot persist without consequences. “We hope that Russia will return to co-operation with the West, but until then they are sticking to the sanctions”, he said. Being asked about the consequences of a Russian default could have for Europe, he added: “It is up to Moscow to prevent them”.
Meanwhile the centre-left SPD’s Foreign Minister, Frank-Walter Steinmeier, speaking in Der Spiegel one day earlier, said a Russian economic collapse is a jeopardy for Europe and the current situation “can’t permit them to go straight back to business as usual”. He said this, because he opposes any further tightening of the sanctions. “Anyone who wants to bring the Russian economy to its knees, is absolutely erroneous if they contemplate that this will convey about greater security in Europe”, he added. Steinmeier also said that the EU and NATO should hold more talks with Russia to alleviate its trade concerns and to avoid the risk of an accidental military confrontation. And he questioned; “Even during the coldest days of the Cold War, these types of talks (between NATO and Russia military experts) were held. What maneuvers, movements of troops, and overflights are taking place? Those are the topics that have to be discussed”, he said while ruling out the idea of Ukraine joining NATO in the near future. Apart from these, he also noted that Ukraine accession wasn’t even raised at the last NATO council meeting, it was only debated. “Sometimes what is not said at a summit is also crucial”, he said.
The German comments came ahead of Ukraine-Russia peace talks in Minsk on Christmas Eve and ahead of EU foreign ministers’ debate on Russian sanctions on 19 January. “The peace talks broke off without a result, but were expected to resume on the summit”, said Dmitry Polevoy, the ING Bank’s chief economist on Russia. He also told Reuters that “near-term prospects for the rouble remain highly uncertain”. The rouble crisis has seen the price of basic commodities, such as the bread rising steeply in 2014. The main reason is a prolonged slump in oil prices. But EU sanctions on Russian banks and energy firms are making matters worse by stopping the blacklisted firms from buying debt on international markets. Three listed banks; Sberbank, Vnesheconombank and VTB, have appealed to the EU measures in the EU court in Luxembourg based on technical grounds. “Well now, another correlation is with Russia’s Middle Eastern policies”, he added. He also noted that the EU has suffered a series of high-profile court defeats on sanctions in Iran and Palestine due to lack of hard information shared by member states with judges. But a court challenge can take up to two years to reach a verdict/conclusion and no listed company has ever won financial damages from the EU tribunal.
Finally, Russian rouble rebounds after following government orders to five state exporters to sell the foreign currency reserves which can be deemed as informal capital control measures. These were the fact and issues regarding the dynamics of the current status of Russian economy suffering recession and Western opinions regarding the sanctions.