© Robert Wood
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I believe that much of a bigger issue is the effect on confidence of what is happening in Ukraine, rather than the sanctions themselves. The restrictions will, of course, matter for individual firms and the margin of the EU. However, it signifies a lot more for Russian economy overall. The sorts of exports that the EU is putting sanctions on are not a significant contributor to the economy in aggregate. The whole exports to Russia take relatively small proportion of European GDP and the sanctions affect an even smaller proportion. Overall, the restrictions are only a sideshow. What is much more important for the EU and Euro zone economies is the way of how businesses react to the overall political situation in Ukraine – the delay in investment making and hiring people. Hence, that is precisely the effect which has hit Germany particularly in its indicators, e.g. the ZEW economic sentiment. Moreover, this is the reason which caused the slowdown in German economic growth at the end of summer 2014.
What could be the possible counter-measures from Russia on the matter?
Russia has also suggested further sanctions on the EU imports after banning agricultural products, such as cheese, for instance. These restrictions matter without doubt, especially for the companies whose business is involved particularly in related imports. Hence, some former USSR countries may be pressured the most. However, the EU is not an agricultural economy and does not purchase vast amount of clothing and, moreover, does not export that much to Russia.
Therefore, the selected bans on imports are not that significant for the EU economy. Which country faces the greater impact due to the conflict?
The ones who would suffer the largest confidence hit from the actions on fighting in Ukraine and, probably, the most fallout from things like agricultural sanctions. Respectively, the conflict will mostly influence those countries that are geographically very close to Russia. Strange enough, the countries that are strongest have been hit the most by the situation in Ukraine, that is where it has already heavily hit Germany and the core of the Euro zone. They were least prepared to deal with the situation, reflecting the lack of confidence effect and also the relatively low level of exports to Russia. Meanwhile, the countries that have been rather unaffected so far are the ones in the periphery, e.g. Spain and Portugal who continue to grow strongly.