Ukraine Crisis

Girding for Downturn, Industry Group Reluctantly Backs Sanctions Against Russia

Ulrich Grillo
Ulrich Grillo has called on the government to take a calibrated, proportionate response to Russian aggression in the Ukraine while preserving business ties.
  • Why it matters

    Why it matters

    The sanctions being considered against Russia could impact German companies, prompting debate about German industry taking action.

  • Facts

    Facts

    • The European Commission is looking at stronger sanctions against Russia.
    • The sanctions being considered could hurt German companies.
    • Many view additional sanctions as an absolute necessity to counter the breach of international law.
  • Audio

    Audio

  • Pdf

In the wake of Malaysian Airlines Flight MH-17 being blown out of the skies over Ukraine by an anti-aircraft missile, the European Union Commission is weighing stronger sanctions against Russia, which has been supportive of the pro-Russian separatists believed to be responsible for the tragedy.

Yet some of the sanctions being considered would hit a number of German companies hard, prompting debate about the role of German industry in punishing Russia for its actions.

There is no question the situation surrounding the shooting down of the commercial airliner has been horrific. The actions of the separatists, particularly in the aftermath of the crash when they spirited away bodies and tampered with the wreckage, has generated outrage across the globe. The desire to strike back at Russia and its president, Vladimir Putin, is understandably strong.

But the urge to act on anger and dismay can lead to poor decisions, not only among politicians, but also for company leaders and association representatives, who have a responsiblity to their employees, their companies and to the good of society itself. They need to take a rational course of action free of emotional baggage.

There are some who oppose a toughening of sanctions against Russia because of business considerations, while others see additional sanctions as an absolute necessity to counter the breach of international law, massive violations of human rights and the descent of eastern Ukraine into anarchy. It is an expression of our pluralistic nation to debate these controversial issues.

The desire to strike back at Russia and its president, Vladimir Putin, is understandably strong.

The Federation of German Industries (BDI) and I have personally reached the conclusion that the Russian government’s conduct in the Ukrainian secession conflict must have noticeable consequences for Moscow. Russia is pursuing a course that it has been taking for several years: an embrace of authoritarian power, less social and economic liberties, the definition of zones of influence, the exertion of pressure on neighbors and a turning away from Europe. Russia has become more isolated as a result.

The German economy has trusted that the prescription for change in Russia comes through trade. We have had good experiences because the economic exchange between our two countries contributed considerably to overcoming the conflict between East and West. Close ties between companies allows social contact and economic interrelations to grow, and they can play an important role in the future to overcome the emerging political Ice Age between Russia and the European Union.

This does not mean that these contacts and interrelations should be declared off-limits when discussing methods to prod and influence Russia. Yes, the effectiveness of economic sanctions is controversial, but we know from research on sanctions that the greater the global-economic integration of an economy, the better the prospects for success. The dependence of the Russian economy on raw materials exports and the access to international money markets offers a solid base to launch a discussion in Moscow about the correct path for Russia in the 21st century.

Malaysia Airlines Flight MH17 crash sparked new debates over E.U. and U.S. sanctions for Russia. Source: Reuters.
Malaysia Airlines Flight MH17 crash sparked new debates over E.U. and U.S. sanctions for Russia. Source: Reuters.

 

However painful additional economic sanctions might be for the European Union and specifically for German exports and individual companies, they cannot and should not be ruled out as a way to leverage the Russian government. The sanctions agreed up until now have been fairly manageable in scope but have had an impact on the German economy. Stronger sanctions will lead to considerably more painful consequences.

Yet the economic damage suffered by Germany and the European Union would be more than canceled out if sanctions worked to enforce human rights in Europe and the principles of law in general. It is not the right of might that counts, but rather the might of right.

BDI is certain the German government will deal responsibly with economic pressures and will simultaneously work toward appropriate political measures in resolving the crisis. I have faith in Chancellor Angela Merkel and Foreign Minister Frank-Walter Steinmeier to thoroughly analyze the situation with their E.U. partners before making a decision.

This is the hour for politics, not the economy.

The author is the President of the Federation of German Industries (BDI). You can reach him at: gastautor@handelsblatt.com

 

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