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EU states in Russia's shadow fearful about tougher sanctions

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(Globalpost/GlobalPost)

By Christian Lowe and Robert Muller

WARSAW/PRAGUE (Reuters) - The European Union states that used to be behind the Iron Curtain have most to fear from Russian aggression, yet also most to lose from imposing sanctions, and for now the fear of losing money is winning out.

Messages over the past week from officials in the EU's 11 ex-Communist member countries indicate that most of them are going to be very resistant to any attempt by the bloc to impose the next stage of sanctions, on trade and economic ties.

The EU's ex-Communist camp, on the face of it, should be a natural backer of tough action: they have been occupied by Russia in the past and, after Moscow's annexation of Crimea, many of them have reason to fear they could be next in line.

If even this group is shying away from tougher sanctions on Russia - with the exception of Poland and a couple of others - it shows how hard it will be for the EU's sanctions hawks to win a consensus from all 28 member states.

Officials in most ex-Communist states said their main preoccupation was not any security threat but keeping their fragile economic recoveries on track, something that would be jeopardized if they had to forfeit trade with Russia, visits from Russian tourists, and shipments of Russian gas.

"When one quarter of (our) cars, about 250,000, go the Russian Federation, what would be the impact (of sanctions) on the car industry? Catastrophic," Prime Minister Robert Fico of Slovakia, a big automaker, told reporters last week.

"Why should we make decisions now which would endanger our economy and our people?"

PUTIN'S AMBITIONS

Poland, the region's biggest economy, advocates a tougher stance, pushing hard at meetings in Brussels for a third stage of sanctions, beyond the assets freezes, visa bans, and suspension of cooperation talks that the EU has already adopted.

Polish officials say Russian President Vladimir Putin's ambition is to establish control over other parts of Ukraine beyond Crimea, and economic sanctions are a vital deterrent.

Reuters this week was shown a copy of what appeared to be a ballot paper asking people in Ukraine's eastern Donetsk region if they wanted it to be incorporated into Russia - the same scenario that was played out in Crimea.

Among Poland's eastern European peers, Romania shares its view on sanctions, as does the Baltic state of Estonia.

"We are prepared to support the strongest possible measures," Estonian defense minister Urmas Reinsalu told journalists on Friday. "The Putin narrative poses a threat to the security of all Europe, including Estonia."

Yet even the firmest supporters of a third phase of sanctions concede that it will be tough to win a consensus. "We'll have to see what happens," said one European official, from a country that wants economic sanctions.

ECONOMIC DEPENDENCE

The anxiety in eastern Europe about sanctions is a measure of how intertwined its economies still are with Russia, more than 20 years after the Warsaw Pact ceased to exist. The dependence goes beyond the need for Russian fuel.

In the Czech capital, Prague, Russian-speaking tourists weighed down with shopping bags promenade around Wenceslas Square, and cluster around kiosks that offer bus excursions with commentary in Russian. The Czech Chamber of Commerce estimates that strict economic sanctions would cost up to 50,000 jobs.

The Czech government does not want to anger big European powers like Germany by blocking economic sanctions. But equally, this "is not anything we want to push for," said a Czech official with knowledge of discussions within the EU. "It will have a negative impact on our economy."

For many in the region, the past two decades have been about setting aside traumatic memories of Soviet occupation, and focusing instead on making a good living - an attitude that helps explain the approach to Russia now.

Bulgaria, the economy most dependent on Russia, has said it is opposed to tougher sanctions. In Slovenia, officials say they too are not keen.

In Hungary, the government has just signed a deal with Russia to expand its Paks nuclear power plant. Russia is its biggest non-EU trade partner.

At a news conference in Budapest last week, visiting German Foreign Minister Frank-Walter Steinmeier, a backer of tough sanctions, winced as his Hungarian counterpart Janos Martonyi, sitting next to him, outlined how vulnerable his country was to the impact of sanctions.

A Hungarian official, speaking on condition of anonymity, said a third stage of sanctions would "entail very painful and consequential decisions for both sides." That did not mean they would not happen, said the official, but "at this stage several EU member states would be interested in avoiding stage three."

Though Baltic state Lithuania is traditionally hawkish on Russia, President Dalia Grybauskaite said this week it was not yet time to adopt wide-ranging sanctions.

Nerijus Maciulis, chief economist at Swedbank Lithuania, said gross domestic product could shrink 10-15 percent if the strictest sanctions are imposed, tipping the country into renewed recession.

(Additional reporting by Gergely Szakacs in Budapest, Jason Hovet in Prague, Tsvetelia Tsolova in Sofia, Marja Novak in Ljubljana, Zoran Radosavljevic in Zagreb, Andrius Sytas in Vilnius, David Mardiste in Tallinn and Radu Marinas in Bucharest; Editing by Ruth Pitchford)

http://www.globalpost.com/dispatch/news/thomson-reuters/140324/eu-states-russias-shadow-fearful-about-tougher-sanctions