The West is tightening the screws on Russia. This week, the EU discussed blocking big, state-owned Russian banks from European capital markets, while goods that could be put to military as well as civilian use, such as computers or machinery, may be subject to an export ban.
The latest measures also restrict high-tech exports to the Russian energy industry. So who, beyond Russia, will be most affected by these restrictions and possible retaliation?
The EU has “drastically more economic clout”, as Matthew Yglesias notes on Vox.com. It is a $17trn economy; Russia’s annual national income is $2trn. And Russia imports around $300bn of goods from Europe. The biggest European exporters to Russia are Austria, the Netherlands, Belgium and Germany.
But these sales are only worth between 1% and 1.2% of GDP. The European banking sector’s exposure to Russia doesn’t look too bad either. Austria’s is greatest, at 1.3% of total bank assets. Italy and France come next, at around 0.5%. Germany’s is 0.2%.
More serious would be an interruption of Russian gas supplies to Europe in retaliation for sanctions. The average EU state gets 24% of its gas from Russia, but this rises to 100% in some eastern Europe countries. Parts of Europe would be forced to revive old coal-fired power stations, which would take months.
But the numbers don’t tell the full story. “The macroeconomic impact will…exceed the notional sums by a wide margin,” says the FT’s Wolfgang Munchau, due to knock-on effects. For instance, a cut in Russian gas exports to Europe will crimp production here, in turn further hampering exports of goods to Russia.
Similarly, Wirtschaftswoche points out that German firms such as Volkswagen, Siemens and Adidas, which makes 7% of its sales in Russia, would be hit hard if the Russian market dried up. This could undermine their investments elsewhere as well as the consumption of their employees.
The crisis is already expected to cost German exporters 0.5% of the expected growth this year, and sanctions have barely started. German investor confidence, a leading economic indicator, has been sliding for several months. With Europe’s rebound already fragile, this latest crisis is the last thing it needs.