The European Union is carrying out the threat it had issued that it would impose “enormous sanctions” on Russia if Vladimir Putin gave the order to invade Ukraine. After vetoing the entry of Russian politicians and senior officials, this Sunday he will activate the “financial nuclear weapon”, as the French Minister of Finance, Bruno Le Maire, referred to the proposal to disconnect the Swift system, the platform that allows international payments . “We are committed to expelling certain Russian banks from the Swift system. This will ensure that these entities are disconnected from the international financial system and will damage their ability to operate globally,” the White House said in a statement signed by the leaders of the European Commission, France, Germany, Italy, the United Kingdom, Canada and the United States. .
In addition to this measure and the shipment of war material to Ukraine, the EU is preparing to close its airspace to Russian airlines. Throughout Saturday, there was a trickle of countries (Germany, Poland, Bulgaria, Romania, Czech Republic, Lithuania, Latvia, Estonia…) that announced the closure of their airspace to Russian airlines. Community sources point out that the EU is going to follow in the footsteps of these countries, but the approval of the ministers would be lacking.
“We are going to propose to European leaders that a certain number of Russian banks be expelled from Swift,” European Commission President Ursula von der Leyen announced on Saturday night. This is the toughest sanction imposed on Moscow after the invasion of Ukraine. The disconnection, therefore, will not be total, since it seeks to continue allowing the payment of hydrocarbons (gas and oil) and be selective when prohibiting access to the payment mechanism.
The measure has to be ratified at a meeting of EU foreign ministers to be held this Sunday. And it is complemented by others, such as the freezing of the assets of the Russian central bank to make it impossible to convert them into liquid resources with which to finance the war. “The European Union and its partners are working to disable Putin’s ability to finance his war machine,” Von der Leyen summarized, something that is also intended by prohibiting Russian oligarchs from using their financial assets in European markets. .
In coordination with 🇺🇸🇫🇷🇩🇪🇮🇹🇨🇦🇬🇧 I will now propose new measures to EU leaders to strengthen our response to Russia’s invasion of Ukraine and cripple Putin’s ability to finance his war machine. https://t.co/iU2waDzo9s
– Ursula von der Leyen (@vonderleyen) February 26, 2022
The decision to expel “a certain number of Russian banks” from the Swift system represents an important qualitative leap in the sanctions against the Vladimir Putin regime. Already this week two waves of sanctions have been approved by which almost all Russian strategic sectors have been hit: banks, defense and aerospace companies, construction companies, transport companies, airlines… And, even, it has come to personally punish the Russian president and the foreign minister, Sergey Lavrov, by freezing the assets they might have in Europe, something to which the United States joined. But the step of disconnecting from the Swift system (Society for Worldwide Interbank Financial Telecommunication) had not been taken.
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Already in 2014, when Russia invaded Crimea, the possibility of cutting off their access to this transfer system was considered. And the then Russian Finance Minister Alexei Kudrin predicted that this step would cause a drop in GDP of 5%. The total closure of access to Swift to a country, so far, has only been suffered by Iran. That step cost him, according to the Carnegie Moscow Center, almost half of what he earned from his oil exports and 30% of his foreign trade.
At noon this Saturday, community sources pointed out that Berlin was the last obstacle to taking this step. They were along the same lines as what Le Maire said the day before, when he acknowledged that at the Ecofin meeting, the body that brings together the finance ministers of the 27, there were countries that had doubts about whether it was time to tighten this Red button. The musings were in Hungary and Italy, countries that have cleared doubts this morning. And in the early afternoon it was Germany that made a significant change in its position, both in terms of sending weapons to Ukraine and the financial disconnection from Russia.
What happened with Swift is a clear example of the dilemma that has arisen in the European Union when it comes to reacting with sanctions despite the seriousness and drama of Russia’s total invasion of Ukraine. Many countries in the European Union are highly dependent on Russian gas, although this has dropped in recent months from the usual 40% to 22% in recent weeks, according to Goldman Sachs, and a total cutoff of access to the international transaction system means also put at risk the payment of Russian hydrocarbons.
Germany has been one of the countries that has cost the most to take this step. “We are working urgently to see how to limit the collateral damage of disassociating from Swift in a way that affects the right people. What we need is a specific and functional restriction of Swift, ”said the Foreign Minister, Annalena Baerbock, and the Economy Minister, Robert Habeck. A few hours earlier, the leader of the opposition, the Christian Democrat Friedrich Merz, asked the tripartite government led by the Social Democrat Olaf Scholz to impose Moscow’s access restriction on Swift. But just a few days ago, Merz himself advised against applying this measure and warned that the consequences for the German economy would be devastating. This Saturday he said on his Twitter account that Germany’s high dependence on Russian gas supplies “is not a valid argument against the sanctions that are now necessary.” Angela Merkel’s successor at the head of the Conservatives assures that despite Swift’s exclusion “Russian energy supplies will be able to continue to be paid for in the future.”
The Swift system was created in 1973 and brings together more than 11,000 financial organizations from more than 200 countries. The company that controls it is in Belgium and is supervised by the central banks of Germany, Belgium, Canada, France, Italy, Japan, the Netherlands, the United Kingdom, the United States, Sweden and Switzerland plus the European Central Bank (ECB), although Being located on Belgian soil, supervision leadership corresponds to Belgium.
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