The lead article in today’s New York Times, “European Firms Seek to Minimize Russia Sanctions,” reveals the conflict of interest between Russia and European governments politically and economically. Because while the two sides are rapidly moving toward a conflict and crisis over Ukraine, their business sectors want to continue business as usual.
The European public has an especially large stake in resolution of the crisis because they are dependent for about 25 percent of their natural gas from Russia. Russia also serves as a critical export market for European machinery and automotive equipment. All in all, Russia and Europe engaged in $370 billion in trade in 2012 compared to $26 billion for the United States.
That makes it particularly difficult for the European Union to impose sanctions on Russia that really bite because they don’t know how Vladimir Putin will react. His decisions are not totally rational — the annexation of Crimea, for example, had a major deleterious effect on the Russian economy with the value of the ruble falling rapidly, and Standard & Poors downgrading Russian bonds to just above junk status.
President Obama is wise in trying to give Russia a face saving way to extricate itself from the crisis, but they may not want to be extricated. The result would be a global tragedy because Russia would be ostracized at a time when it has so much to contribute.