EU to hit Russia with economic sanctions next week

BRUSSELS - The European Commission is preparing legislative on four types of economic sanctions likely to be imposed on Russia on Tuesday.

A meeting of EU ambassadors (Coreper) on Friday concluded that legal texts should be prepared for all four areas presented in a draft paper by the EU commission: restricting access to EU capital markets for Russian state-owned banks and companies, as well as banning trade in arms, sensitive technologies and goods that can be used both for civilian and military purposes.

This marks the so-called stage three of a sanctions regime on Russia which were for a long time taboo in EU quarters, with diplomats quipping that leaders would only go to "stage 2.99999" rather than adopt sanctions that could hurt their own economies.

But the mood shifted dramatically with the downing of the Malaysia Airlines plane on 17 July, where 298 passengers, mostly EU citizens, lost their lives after being hit by a Russian missile, believed to be fired by pro-Russian separatists in Ukraine.

Foreign ministers meeting on Tuesday decided on the four areas where economic sanctions could be applied and according to an EU diplomat "we have been on auto-pilot ever since," with no country raising any objections to the "stage three" of sanctions.

EU diplomats in the so-called Relex counsellors group will have a first look at the texts on Monday and relay potential changes to the EU capitals before EU ambassadors are to look at the texts and possibly approve them on Tuesday.

A political nod from EU capitals is still required before the sanctions are formally adopted.

Earlier this week, there was speculation that an extra summit of EU leaders might still take place on this topic.

But in a letter sent by EU council chief Herman Van Rompuy i to capitals, and seen by EUobserver, he opts for the so-called written procedure in adopting the sanctions.

"The preparation of the legal acts will be finalised in the next few hours and will be presented to Coreper with a view to approving them by Tuesday 29 July. I would like to ask you that you instruct your ambassador in order to complete an agreement by this date," the letter reads.

Van Rompuy said the economic sanctions package "strikes the right balance when it comes to cost/benefit ratio and scalability/reversibility over time. It should have a strong impact on Russia's economy while keeping a moderate effect on EU economies."

The planned arms embargo will only apply to future contracts, as will capital market restrictions.

This means that both London - where most of the financial transactions in the EU are carried out - takes a smaller hit and also that France can go ahead with its controversial delivery of two Mistral warships to Russia.

According to an EU source, France was not the most vocal in insisting on the arms ban not to apply to existing contracts, rather eastern EU member states, who still have to get Russian spare parts for their Soviet-era tanks, planes and equipments.

Van Rompuy also mentions two more concessions: "The measures in the field of sensitive technologies will only affect the oil sector in view of the need to preserve EU energy security" and "the prohibition of dual-use technology exports will be limited at this stage to military end-users."

Sanctions effect on national deficits

Other concerns expressed by member states, notably the impact of the sanctions on their economies, will be closely scrutinised by the EU commission, Van Rompuy wrote.

Southern member states, notably Italy, would like to see the sanctions impact taken into account when the EU commission evaluates their economic policies in regards to budget deficit and debt and the so-called European Semester, according to a source familiar with the Coreper talks on Friday.

The EU ambassadors on Friday also formally adopted the inclusion of 15 names and 18 entities on an existing blacklist, that was to be published later that day in the Official Journal.