Crimea crisis: EU prepares for trade war with Russia

Brussels drafts tougher sanctions for new battle plan against Moscow should Putin expand territorial claims in Ukraine

Europe began to prepare for a possible trade war with Russia over Ukraine on Friday, with the EU executive in Brussels ordered to draft plans for much more substantive sanctions against Moscow if Vladimir Putin presses ahead with Russian territorial expansion.

But the bigger EU countries – Germany, France and Britain, all with major but very different interests at stake in Russia – split over the tactics of a new campaign with fears that a trade war would be highly risky and potentially ruinous.

A two-day summit of EU leaders dominated by the Crimea crisis ended with 12 Russian politicians and military figures being added to a list of 21 so far subjected to travel bans and asset freezes.

Unlike Washington, which on Thursday blacklisted senior Kremlin figures and oligarchs, the EU list avoided Putin's immediate entourage, instead targeting figures such as Sergei Glazyev, an economic adviser to Putin, Dmitry Rogozin, a deputy prime minister, and the heads of both houses of parliament. "The persons are not so important," said a senior EU official. "It's the climate we're creating." He denied any differences with the Americans. "It's not a beauty contest."

The summit debate, participants and witnesses said, focused on what is known as "stage 3" of a sanctions regime, meaning broader trade and economic sanctions against Russia if the Kremlin escalates operations to seize more territory in Ukraine beyond the Black Sea peninsula of Crimea, whose annexation was formally concluded on Friday in Moscow.

David Cameron reserved strong language for the Kremlin move. "A sham and illegal referendum has taken place at the barrel of a Kalashnikov," he said. "Russia has sought to annex Crimea, a flagrant breach of international law and something we will never recognise."

Moscow criticised the Foreign Office for its choice of rhetoric on the Ukraine crisis. "We are being reassured that the British government wants to maintain normal diplomatic relations with the Russian Federation. If that is the wish of our British partners, then this relationship has got to be normal and diplomatic including at the level of rhetoric. Good relations ought to be valued. The British side should mind its language. Unfortunately, that's not the case with the British Embassy in Moscow," said the Russian foreign ministry. "It seems that the harsh rhetoric, quite beyond the pale, is meant to cover up the gross inaptitude of the Brussels bureaucracy and its zero-sum motive to engineer a cold war-type geopolitical grab on Russia's borders."

Cameron pointed out that while the EU depended on Russia for a quarter of its gas supplies, the Russian gas monopoly Gazprom relied on Europe for half of its exports. "Russia needs Europe more than Europe needs Russia," he said.

The European commission in Brussels was told to draw up plans for sanctions "in a broad range of economic areas".

Such language masked differences between Britain and France on the one hand and Germany on the other. Following the summit, Germany's chancellor, Angela Merkel, failed to mention the next phase of much more serious penalties, while Cameron emphasised them.

On Thursday, the White House named metallurgy, energy, trade and other areas as possible targets for action. London and Paris wanted to echo this. "The Russians have to see where they will hurt," said one diplomat. Germany, by far Russia's biggest trade partner in the EU and the biggest buyer of Russian gas, has resisted attempts to specify what the sanctions targets might be.

Apart from its energy dependency, the Germans say they have more than 6,000 firms operating in Russia and that 300,000 jobs in Germany depend on trade with Russia.

Cameron was much more explicit on the issue and British officials admitted there were divisions. He mentioned "finance, military, energy" as areas being considered. "There's nothing left out."

That suggested equal pain for the three big countries since Britain has most to lose from financial sanctions, France has billion of euros at stake in defence contracts with Russia, while Germany suffers most from sanctions in the energy sector.

It is not clear when the European commission will deliver its battle plan for expanded sanctions but there is an acute feeling among commission officials that Brussels has been handed a poison chalice. They said as soon as the plans are published or leaked, the Russians will know what to expect or fear and will get their retaliation in pre-emptively, triggering a much bigger crisis between Europe and Russia.

The senior EU official, though, said it would be "really stupid" for the EU to reveal its hand. "The commission is keeping its cards close to its chest. We will not do this in full transparency. It will not be transparent at all."

While the Americans have been much more open in spelling out their plans, the Europeans complain that it is easier for Washington because it has much less to lose, with US-Russian trade volumes barely one-twelfth of that between the EU and Russia.

The senior official said the blacklist was not coordinated with Washington. "We are following our own course. The US is far away."

The EU and the interim Ukrainian government have now signed part of a political and trade pact, the issue that led to the crisis last November that ultimately triggered a revolution in Kiev and Russian intervention in Crimea.

The EU summit agreed to race ahead with similar pacts with Moldova and Georgia, concluding them by June.


Ian Traynor in Brussels

The GuardianTramp

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