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EU to Consider Blocking New Loans to Russia

July 16, 2014

VOA News



EU to Consider Blocking New Loans to Russia

VOA News

Last updated on: July 16, 20147:06 AM

European Union leaders will work to block loans for new projects in Russia by two multilateral lenders and broaden the scope of other sanctions in response to Moscow's actions in Ukraine, according to a draft statement seen by Reuters on Wednesday.

The EU leaders, who are scheduled to meet in Brussels later Wednesday, will step up sanctions because pro-Russian rebels in eastern Ukraine have not met their demands to end the violence there, the draft statement said.

The German government also criticized Russia on Wednesday for failing to meet commitments agreed to earlier this month on de-escalating the violence in Ukraine.

Chancellor Angela Merkel's spokesman said she talked to U.S. President Barack Obama and Ukraine's President Petro Poroshenko on Tuesday and they were all disappointed that pro-Russian rebels had still not joined talks between Kyiv, Moscow and Western mediators.

"They also agreed that Russia has so far fallen short of expectations agreed by the German, Ukrainian, Russia and Polish foreign ministers on July 2 and which are always present in the chancellor's talks with President [Vladimir] Putin," said Merkel's spokesman Steffen Seibert.

Poroshenko also urged the EU to take tough action against Russia at its summit in Brussels on Wednesday.

The Ukrainian president's website said he had spoken to Herman Van Rompuy, President of the European Council, after intensified fighting in the east, in which Kyiv has alleged Russian involvement in an air strike on a residential area and the downing of a military transport plane.

He had called on the EU "to demonstrate a strong position of action by the European Union to support Ukraine," it said.

Unilateral sanctions

Meanwhile, the United States is considering imposing unilateral sanctions on Russia over its threatening moves in Ukraine, a shift in strategy that reflects the Obama administration's frustration with Europe's reluctance to take tougher action against Moscow, according to U.S. and European officials who spoke with the Associated Press.

Until now, the U.S. has insisted on hitting Russia with penalties in concert with Europe in order to maximize the impact and present a united Western front.

The European Union has a far stronger economic relationship with Russia, making the 28-nation bloc's participation key to ensuring sanctions packages have enough teeth to deter Russia. But those same economic ties have made Europe fearful that tougher penalties against Russia could boomerang and hurt their own economies.

After weeks of inaction, the officials say the U.S. is now prepared to move forward alone if EU officials fail to enact strong sanctions during a meeting Wednesday in Brussels.

The U.S. official cautioned that no final decisions would be made until after the European meeting. The officials insisted on anonymity because they were not authorized to discuss the matter publicly by name.

The 28-nation EU has been under strong pressure from the U.S. and Ukraine to take a hard line against Russia.

The EU leaders will ask the bloc's bank, the European Investment Bank (EIB), to suspend financing of new public sector projects in Russia, the draft statement said.

EU countries will work together within the European Bank for Reconstruction and Development (EBRD) to suspend EBRD financing of new projects in Russia, it said.

EU diplomats say taking action at the EBRD will be complicated as Russia is one of 64 countries that are shareholders of the bank.

EBRD funds

Russia has traditionally been the biggest recipient of the London-based EBRD's funds - the bank lent 1.8 billion euros ($2.44 billion) there last year. The EIB pledged to lend more than 1 billion euros to Russia last year.

The EU will broaden the scope of asset freezes to target companies and other organizations "that are supporting materially or financially actions undermining or threatening Ukraine's sovereignty, territorial integrity and independence," according to the draft statement.

If broadly interpreted, that change could have wide ramifications, potentially allowing the EU to target a range of Ukrainian or Russian companies.

The EU has so far imposed asset freezes on 72 people and two energy companies in Ukraine'sCrimea region, which was annexed by Moscow earlier this year.

It has drawn up a list of hard-hitting sanctions on sectors of the Russian economy, but has held back from imposing them because some EU governments are wary of potential retaliation from Russia, the bloc's biggest energy supplier.

The White House's willingness to punish Russia without European backing comes as the Obama administration faces criticism that its repeated warnings about tougher sanctions are little more than empty threats.

"Sometimes I'm embarrassed for you, as you constantly talk about sanctions and yet, candidly, we never see them put in place," Sen. Bob Corker, R-Tenn., said during a Senate hearing on Ukraine with administration officials last week.

Obama administration officials argue that the sanctions that have been levied have had an impact on Russia's economy, citing International Monetary Fund statistics showing a downgrade in Russia's growth this year.

However, officials have acknowledged that the sanctions have not had an impact on Putin's decision-making in Ukraine.

State Department spokesman Jen Psaki said Tuesday that if Putin "cares deeply about his people, about the economy, his own country" the sanctions would shift his calculus

Regional cooperation programs

The EU leaders will also ask the EU's executive Commission to look into suspending EU bilateral and regional cooperation programs that benefit Russia. Projects dealing exclusively with civil society will be excluded, the draft said.

Some 450 million euros of EU funding are set to flow to Russia between 2014 and 2020 under various cooperation programs, according to the EU Commission.

The EU leaders will also ask officials to draw up proposals for further measure to restrict investment in Crimea, whose annexation by Russia is not recognized by the EU.

The leaders will say they expect international financial institutions not to finance any project that recognizes the annexation of Crimea, according to the draft, which could still be changed following leaders' discussions.

Some information for this report provided by Reuters and AP.


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