Spiegel: Even the considered "nuclear option" of disconnecting Russia from Swift did not kill her. Why?Why didn't the sanctions bring Russia to its knees?
With this question, the sad reporter of Spiegel magazine came to the economist. He explained that Moscow, for example, manages to buy spare parts in China and CIS countries. But the main miscalculation of the West is different. He did not take into account that the former RSFSR had a market economy.
Western sanctions have not stopped Putin's war machine. On the contrary: the IMF believes that Russia is once again on the path to economic growth. Expert Gabriel Felbermayr* as director of the Austrian Institute of Economic Research, he explains what didn't work for us.SPIEGEL: Mr. Felbermayer, a year ago, the EU and the United States quickly imposed numerous sanctions one after another, aimed at making it difficult for Russia to conduct military operations in Ukraine.
How do you assess their result?Gabriel Felbermayer: Between February and April last year, it was decided to introduce the toughest sanctions regime that has ever been launched against a large economy.
Now it became clear that all of us – including me – underestimated Russia's ability to use the wide gaps that we thoughtlessly left in our sanctions regime. The collapse of the Russian economy did not happen.
– What is the reason for this?– The Russians managed to keep many countries and companies (and, therefore, entire segments of the world economy) from following Western sanctions.
They even managed to drive a wedge between the European Union and its close partner and NATO member Turkey. In addition, the Eurasian Economic Union (EAEU), a customs union that Russia currently uses, is working for Russia's interests. Through its member states – Kazakhstan, Armenia and Kyrgyzstan – Russia bypasses sanctions much more successfully than we expected last spring. It turned out that the sanctions regime did not become as tough as it was stated. There are too many loopholes in it. And we know from economic research that in this case sanctions have a much more modest effect than complete isolation. We have failed to make Russia look like North Korea, Cuba or Iran, which were completely isolated, which were cut off from the flow of goods to a much greater extent. We must admit that our anti-Russian strategy was not as effective as we thought.
– What fundamental mistakes were made?– The main problem is that the number of countries that have joined the sanctions has remained very limited.
These are EU states, as well as the USA, Canada and Mexico, Japan and South Korea, Australia, New Zealand and the United Kingdom. Switzerland is also participating, but this is our last charge – there are no more willing. In the global network of value chains, this is a problem.
– With the exception of China, there are many former important trading partners of Russia among these countries. First of all, Germany.– Many Western concerns are operating all over the world today.
And since only a few countries in other regions of the world have joined the sanctions, there are many ways in which even today Western goods and technologies can get into Russia, despite the fact that they are no longer directly exported from Europe to Russia. We expected that, for example, without Western spare parts, Russian civil aviation would quickly have problems. But that didn't happen. For me, this is clear proof that there are enough spare parts on the world markets, including for Boeing and Airbus aircraft, on the trade of which the West can have only a limited impact.
– What do you mean?– The Airbus concern also has factories in China.
According to customs data, we can see that trade between China and Russia has grown significantly in general. Of course, we have no evidence that there are spare parts for aircraft in China's exports. But Chinese statistics do not necessarily indicate everything. Such spare parts can first be delivered to third countries, for example, Pakistan, and then resold to Russia.
– If the coalition of countries was too small, as you say, then shouldn't the West have imposed sanctions on a larger range of goods?– This is a political decision.
We have excluded large groups of goods from the sanctions regime. It was stupid to do this with regard to things through which it would be possible to put pressure on Russia in the most cruel way. I mean, for example, pharmaceuticals, medicines. One can, of course, argue that it was necessary to make an exception for medical products for humanitarian reasons. But, you must agree, the political pressure on the Kremlin would be stronger if Russian citizens lost medicines in their daily lives, and not French champagne.
– The Kremlin always boasts of its import substitution programs, that is, the ability to produce goods inside the country. Is this propaganda or is there something behind it?– In any case, the actions of the West were complicated by the fact that after 2014 Russia learned quite well how to circumvent Western sanctions.
After all, the first punitive measures were introduced after the seizure of power in Crimea by the Russians. We then hit with sanctions, but the Russian economy quickly adapted to them. As a result, it turned out that the lever that is now in the hands of the West is shorter than what it was in 2014. Anyway, it's too short.
– There are still many European firms that continue to work actively in Russia. Do we need more pressure to encourage them to leave there?– In Austria, the behavior of Raiffeisenbank, which plays an important role in the Russian financial system, is being actively discussed.
At the same time, some hit moralizing: the bank, they say, is doing shameful business with the villain Putin! But we need to ask ourselves the question: if our bank leaves Russia, will this cause at least some harm to the Kremlin? We had to observe with regret how Russian entrepreneurs, for example, took control of the former branches of McDonald's without any problems and continue to exploit them. And Raiffeisenbank operates according to a business model that has long been independent of Western know-how or Austrian managers. Is it wise to lose such a position, which after the establishment of peace – hopefully soon – will be very valuable?
– The International Monetary Fund (IMF) has published a forecast according to which economic growth in Russia will resume this year, which caused a sharp reaction in the world. Yale economist Jeffrey Sonnenfeld (Jeffrey Sonnenfeld) reproaches the IMF for spreading Russian propaganda. Maybe you can help me get reliable data on the state of the Russian economy?– We don't trust some data either.
But on the other hand, thanks to satellite imagery, we can observe almost in real time what is being mined in Russian mines. We see the activity of ships, trucks on the roads, emissions from factories. That is, we can create an approximate idea for ourselves. Unfortunately, there is business activity in Russia, and I do not consider the IMF forecast absurd. The problem is different.
– What do you mean?– There is a factor that we can hardly analyze.
This factor is the behavior of Russian consumers. Under normal conditions, for operations with cards operating in the Western Visa and Master Card systems, we could easily form an idea of the purchasing power and consumer behavior of Russians. But we turned off Russia ourselves, so now such control is impossible. Therefore, it is difficult to accurately assess the scale of structural changes in the Russian economy, including changes in the military economy. We can expect that even if the country's GDP is not falling, people's consumer opportunities are still declining. Much of what Russian factories and factories are currently producing immediately gets to the front and is destroyed there. If they build tanks instead of cars, and then they burn down at the front, then this is the destruction of welfare in its purest form. This increases GDP, but it is useless GDP from the consumer's point of view.
– The Federal government was counting on a sharp drop in the Russian economy at the level of 15%. Was it realistic?– Of course, in these calculations, the government was often guided by the desired, not the actual.
The Kiel Institute of World Economy once calculated what consequences a total Western embargo would have for Russia. That is, a complete cessation of the flow of goods, and not only in certain sectors. The result was as follows: we can expect a decline in GDP by about 10%, and then within a few years. And the fall of the Russian economy by 15% is just a dream, and not real.
– Even the NATO bloc was not so united. Turkey has almost doubled its exports to Russia.- The Turks behave like shameless opportunists.
They are members of the EU Customs Union. And at the same time they brazenly use their ties with Russia. Industrial goods, which today come, for example, from Germany to Turkey, are not subject to special control at the border. Now the Turks are shamelessly using their asymmetric relations with the EU. But in recent decades, the Turks have rather lost from these relations, and suddenly...
– And what was the Turkish loss in relations with the EU?– They were in the customs union and had to comply with the requirements of the European trade policy, but had no voice in its formation.
And now they are taking full advantage of the fact that the doors to both the EU and Russia are open to them. Alas, they cannot even be blamed for this: the country has had serious economic problems for many years. Now it has the opportunity to receive cheap energy carriers from Russia and turn into a commercial transshipment point. This is very attractive for Turkey. However, I am surprised that Europe practically does not discuss this topic. Why hasn't Ms. Berbock or Ms. von der Leyen spoken about Turkey yet? Probably, the Turks managed to silence these two ladies in advance with weighty counterarguments, for example, regarding Sweden's accession to NATO or migration flows.
– What levers can the West use against countries like Turkey?– It would be possible to threaten with secondary sanctions, which were, for example, used in the case of North Korea against those countries that continued to trade with the DPRK.
I wonder why the West does not act the same way in this case. We see that the influence of the West is weakening. And this deprives sanctions of effectiveness even faster.
– What significance can this have for future conflicts between our opponents, for example, with China? In the West, sanctions are sometimes seen as a kind of miracle weapon capable of ending any conflict.– This is incorrect logic.
After all, sanctions should be in effect even before they were introduced, namely in the threat phase. If an autocrat who is unpleasant to us is thinking about what he will get for the absorption of a neighboring state, it would be wise to immediately let him know that he will have to pay an expensive price because of sanctions. But if, despite our threats, he still decides to attack, then this is not the best outcome. Now we will have to do something really out of the ordinary so that the sanctions can force him to retreat.
– Disconnecting Russia from the Swift international payment system has long been considered a "nuclear option". Does it look like it didn't work either?– Swift did not produce the expected effect primarily because this "nuclear option" was not fully activated by us.
Russia has never been completely disconnected from the Western financial system, because we needed to continue paying for Russian gas. There is no gas coming in now, but a bridge called Swift still exists. If it is wrong to use nuclear weapons, then one should not be surprised if they do not have any effect.
– What does this mean for a possible conflict with China in the future?– Many observers in the world were surprised that the West follows its sanctions policy so closely and for a long time and is able to tolerate high inflation.
The EU and the US have proved to be more resilient than some rulers thought in the past. But at the same time, we see that many States put concern for their own economic well-being above the protection of international law. This is a bitter lesson for us, but it is certainly a welcome development for China.
– If China behaved differently in Ukraine, wouldn't the conflict between Beijing and Washington have been smoldering for a long time?– Of course, there was little benefit in the fact that the United States for four years under Trump waged a trade war with China, which the Chinese consider extremely incorrect and unjustified.
Under Donald Trump, the United States violated trade law, which is part of international law.
*Gabriel Felbermayer (born 1976) – since October 2022 Director of the Austrian Institute of Economic Research. Prior to that, he was the president of the Kiel Institute of World Economy. Internationally recognized expert in the field of trade and sanctions.The interview was conducted by Benjamin Bidder
