Europe’s Price Tag for the ‘Battle of Values’

Written by | Monday, August 4th, 2014

The Economist estimates that the cost incurred by Russia as a result of sanctions imposed by the West might amount to up to a trillion US dollars (around 722 billion euro), which is an equivalent of about 7,000 USD for every Russian citizen. Unlike what most people would think, the majority of the cost will not arise due to the massive bans on state-owned Russian banks and embargo on some of the country’s industries, but chiefly due to the plummeting confidence of international investors in the Russian market. As most Russians do not own stocks and shares, their encounter with the repercussions of the sanctions might not imminently happen. Yet, their European counterparts are more likely to face consequences of sanctioning the big Russian Bear very soon.

While the EU will also be harmed by the restrictions in the financial area and capital markets, trade bans on sensitive technology, goods, and defense industry will yield more direct costs to the ordinary people. This threat will materialize especially if (or when?) Russia retaliates with trade embargos of its own against the EU countries. In fact, this has already begun in Poland after Moscow had put a ban on the imports of Polish fruits and vegetables last week, citing their standard buzzwords in similar situations – “due to sanitary reasons”. The ban that entered in force on 1st August targets 50 percent of Poland’s apples, which is about a billion tons annually. Currently, the volume of Poland-Russian trade is worth about 1.3 billion euro per annum out of which fruits account for a billion. It is estimated that Polish farmers will directly incur the cost of 600-700 million euros as a result of the ban.

Poland seems to be the first victim of the EU-imposed sanctions on Russia but the reaction of Polish farmers to the ban as well as the recent changes in Poland’s political mood might be a precedent for other EU countries in case Russia extends its embargo on other EU countries, which it has already hinted to do. Polish Fruit Growers Association is literally appalled by the Russian action, blaming the Polish government for having interfered in the Ukrainian crisis. In a populist fashion, the Polish farmers reminded their government that they personally had not been the ones supporting the Euromaidan, so they do not deserve to pay for it. Moreover, they said they “thanked” the Polish government for their intervention in the Ukrainian “avantgarde”.

This amazingly plays into the cards of the Polish opposition, which had been speaking in a similar manner for quite some time. The incumbent coalition, however, has repeatedly emphasized that this is “a battle of values” for which everyone must bear its costs. “If one fights for values, there is always a price. We [Poles] pay by apples, it’s good that not by blood,” commented Poland’s Minister of Interior, Bartolomej Sienkiewicz. Poland’s fruit growers do not have to be worried – most likely, they will not remain the only party paying the price for Europe’s effort in taming Russia.

Germany’s Committee on Eastern European Economic Relations – a business lobby representing companies present in the Russian market – has estimated that the sanction could jeopardize about 350,000 German jobs that are directly dependent upon Germany-Russia economic ties. The EU Commission moreover expects that the EU can lose about 40 billion euro (0.3 percent of its gross domestic product (GDP)) by the end of this year and about 50 billion euro next year (0.4 percent of its GDP) if Russia retaliates. Then, the extent of the costs will naturally depend on which industries are hit but economists think that possible sanctions imposed by Russia should not negatively influence the macroeconomic development. Poland’s apples can be redirected to other countries and the demand for sensitive technologies surely does not come only from Russia. The EU must get ready and look for alternative trade partners and export markets for possibly threatened industries.

Finally, after more than two decades of the fall of the Soviet Union, the West must and should fight the battle of values no matter what the immediate costs are. The West cannot afford to let Russia play its game because, in an eye blink, the cost of having Russia just beyond the Schengen border or the cost of not having independent and sovereign states free to trade with might be ultimately much higher than the price we will pay now. The battle of values must be fought now no matter how many apples it will cost or there might otherwise not be enough apples to pay for Russia’s future adventurism.

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