London, UK (BBN)- If you’re still querying any economic freeze between Russia and the West, digest this line from VTB bank the day Europe’s sanctions took effect: The European Union “have gone against their own interests to do the bidding of their senior colleagues from across the ocean,” the Russian financial giant said.
That’s a publicly-traded, Western-style bank bluntly calling European governments lapdogs of the US It’s not a statement likely to win Western business in the future, reports CNN.
To be clear, these sanctions could never have been agreed by the divided, 28-nation bloc if 298 people had not been blown out of the sky over Ukraine.
This is an unparalleled precedent set by the EU, a group that hardly ever agrees on anything of substance.
It has now taken steps that will harm its own economy in order to stand up to Russia.
The sanctions are tough, but have holes. France, for example, can still deliver a pre-paid Mistral-class warship to Russia. And the European branches of Russia’s big banks can still operate as normal.
But European companies are suffering. Adidas is closing stores in Russia in anticipation of deteriorating sales.
Volkswagen and Renault have already noted a slowdown that pre-dates the sanctions. Industrial and engineering giant Siemens has said it sees a “serious risk” to European growth as a result of the sanctions.
These companies are not complaining and are not taking sides. They are doing due diligence and telling their shareholders the rules have changed and they expect an adverse impact.
In London, there is debate as to whether the city will suffer. Luxury homes, car sales, art and wine investment, private school enrollment and football teams have all benefited from Russian investments.
I believe the city could see upside. The Financial Times has reported the numbers of Russians putting their children into posh private schools is soaring.
The Times has reported oligarchs are contemplating suing the EU or the individual governments to remove them from sanctions lists, and the best place for that is London’s High Court. Such cases will generate significant fees for London’s lawyers and public relations firms.
However, Russian firms contemplating listing on the London Stock Exchange may pause, out of caution investors could shy away.
I do wonder if changing sentiment will generate the most long-term pain between Europe and Russia. More sectors could be hit as financiers fear future sanctions and retaliation from Moscow, deals could dry up and finance could flee. That, in turn, could put a chill on European firms doing deals in Russia even if they are is not impacted by sanctions.
An economic cold wind, if not war, is certainly blowing through the financial capitals of Europe.
BBN/SSR/AD-03Aug14-2:27 pm (BST)
