As the Ukrainian ceasefire falters what next on sanctions?

UK PM Cameron warns Russia of sanctions ahead of G20

Over the past few days we have seen the situation in Ukraine begin to escalate once again. Both NATO and the Organisation of Security and Co-operation in Europe (OSCE) have said that they have witnessed significant military movements in Eastern Ukraine, most likely from Russian troops. By almost all accounts the ceasefire only continues to exist on paper (although we have pointed out before why both sides might be willing to continue to pretend it is more than that).

Why has the situation suddenly escalated?
In all honesty, it’s not entirely clear how significantly the situation has escalated on the ground in Ukraine, given that there have been continuous reports of fighting since the ceasefire was struck. It could be more a case of attention shifting back to Ukraine ahead of the G20 and EU meetings. That said, Russia continues to push the boundaries with military exercises. Furthermore, the elections (both in Ukraine and the separatist regions) have increased tensions, while Russia is reportedly keen to help further establish the newly elected separatist leaders.

As might be expected, these reports have once again triggered the discussion on whether the US and EU should increase sanctions on Russia. As we reported in our press summary today, numerous leaders have come out warning of the potential increase in sanctions – surprisingly this also includes representatives of Hungary and Slovakia, though both countries remain a bit divided on sanctions.

While there is lots of talk of further sanctions we would not get ahead of ourselves. Crucially, German Chancellor Angela Merkel has already played down the chance of this in the near future as we reported in our press summary earlier in the week. EU officials have also suggested any agreement is unlikely at Monday’s meeting of EU foreign ministers, although a discussion will be had at the meeting of EU leaders in mid-December.

What could be on the table if sanctions are escalated?
We’ve discussed many times before the options for sanctions but below are a reminder of the potential options if they wanted to take the next step up from the current sanctions.

Expanding list of individuals subject to asset freezes and travel bans: This is a virtual certainty and should be agreed at Monday’s meeting. Specifically the newly elected officials for the pro-Russian separatists will be targeted. More broadly, those involved with the elections in the region could be targeted. It’s not yet clear if there will be a broader discussion about adding further people or oligarchs close to Russian President Vladimir Putin to the list (we have pointed out the potential legal concerns on these sorts of sanctions here).

There are a few other options which the EU could consider (many of which we have discussed before):

• Ban purchases of new Russian sovereign debt – this was reportedly toyed with before but considered too harsh a step. As we noted before, this would probably be manageable for Russia given its fairly low government debt level but it would add another difficulty at a time when the economy and state budget is coming under severe pressure.
• Broaden scope of technological sanctions – this would involve expanding the list of banned tech exports to Russia, currently very focused on oil exploration. It could also include expanding the ban of services which European firms can provide to Russia, which again is currently focused on oil exploration.
• Extend financial sanctions – similar to the above, this would involve broadening the existing financial sanctions from just state owned firms to Russian firms more generally, most likely still only in specific sectors such as financial and defence. This would be legally difficult since the ties to the state would become even more indirect and justification would need to be watertight.
• Broaden scope of financial sanctions – related to the above, rather than expanding the number or type of firms subject to the sanctions, the EU could broaden the scope of the sanctions. This could, for example, mean cutting off all euro funding from certain state owned firms, no matter what the maturity or the type of loan (there are probably a few incremental steps or variations between this and where we are now).
• Remove Russia from the SWIFT system – This remains very unlikely and for some very practical reasons. SWIFT is independent and private. Removing Russian financial firms from this system would mean having heavy direct sanctions on them which forces SWIFT (in acts of compliance) to shut them off from the system. This is one of the key reasons it has never really been discussed at the top level as a realistic option so far.

For his part Putin continues to demand a removal of sanctions but if they were ramped up it is likely he would be willing to retaliate with his own sanctions, some of which we looked at here.

In terms of the broader picture it’s clear that sanctions, combined with the falling oil price, are hurting the Russian economy. However, they do not yet look to have impacted Putin’s approach or course of action. As we warned before, the lack of a clear goal or strategy for the sanctions as well as in terms of what Europe actually wants in terms of a future relationship with Ukraine and Russia could well hamper the approach. The EU would do well to discuss this, not least because the continuing downward spiral of the Ukrainian economy will likely (as we warned some months ago) lead to further bailout requests.

Groundhog day for the EU and Ukraine? (minus Crimea)

EU NATO other?

Ukraine has now signed part of its Association Agreement with the EU, 3 out of 7 chapters - general principles, institutions and the somewhat controversial "political" chapter. The chapters on trade have been postponed (though the EU has unilaterally removed tariffs on Ukrainian goods).

The political chapter includes provisions on defence including promoting "gradual convergence in the area of foreign and security policy, including the Common Security and Defence Policy" the (CSDP). 

This raises two questions. Firstly, is the EU repeating the same mistake again? It's now accepted that it was a mistake to effectively try to force Ukraine to choose between Russia and the EU - an impossible choice for Kiev. As we argued in our recent briefing on this topic, the EU's "all or nothing" approach to its neighbourhood is no longer a suitable model for dealing with countries that don't have an immediate prospect of full EU membership. Both in terms of how it risks draw new dividing lines and create new geopolitical hotspots (the opposite to what EU enlargement has always aimed to achieve - and due to the very high barriers to EU membership existing as a result of decades of "ever closer union".

But by maintaining a clear security element in the AA at this sensitive time, isn't the EU effectively cementing Ukraine's Russia-or-west choice given that Russia won't want to accept anything that smells of security integration? Would it not have been better to sign the less threatening trade chapter first? Moreover, would it not have been better to wait a couple of months until after the Ukrainian elections and sign the AA with the new Ukrainian government, which would have an explicitly democratic mandate to do so?

EU diplomats say such fears might be over-stated given that the foreign policy/security chapter is actually quite mild in nature not committing anyone to anything else than dialogue, but is this how Moscow sees it?

Secondly, could neutrality be a way to square Ukraine's European ambitions with its Russian dilemma? Austria has suggested that Ukraine could remain neutral, as indeed Austria sees itself, in order to calm relations with its large angry and increasingly isolated neighbour. But is this possible and how neutral is Austria in actual fact?

Is the EU a military alliance?

While NATO is obviously a military alliance, the EU does have its own defence policy; it sends troops into conflict zones and runs missions such as Operation ATALANTA in Somalia and missions in Bosnia and Africa. It also has a mutual defence clause inserted via the Lisbon Treaty. Not all EU members, including Austria are in NATO but Austria has sent troops on EU missions. The EU and NATO are not synonymous but they do work closely together under the Berlin Plus Agreement, setting out terms of engagement. The difference between the two even for neutral states is now blurred.


So is it possible to "gradually converge" with the EU and remain neutral? Well in a technical sense yes. Ireland and Sweden will consider themselves neutral - or at least "non-aligned". But Ireland and even Sweden have committed troops to international missions. Norway has also sent troops on EU missions while remaining outside of the EU. If the current accession procedure is followed, it is therefore unlikely that Ukraine would join the EU and be able to remain outside of all EU defence agreements, unless special provisions would be made.

EU NATO can you spot the difference

Should this all worry Russia? Logically is should not because the EU, as we have seen with regards to Ukraine, is hardly a bellicose giant and poses no threat to Russia's Black Sea Fleet. But viewed from Russia's paranoid perspective, "ever closer union" might lead them to draw the wrong conclusions.

Again, a less integrated, less political and less over-reaching deal with Ukraine to carefully absorb it into Europe might be the most sensible option.

When it comes to dealing with thugs, the UK becomes strangely popular in Europe

Soon to be a regular sight over Baltic skies?

The Ukrainian crisis has shown up the short-term limitations of the EU's 'soft power' in the face of a determined Russian regime not afraid of wielding its 'hard power'. Though we would argue that in the long-term, the odds still favour the EU due to Russia's disastrous demographic trends and relatively undiversified economy - and there are things the EU can do without resorting to Kremlin tactics - it's not a secret that Vladimir Putin responds better to the stick than the carrot.

Put differently, Putin doesn't exactly run for cover when Jose Manuel Barroso and Herman Van Rompuy put out a joint statement. As this stand-off is now about hard economic and political power, enter London.

 As Defence Secretary Philip Hammond announced in the Commons yesterday:

"I am able to advise the House this afternoon that we have taken the decision this morning to offer NATO UK Typhoon aircraft from late April to augment the Polish contribution to the NATO Baltic air policing mission. I hope that will provide reassurance to our NATO allies in the east."

The UK is therefore the first and so far only NATO or EU member to commit troops to strengthening the EU-Russian border. TVN cites the Estonian PM Andrus Ansip describing the UK's decision as "an important step" while Foreign Minister Urmas Reinsalu noted that it constitutes a "clear and unambiguous" response to Estonia's desire to strengthen NATO's presence in the Baltic.

However, other politicians who have been been very hawkish over Ukraine - but also the most vocal critics of David Cameron in Europe more broadly - have been quiet by their usual standards. We don't want to name names, but yes, Radoslaw Sikorski and Carl Bildt we're looking at you. (Although to be fair, while they have not commenting on the jet deployment specifically, both of them have praised the UK's stance on Ukraine more generally).

This is significant because some - not least Sikorski himself - have warned that if Russia is not stopped in the Crimea, the Baltic states which have significant Russian minorities could be next on Putin's hit list. It's easy to whine about the UK being Europe's grumpy, old man complaining in the corner. However, when it comes to dealing with thugs, all of a sudden, London becomes strangely popular.

This again goes to show that without the UK, the EU's geopolitical credibility would be sorely diminished. Perhaps one for certain foreign ministers to keep in mind when the waters are calmer.

Syria: The Ins, the Outs - and the Maybes

As we noted in our previous blog post, Syria has again shown that the EU holds almost as many foreign policy positions as there are states - though we should also remember that this is an extremely complex and senstitive situation.

However, as we also note below, EU countries seem to be coalesing around at least three positions at present. One group - the UK, France and Denmark - is commited to military action with or without the UN. The second group are the definite 'outs' and the largest group is made up of those still waiting to make up their minds. Added to that there is perhaps a fourth group made up of a number of smaller states who have not expressed a clear opinion.

The table below divided the 28 EU member states into these four groups, based on our reading of the current stated positions. This is of course a very fluid table - heavily dependent on evidence, events and developments - and as ever, we welcome reader comments in case we've missed something or if a country's position changes.

Click to enlarge

Sorry but UK defence policy is largely untouched by EU membership

Talking about EU military co-operation is always a good way to generate a heated debate, and we expect that the Guardian interview with German Defence Minister Thomas de Maizière will be no exception. Maizière said:

"If Great Britain leaves the EU, it would be a great disappointment to us. It would weaken Nato, it would weaken the British influence within Nato. I think from a military point of view the disadvantages for Great Britain would be bigger than the advantages."

"I am not talking about economic issues or social issues, or whether you drive on the left or the right side of the road, I am talking about security. I am talking about British influence beyond its own borders. I think it is part of the British tradition that Britain has to play a role in the world. Outside the EU it would not lose a role, but it would reduce their own influence and this cannot be in the interests of Great Britain. We in Germany would lose a strong partner for a pro-Atlantic co-operation with America and a pragmatic British way to deal with security issues." 

Now, as we've argued in the past, there are a number of drawbacks from the UK leaving the EU - which eurosceptics of that inclination have failed to properly address - including guaranteed market access, voting rights on laws that govern that market access, "pass-porting" for financial services, extra costs at the border for exporting business (rules of origin) and loss of veto to prevent the EU from doing stupid things. Here, German politicians make good points when they talk about the UK's future position in the EU.

However, the one area that would be largely unaffected - or even completely unaffected - by a possible UK withdrawal from the EU is defence and Britain's military position.The reason is simple: hard power in Europe is simply guided by logic and incentives untouched by the EU institutions. It's a separate dialogue completely.

In other words, Britain would be an absolutely key part of "security Europe" even if it left the EU tomorrow. It wouldn't enjoy either substantial benefits or drawbacks with regards to military cooperation - the EU would be largely irrelevant. Even in the broader field of "foreign policy", the UK would be a key partner.

The UK remains one of Europe's 2 1/2 military powers, being the biggest single spender on defence in Europe - spending as much as Italy, Spain, Netherlands and Poland combined.

Britain would still have its permanent place on the UN's Security Council and its nuclear deterrent. Meanwhile it is telling that France and the UK have chosen to deepen their defence co-operation outside of the EU. When it comes to hard power the EU institutions become invisible; think the Balkans, and more recently Iraq, Libya, Syria and Mali.

The UK may benefit from EU membership in the broad area of foreign policy (for example the recent EU-brokered peace deal between Serbia and Kosovo) but if the UK left the EU tomorrow, it would have no impact on its security capabilities.

Conversely, EU partners may find it easier to press ahead with a "European Army" (though not really given political realities). It might be European, but it sure as hell won't be much of an army.

Let's pick the right targets when arguing for continued UK EU membership.

Poland and EU defence: Having your Pączek and eating it

Speaking to the Polish Parliament yesterday, Foreign Minister Radoslaw Sikorski pointed the finger at the UK for not pulling its weight in the domain of European defence, claiming that he was "disappointed" that the UK did not want to build up joint EU defence capabilities, and that those member states that wanted to ought to use the ‘enhanced co-operation’ clause in the Lisbon Treaty to go ahead without it.

Sikorski set out a slightly distopian vision of the future in which:

"Tired by parsimony on defence budgets and Europe's general inefficiency, the US leaves Nato. The post-Western vacuum is filled by Russia in the east and by China in Asia. Transformational crises continue in the Arab world [but] Europe no longer sets a good example. And where is Poland in this black vision? Left to its own devices, on the periphery of a Europe mired in lethargy. Struggling with unfinished modernisation and deprived of a solid basis for national security."

However, actions speak larger than words, and it worth pointing out that Poland’s record on defence spending falls short of Sikorski’s rhetoric; 1.9% of GDP - below the 2% recommended minimum set by NATO. Moreover, when offered an opportunity to cooperate with other European and NATO countries in last years’ Libyan operation it decided to not to get involved, despite being pressed to do so by NATO leaders (although the government did volunteer logistical support).

Sikorski is however right about one thing – Europe’s unwillingness to shoulder the burden of its own defence. The Libyan operation exposed this on a grand scale; although on paper it was an impressive show of European (and non European) cooperation, with states such as France, the UK, Norway, Belgium, Denmark, the Netherlands and Sweden all sending planes to enforce to no-fly zone. Bulgaria, Romania, Italy, Spain and Turkey also helped to some extent and Estonia and Croatian said they would also help if need be, but Poland and Germany did not help and Cyprus was actively opposed.

Furthermore, the operation exposed Europe’s continued reliance on the US. France and the UK were for instance unable to operate independently, having to rely on US command and control, logistics and assets, with the strains on their forces quickly exposed.

So why has Sikorski decided to attack the UK for preventing the EU having a larger role in defence? Most likely it is a form of political displacement activity: Sikorski knows EU defence budgets are under pressure and there is no real prospect of EU states increasing their capabilities. He knows this structural problem would not be alleviated by more EU structures or headquarters duplicating those that already exist in NATO, but by blaming Europe’s defence failings on the UK he is at least fuelling a debate over the future of Europe’s defensive structures.

In our view, if Poland and other European states want to be serious on defence (if they don't that's a national democratic choice which others have to accept) then they should actually stick to the 2% of GDP NATO minimum guideline. Ironically the only EU member states to comfortably exceed it at the moment (apart from the UK at 2.7%) is Greece (2.9%) – the one country that should cut its defence budget. The USA by contrast to the EU average of 1.7% spends a staggering 5.4% of its GDP on defence. EU countries should also reform their defence capabilities by investing in deployable modern forces. In the modern world cooperation will, as seen in Libya, be via variable alliances and groupings, in that the breath of NATO is indispensable. It is not only Poland that fears a defenceless Europe beholden to Russia, but if it is going to lead on this issue it will have to pulls its own weight first.

EU military HQ always going to be a non-starter for the UK

As if the EU hasn’t got enough on its plate, yesterday saw EU Foreign Minister Baroness Ashton present a proposal, at a meeting between EU foreign ministers, calling for the creation of an EU military headquarters (a so-called ‘Operations Headquarters’ OHQ). This comes despite the fact that the new External Action Service itself is barely even up and running. And despite the increasing number of voices that doubt that a single EU foreign policy is even possible.

According to the Sunday Times, Ashton wants the OHQ to “command and control” future European civilian and military campaigns. The idea has been knocking around since 2003, when it was rebuffed by the UK and the US, among others, but has been revived with the backing of France, Germany and Poland. French support for the measure goes back some time but it has always met with staunch opposition from the UK, which sees it as an unnecessary duplication of existing NATO arrangements.

Given that this is a decision that would require unanimity and that the UK is one of only two major EU military powers (France being the other), yesterday’s proposal seemed an unwise, direct challenge to the UK. The response from William Hague was expectedly unequivocal,

"There is no way we will agree to this, now or in the future...We won't be agreeing to a permanent operational headquarters and therefore we are not able to welcome today's report by Cathy Ashton, the High Representative, on this matter".

"We are opposed to this idea because we think it duplicates NATO structures and permanently disassociates EU planning from NATO planning”

"Secondly, it's likely to be a much more costly solution than existing structures; and thirdly, a lot can be done by improving the structures that already exist"

This isn't simply a case of the UK 'not seeing the need' for a permanent EU military HQ, it is that it sees it as a potential threat to the UK's national interests. Britain will veto anything that looks like it might threaten NATO because, when it comes to defence, the transatlantic alliance remains paramount (and probably always will).

It is often said that the UK doesn't 'understand Europe' but this example illustrates that this also works the other way.

The Libyan conflict has shown that European countries can and need to work together when there is the political will to do so. However, like over Iraq, it has also shown that there are often fundamental disagreements on the use of military force among EU member states, this time with France and Britain on the one side and Germany on the other. If they are serious about defence, European governments need to boost their individual capabilities and improve interoperability on an ad hoc basis. EU mission creep is simply an unnecessary and potentially damaging distraction.

Whose side would a European army be on?

Following German Foreign Minister Guido Westerwelle's speech at the weekend, announcing that the long term goal of EU security and defence policy under Lisbon should be the creation of a European army, the French Defence Minister Hervé Morin today made a rather different, but nonetheless important announcement.

He revealed that, after much um-ing and ah-ing, France is to sell one, and possibly as many as four, amphibious assault ships to Russia. The Economist's Charlemagne correspondent notes that after seeing one of these ships at St Petersburg in November 2009, Russian PM Vladimir Putin said on a visit to Paris: "I can assure you that if we purchase this armament, we will use it wherever deemed necessary." Similarly a senior Russian admiral declared that if such ships had been in the fleet in 2008, Russian forces would have overrun Georgia "within 40 minutes", rather than in 26 hours.

The WSJ notes that both the US and the eastern European members of NATO are not amused and it's certainly unlikely that France's decision will do anything to dispell the concerns in both the UK and the EU accession states that its vision for EU defence policy poses a threat to the transatlantic alliance.

Franco-British military cooperation is back in vogue within the MoD but actions like this highlight the fact that on crucial questions such as engagement with Russia, Iran's nuclear programme and other key foreign policy questions of the day - opinion in the EU is divergent, and that is not something that the Lisbon Treaty could, or did, magic away.

Moving apace

Anyone who said that France was re-joining NATO's military structures with a view to setting up a single, EU military headquarters may well feel vindicated by the words of French Europe Minister Bruno Le Maire this afternoon.

He told a French radio station:

“While it may be a difficult objective, in time we will need to have a single military command for the European Union, a European staff headquarters which could be installed for example in Brussels, and which would allow us to command European operations wherever European security interests are at stake. Today there are three staff headquarters which do that: one in England, one in France, one in Germany. I think it would be more logical, more reasonable and also more economic for public money to have a single operational headquarters.”

He admitted it would be “very difficult” to convince Britain of the need for a single headquarters, which has for years blocked the creation of a proper permanent EU military headquarters, because of the risk of duplicating NATO structures. But, Mr. Le Maire said, with the return of France into the integrated military structures of NATO, “we can no longer be accused (…) of doing it against NATO because we are now fully in NATO.”