The father of all mistakes was Woodrow Wilson. The pacifist-minded twenty-eighth president of the United States believed in the omnipotence of economic sanctions to end wars.
“A nation subjected to a widespread boycott has no choice but to surrender. Thanks to this economical, peaceful, silent but deadly medicine, the use of the armed forces is no longer necessary.”
Wilson is dead, but his mistake lives on. The current granddaughter is named Annalena Baerbock.
Baerbock wants the 14th package of sanctions against Russia
Outrage 1.0: The German Foreign Minister is understandably outraged by the non-electoral elections that took place in Russia at the weekend and which ended with the re-enthronement of Vladimir Putin.
Outrage 2.0: He wants – understandably – to help Ukraine, which is in trouble. At the meeting of EU foreign ministers held yesterday in Brussels, he announced the fourteenth package of sanctions against Russia:
“For us as the European Union, this means that today we will introduce sanctions in light of the death of Alexei Navalny.”
At the Brussels meeting, it was agreed to continue economic sanctions and new punitive measures against representatives of the Russian justice system to punish serious human rights violations.
Economic sanctions: another word to refer to helplessness
Helplessness with the advertisement: Representatives of the Russian legal system will not set foot in the West anyway, and economic sanctions are just another word for powerlessness in the multipolar world, where no single group of states has escalating dominance.
Excessive sanctions: The belief in the omnipotence of economic sanctions has not been good for the West, says Agathe Demarais, an economist and senior policy fellow at the European Council on Foreign Relations, in her book “Backfire: How Sanctions Reshape the World Against US Interests.” In recent years there have been “excessive sanctions.”
Basically, there are four reasons why Agathe Demarais is right. It is nothing less than the recognition of realities.
#1 The world's largest raw materials powerhouse is always finding new buyers.
Superstition: Anyone in the West who believed that sanctions could bring the world's largest raw materials power to its knees was wrong. In the third year after the attack, the Russian attacker appears to be economically vital. Western sanctions had short-term effects that were offset by the realignment of supply chains and the establishment of a war economy. Since the start of the war, the Russian economy has grown faster than Germany's.
New partners: Russia has found political and economic partners in China, India and Turkey who are willing to participate even if the risks increase. The non-Western world – as has become clear in the last three years – has an interest in the re-emergence of a duopoly of power.
#2 Exclusion from the Western payments system Swift brought Russia to the side of the Chinese.
Exclusive club: Ten Russian and four Belarusian banks have been excluded from the Swift payment system. This means that these institutions can no longer process international payments, purchase foreign currency or transfer their own assets abroad.
The EU is proud of the sanctions: The European Council writes on its website that any alternative to Swift would mean going back to the days “when every transaction was confirmed by phone and fax.” That mistake!
Alternative China: The Chinese payment system CIPS also works on the latest technology. Numerous Russian banks are now listed there, so payment flows to and from Russia have not been disrupted in any way.
Rise of money transfers: The total number of settlements through CIPS rose 21.5 percent year on year to 96.7 trillion yuan ($14.02 trillion) in 2022, data from China's central bank showed. A significant increase in money transfers was also recorded in 2023.
#3 Sanctions drive inflation
Negative consequences for Europe: The oil embargo against Russia since December 5, 2022 and a price limit have not meant that Russia can no longer get rid of its energy, but rather that Europe has made its energy imports significantly more expensive.
Inflation turned on: This, in turn, was a major driver of inflation (France 2023: 5.7 percent; Germany 2023: 6 percent; Spain 2023: 3.5 percent).
Because: Many of the country's biggest customers, including the United Arab Emirates and Turkey, import cheap fuel for domestic use while exporting their own, more expensive oil.
Domino effect: Central banks, in turn, have no choice but to combat rising inflation with rising interest rates. This damaged the real estate industry and brought new construction to its knees. Investments are generally more difficult, which is why, along with other geographical disadvantages, there was an outflow of capital from Germany.
#4 Asset Seizure: Valueless Patterns
The seizure of Russian assets worth more than 200 billion euros in the EU can only impress the public, not the Russian oligarchs. Because they know very well that a total expropriation by Western states would be, firstly, illegal and, secondly, extremely risky for the West. So these assets are not gone, they are just frozen.
The reaction: Other countries (China, Saudi Arabia, Brazil, South Africa, to name just a few) could also come up with the idea of enriching themselves from American and German assets abroad. Nobody in Washington, on Wall Street, in Frankfurt or in London has any interest in this. Everyone knows that asset confiscation provokes negative reactions.
Disagreement: While US Treasury Secretary Janet Yellen makes calls in the US to transfer profits from Russian assets to Ukraine, this is met with disagreement in the EU. Although Ursula von der Leyen and Christian Lindner see this measure as a “strong signal”, the plan is highly controversial among experts. It would be a novelty and a violation of international law with unforeseeable consequences for confidence in the financial market.
Retribution time: Because at some point the money will have to be returned to Russia. Mistaken speculation in Russian assets would have consequences. The West is responsible to Russian investors to ensure that their assets are not decimated.
Conclusion: The West would do well to stop ignoring the economic impact of its sanctions. This damages their economic interests and political credibility. French sanctions expert Agathe Demarais advises strategic calm:
“The West and Washington in particular must learn again to live with their critics and opponents without wanting to immediately punish them.”