Sat, 01 Oct 2022

The bloc's joint figurehead claims Moscow is presiding over an economy in 'tatters,' but we have heard that before

European Commission chief Ursula von der Leyen has, as could be expected, called for new sanctions against Russia in connection with the forthcomingreferendums in Donbass and two regions of Ukraine. These concern the Donetsk and Lugansk People's Republics - which have been de-facto self-governing since 2014 - and the Kherson and Zaporozhye regions.

In her opinion, the penalties already imposed on Russia are having an impact."The sanctions have been very successful. If you look at the Russian economy, its industry is in tatters," the politician asserted.

Let's allow ourselves to argue a little with Ms. von der Leyen.

The key measure of the effectiveness of sanctions is whether they change the political course of the target country. This criterion has been well researched in both academic and applied literature and few people have any doubts about its veracity.

However, Russia has not changed its political course in Ukraine under the influence of the large-scale sanctions of the EU, US and other initiators. Moreover, its position is hardening, as evidenced by this week's announcements of both a partial mobilization and the referendums.

Thus, we can say that the measures are actually having a negative effect in terms of what they are supposed to be doing.

Apparently, Ms. von der Leyen links effectiveness to the amount of pain inflicted. In other words, she believes that the greater it is, the better.

There are problems here, too. The damage is indeed large. But we are not just sitting still and feeling sorry for ourselves. We are adapting very energetically.

Now, you can criticize Russia's domestic financial policy and question import substitution as much as you like. And they will not, of course, make 'everything as it was.' But it is clear that the economy is shrinking much less than expected, that inflation has, at least so far, been brought under control, and that adaptations in sourcing, helped by domestic production, are mitigating the effects of the sanctions.

The economy is simply becoming different. It is changing in terms of focus and quality. In a number of sectors it will "run slower" or limp along. But Russiawill continue to live.

Of course, we have already heard the words "the Russian economy is in tatters," from US President Barack Obama.

That was in 2015. Seven years ago. 

The effectiveness of the measures can also be evaluated in terms of their impact on business behavior.

There are indeed effects here. Hundreds of Western companies have left Russia, incurring losses, for themselves, and losing their market share.

Does this mean that the niches they occupied will remain empty? No, it doesn't. They are already being actively exploited by Russian rivals, as well as Chinese, Iranian, Indian and other entrepreneurs and firms.

We ourselves, of course, can hardly be complacent. The problems we face are numerous, and, most of them have to be dealt with by fire-fighting.

Right now, we are waiting for a new package of sanctions from the EU and others Western actors.

Let's see what they come up with.

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