Written by: Olivia Blanchard
3rd March 2022 (Thursday)
11:00 - 12:00
Luca Felice Mezzomo, Head of Macroeconomic Analysis, Research Department, Intesa Sanpaolo
Annika Eriksgård, Director, DG ECFIN: International Economic and Financial Relations, Global Governance, European Commission
Vladimir Milov, Russian opposition politician, former Deputy Energy Minister of Russia
Soňa Muzikárova, Policy Director and Chief Economist, GLOBSEC
The purpose of this conversation is to understand the impact of the current Western sanctions against Russia from a socio-economical perspective. The themes discussed were:
- The international sanctions against Russia and their impact
- The energy crisis
- The scenarios on the consequences of the Russian aggression
The sanctions against Russia, coming from the United States, the United Kingdom, and the European Union have been stronger than ever before. That is especially visible when put in parallel with those following the annexation of Crimea, according to Mr. Mezzomo. There are three main categories of sanctions:
- Financial sanctions: They aim at reducing the access of Russia to capital markets and payment systems, such as SWIFT. These have had an immediate consequence on the stability of the Russian Ruble and its outflow.
- Technological sanctions: Mainly against the export of technology outside of Russia, such as oil refining capabilities or microelectronic components. Such an outcome opens the possibility for China to take over Russia’s market.
- Targeting of the Russian elite abroad: This last sanction does not have such a consequential effect on Russia but does contribute to the general effort, according to Mezzomo.
In the category of financial sanctions, Vladimir Milov, former Deputy Energy Minister of Russia, added that the actual scope of the sanctions is larger than what is publicly announced in the media. For instance, “international players and companies worldwide are pre-emptively cutting links with Russian counterparts […] out of support with Ukraine”. Thus, manufacturers of imported goods in Russia are facing a bottleneck of raw material supply and will have to stop production unless the government intervenes heavily. Mr. Milov and Ms. Annika Eriksgård, Director of ECFIN, agree that President Putin had prepared for sanctions from the West. He, however, might not have expected such a consensus and swiftness on the sanctions against Russia. Putin might not have assumed, for instance, that the reserve of the Russian Central Bank would be so heavily frozen, or Russia cut off the SWIFT network so promptly.
Consequently, the experts are forecasting a collapse in the Russian disposable income and purchasing power. The energy sector will be impacted, and the European economy is not prepared to face the weight of Russian shortage of energy supply. Besides, it is expected that GDP growth will be negatively influenced, translating in the reduction of trade flows between Europe and Russia, the disruption of supply chains, and the further decrease of relations with Russian banks. The Research Department of Intesa Sanpaolo expects a decrease in the EU economy of 0.2%. and a GDP growth of 3.0% instead of 3.8% in 2022. On the other hand, the inflation will be positively affected.
On the energy level, as 10% of the world’s resource of crude oil originates from Russia, the market will be altered: Europe is not prepared for the impact of the decline of supply in Russian gas and crude oil. If the surge in the energy prices persists, the GDP growth in 2023 is also expected to decrease. According to Ms. Eriksgård, the EU countries will be affected differently, yet the recovery will not differ and there will still be visible effects from the post-pandemic era. However, stark effects will be observed in countries such as Lebanon, Egypt, and Turkey, which depend on Ukraine’s export of food stock. The ECFIN has provided Ukraine with an MFA of 1.5 billion Euros at the end of last year and is expecting to receive a top-up for the rebuilding of infrastructure in Ukraine. Mr. Milov expects the reconstruction of Ukraine to be a heavy weight on the shoulders of future generations of Russians.
The Russian aggression against Ukraine is a game-changer for the experts of the panel and an eye-opener for European governments. Mr. Mezzomo expects an increase of acceptance for spending 2% of the national GDP of EU countries on defence. Mr. Milov and Ms. Eriksgård agree that this is a moment of painful realisation that economic relations with dictatorial governments and that the relations between Russia and third-party countries are aligning on a similar axis in the current context. In addition, the decrease in the supply of energy from Russia creates grounds for a rapid transition towards greener energy and European energetic autonomy as it becomes clear that Putin’s Russia has an imperial agenda.
You can watch discussion here: