bne IntelliNews – CENTRAL EUROPEAN INSIGHTS: EU and Austria – how do you feel about the Belarus sanctions?

In the end, the EU agreed to comprehensive economic sanctions against Belarus. Sectoral EU sanctions are to be announced and expected to take place on 24./25. The EU will pass sanctions against potash and petroleum exports, as well as the financial sector, according to reports. The sanctions against the financial sector are likely to include a ban on new loans, a ban on EU investors from buying (government) bonds on the primary market, and a ban on providing investment services to EU banks. EU export credits are also affected. Secondary market sanctions are reportedly not part of the sanctions package, although there is still no confirmation of it. In this respect, international and EU financial institutions also want to question and stop their Belarus activities. The same applies to state and state-affiliated export credit and financing agencies.

Overall, the sectoral sanctions are intended to affect key industries, but also important supporting economic sectors. This also restricts the financial leeway for the state and the state economy. Obviously, important areas of export earnings are to be targeted for Belarus, which is traditionally characterized by a very weak external financing position. The reserve coverage is 2-3 months! There was no alternative to this step and it was extremely important for the EU. It seeks international and geopolitical relevance, which also includes demonstrating order and crisis management on the doorstep. It is also interesting that this time the EU has managed to assume a leading international role; the US, for example, is likely to follow suit with similar sanctions.

In some sectors, however, the EU has not yet managed to impose sanctions, such as the Belarusian timber sector. In the latter in particular, lobbying work by Poland, Latvia and Lithuania is said to have played a role. In addition, the already tense timber market should possibly be protected from further shortages. In the financial sector, too, some sensible exceptions have been granted at EU level, for example for financial commitments for humanitarian purposes, export financing or commitments for regulatory purposes. So there is also a dose of pragmatism. All in all, it looks like a tough sanctions policy, but also with a sense of proportion that has weighed self-interest.

More extensive sanctions would certainly have been conceivable. In addition to populist demands, one must also take into account the policy of the sanction regime and economic self-interest. At the moment, it doesn’t look like this could be the final round of sanctions against Belarus. So it can make sense to keep some in reserve. In addition, it goes without saying that in the case of far-reaching economic sanctions, personal interests must also be taken into account. Here Europe can take a leaf out of the book of the “world champion of sanctions”, the USA. It can therefore make sense to tolerate certain well-founded exceptions and transitional regulations in more stringent sanctions regimes. It should also be noted that sanction regimes can last for a very long time. Remember that large-scale sanctions against Russia have been in place for seven years. It is therefore not crucial per se how quickly very harsh sanctions are imposed, but that a long term is taken into account, scope for tightening is left and certain market-based adjustment processes are nevertheless permitted. In addition, a gradual tightening may lead to less harsh or irrational countermeasures.

Austria has come under special diplomatic and media attack, which in itself was not surprising. After all, Austria is the largest EU investor in the real economy in Belarus. In addition, at EU level one was obviously not immediately familiar with all networks and expositions. The fact that the EU has certain self-interest in the banking and financial sector was apparently not on the radar for a long time. After all, the local subsidiary of the Austrian Raiffeisen Bank International (Priorbank) is one of the country’s larger universal banks. And with deep local roots also in the banking sector It’s not that trivial and easy to adjust exposures quickly and radically. As a locally regulated universal bank, it naturally has to hold government bonds for regulatory reasons and has numerous local customers Priorbank has about 800,000! In these dimensions, it is not possible to find quick solutions, which is easier with “suitcase banking” from the large financial centers and without deep local roots. Transitional regulations are particularly relevant in the financial sector, as long-term obligations are at stake here in some cases, while the high level of regulation in the banking and financial sector enables good tracking of sanctions compliance.

Apart from the public debate, which is sometimes harshly led by representatives of the opposition movement, it must not be forgotten that the opposition movement has no interest in Western European foreign investors completely dismantling their tents in Belarus. This would encourage even deeper economic integration with Russia, and a possible economic transition would likely be fraught with even more hardship and uncertainty at some point.

The risks to macroeconomic stability in Belarus have increased with the latest news of sanctions. An economic adjustment that brings with it a weaker currency and a decline in economic output may be necessary in the future (although imports would also decline to offset some export losses). Additional Russian financial support may be required. Such support can, however, require lengthy negotiations, can be slow or come with (initially) unacceptable conditions. Overall, it makes political sense for the EU to impose tough sanctions on Belarus and to worsen the economic situation while safeguarding the EU’s own interests. With such a step, it becomes more and more difficult for Russia and President Putin while safeguarding Moscow’s own interests To hold on to Lukashenko.

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