Russia may also dump the dollar if sanctions move forward
March 4, 2014
A Kremlin economist, Sergei Glazyev, told RIA Novosti the Russian government may not repay loans owed to the financial cartel if the United States imposes sanctions on the country in response to the Crimea intervention.EU, led by Germany, is backing off the idea of sanctions.
“If sanctions are applied against state structures, we will be forced to recognize the impossibility of repayment of the loans that the US banks gave to the Russian structures. Indeed, sanctions are a double-edged weapon, and if the US chooses to freeze our assets, then our equities and liabilities in dollars will also be frozen. This means that our banks and businesses will not return the loans to American partners,” he said.
Additionally, Glazyev said, Russia would likely dump the dollar to reduce its dependence on the U.S. financial system and switch to other currencies. “We have wonderful economic and trade relations with our Southern and Eastern partners,” he said. “We will find a way not just to eliminate our dependence on the U.S. but also profit from these sanctions.”
In addition to battering the banking system, Russia has the ability to inflict serious economic damage on Europe. As noted in a report issued by the Capital Economics research group, Russia is a major supplier of oil to Germany, the Netherlands, and “Western Europe generally.” The market share of the Russian gas giant Gazprom is expected to grow in the years ahead.
The Obama administration has vacillated on sanctions, although Obama is reportedly considering issuing an Executive Order without the consent of Congress. The administration has so far taken largely token steps, including suspending preparations for the annual G8 summit scheduled for Sochi in June. Obama has also nixed trade and energy talks with Russia and has withdrawn the American delegation for the Paralympics in Sochi.
State Department spokeswoman Jen Psaki told reporters during a conference call on Monday the U.S. has a number of options available if the situation in Ukraine escalates. “At this point, we are not just considering sanctions. Given the actions Russia is taking, it is likely we will put those in place and we are preparing that,” Psaki said.
A document leaked in the UK suggests ministers there are second guessing sanctions due in large part to the risk of losing Russian investment in the country. The government briefing document photographed as an adviser carried it on Monday said Britain “should not support, for now, trade sanctions… or close London’s financial center to Russians.” It would, instead, support visa restrictions and travel bans.Arizona Senator McCain insists on sanctions despite economic damage.
Sanctions imposed by the United States will need the support of Britain and Europe. “Unilateral U.S. sanctions against Russia are not going to have much an effect if Europe remains a haven for Russian banks and Russian oligarchs to stash and invest their money,” said Senator Chris Murphy, a Connecticut Democrat. “If the United States shuts its economic doors to Russia and Europe leaves its doors open, there won’t be much change in behavior from Moscow,” he said.
U.S. lawmakers have proposed an aggressive round of sanctions against Russian banks. Congress also wants to freeze the assets of Russian public institutions and private investors. In addition to sanctions on Russia, lawmakers are looking at generous loans for the coup regime in Kyiv that overthrew the elected government of Ukrainian President Viktor Yanukovych.