The Economy Brief – Europe’s unsanctionable predicament

Donald Trump has utterly dominated the European news cycle since returning to the White House – and the EU's sanctions policy is likely to follow suit.

On Tuesday, Moscow demanded the removal of sanctions on Rosselkhozbank and other Russian financial institutions as a condition for agreeing to a US-brokered ceasefire with Ukraine in the Black Sea.

As analysts and Western officials quickly pointed out, the Kremlin’s key demand – reconnecting Russian banks to SWIFT, the financial messaging system from which they were excluded following the 2022 invasion – is one that only the EU, and not the US, can ultimately fulfil.

In particular, they noted that the banks’ readmission to the Belgium-based network would require changes to the EU’s own restrictive measures on Moscow, which must be unanimously approved by member states and renewed every six months.

But on Wednesday, the EU went well beyond merely reaffirming its jurisdiction over its sanctions policy.

“The end of the Russian unprovoked and unjustified aggression in Ukraine and unconditional withdrawal of all Russian military forces from the entire territory of Ukraine would be one of the main preconditions to amend or lift sanctions,” said a Commission spokesperson.

Taken literally, this statement – echoed by some EU leaders on Thursday – implies that the EU’s sanctions will remain in force until Russia withdraws not just from territory seized since 2022, but also from Crimea, the strategic peninsula it annexed eight years earlier.

However, Kyiv is overwhelmingly unlikely to regain control of Crimea anytime soon.

“Nobody believes that Ukraine is going to get back Crimea,” former Commission President José Manuel Barroso said last year. “That's the reality.”

The EU's claim that the sanctions should remain in place indefinitely may be morally defensible. It may also serve as a useful opening gambit before peace negotiations with Moscow are underway.

The problem, though, is that it is also manifestly false. Indeed, it is contradicted by the fact that, as the Commission spokesperson also noted, “all decisions on sanctions are taken unanimously by member states in the Council.”

But if decisions on sanctions require member states’ unanimous approval (and they do), it cannot be true that Russia’s withdrawal from all of Ukraine is “one of the main preconditions” for removing sanctions.

Rather, the real precondition is that (at least) one member state – Hungary being the most likely candidate – refuses to roll them over when they come up for extension at the end of July (or, perhaps, at a later date).

At the very least, it is far more likely that Hungary will refuse to renew the sanctions before Russia relinquishes control of Crimea.
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