Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
When I started digging into Russia’s central bank reserves, sanctioned after its full-scale invasion of Ukraine, I puzzled over why western governments didn’t publish the detailed amounts, nature and location of the assets they had blocked. It would make it easier to detect and prevent circumvention. I had naively assumed that as soon as they took the radical measure of prohibiting transactions with Russia’s central bank — if not before — a master list of assets would be drawn up.
I was sheepishly informed no such master list existed (perhaps one did, but so deeply buried inside intelligence services as to not inform either political leaders or the public). Only much later did the EU agree to collect and exchange information from the financial institutions where reserves were held. To this day, there is no full, official accounting of several hundred billion euros’ worth of “immobilised” Russian state assets
My fruitless search for information illustrates something deeper about EU sanctions policy. The bloc has done better than anyone expected with Russian sanctions, the 18th package of which is on the way. But this has resulted from improvisation, rather than a predictable, effective framework for agreeing, designing and implementing sanctions. However successful in the short term, the ad hoc nature of EU sanctions policymaking is a long-term brake on European influence.
The shortcomings are at many levels: political, practical, diplomatic and over enforcement and circumvention.
Because sanctions are decided by unanimity and subject to frequent renewals, there is permanent political uncertainty about what measures the EU may take, as well as about how sustained or resistant to lobbying any measure might be. This has also made the EU slow to overcome its traditional aversion to secondary sanctions against third-country actors who undermine EU sanctions policy.
Given that sanctions are implemented and enforced by national authorities, there are ample opportunities to game the system or ignore the law — witness the many cases of western goods ending up in Russia unearthed by activists, independent researchers and journalists (including at the FT).
These shortcomings are broadly recognised. A year into the war, a proposal led by the Netherlands called for better implementation and information-sharing, such as through a dedicated agency: an EU equivalent of the US’s Office of Foreign Assets Control. More ideas have since been offered and incremental improvements made in consecutive sanctions packages. The EU also has a sanctions envoy tasked with discouraging third countries from permitting sanctions-busting by their nationals.
But the big structural challenges remain. At a time when Europe no longer has a reliable US partner to anchor political negotiations or contribute knowhow and intelligence, the EU framework is mired in an excess of veto power and overlapping responsibilities. It is unable to credibly commit to specific swift reactions against international law violations and sanctions sabotage, which saps any deterrent force. Circumvention is also left far too easy.
The result is a bloc punching well below its weight, largely unable, for example, to use even the threat of sanctions to influence Israel’s conduct in Gaza. It is hard to see how Europe can realise its world-shaping potential without a dedicated sanctions agency, or at least a much more powerful commission unit. The legal opportunities for shifting decisions in this area to majority voting must also be fully exploited.
This is, of course, hard since sanctions decisions are deeply political. But so are trade decisions — both create economic winners and losers unevenly spread across the EU. Yet the commission’s ability to run a single trade policy without a unanimity requirement has been a success, and there is reason to think the same would be the case for sanctions.
It would help recognise that sanctions policy is just one of many means for the EU to safeguard its security and project its economic power. Trade defence measures are another, as is the new, as yet unused, “anti-coercion instrument”. As the Centre for European Reform’s Aslak Berg argues in a new briefing, the ACI gives the commission strong powers that it should use against Russia. Export controls on sensitive technology, too, are best decided at pan-EU level. Above all, these powers need to be deployed in the round in one coherent strategy.
In geoeconomics, much as in macroeconomics, the European instinct is to feel small and take global rules, prices and financial flows as given. The task, however, is to realise the strength to shape them.
