TIME

Joseph Stiglitz to Greece’s Creditors: Abandon Austerity Or Face Global Fallout

Nobel laureate tells TIME that the institutions and countries that have enforced cost-cutting on Greece "have criminal responsibility"

A few years ago, when Greece was still at the start of its slide into an economic depression, the Nobel prize-winning economist Joseph Stiglitz remembers discussing the crisis with Greek officials. What they wanted was a stimulus package to boost growth and create jobs, and Stiglitz, who had just produced an influential report for the United Nations on how to deal with the global financial crisis, agreed that this would be the best way forward. Instead, Greece’s foreign creditors imposed a strict program of austerity. The Greek economy has shrunk by about 25% since 2010. The cost-cutting was an enormous mistake, Stiglitz says, and it’s time for the creditors to admit it.

“They have criminal responsibility,” he says of the so-called troika of financial institutions that bailed out the Greek economy in 2010, namely the International Monetary Fund, the European Commission and the European Central Bank. “It’s a kind of criminal responsibility for causing a major recession,” Stiglitz tells TIME in a phone interview.

Along with a growing number of the world’s most influential economists, Stiglitz has begun to urge the troika to forgive Greece’s debt – estimated to be worth close to $300 billion in bailouts – and to offer the stimulus money that two successive Greek governments have been requesting.

Failure to do so, Stiglitz argues, would not only worsen the recession in Greece – already deeper and more prolonged than the Great Depression in the U.S. – it would also wreck the credibility of Europe’s common currency, the euro, and put the global economy at risk of contagion.

So far Greece’s creditors have downplayed those risks. In recent years they have repeatedly insisted that European banks and global markets do not face any serious fallout from Greece abandoning the euro, as they have had plenty of time to insulate themselves from such an outcome. But Stiglitz, who served as the chief economist of the World Bank from 1997 to 2000, says no such firewall of protection can exist in a globalized economy, where the connections between events and institutions are often impossible to predict. “We don’t know all the linkings,” he says.

Many countries in Eastern Europe, for instance, are still heavily reliant on Greek banks, and if those banks collapse the European Union faces the risk of a chain reaction of financial turmoil that could easily spread to the rest of the global economy. “There is a lack of transparency in financial markets that makes it impossible to know exactly what the consequences are,” says Stiglitz. “Anybody who says they do obviously doesn’t know what they’re talking about.”

Over the weekend the prospect of Greece abandoning the euro drew closer than ever, as talks between the Greek government and its creditors broke down. Prime Minister Alexis Tsipras, who was elected in January on a promise to end austerity, announced on Saturday that he could not accept the troika’s “insulting” demands for more tax hikes and pension cuts, and he called a referendum for July 5 to let voters decide how the government should handle the negotiations going forward. If a majority of Greeks vote to reject the troika’s terms for continued assistance, Greece could be forced to default on its debt and pull out of the currency union.

Stiglitz sees two possible outcomes to that scenario – neither of them pleasant for the European Union. If the Greek economy recovers after abandoning the euro, it would “certainly increase the impetus for anti-euro politics,” encouraging other struggling economies to drop the common currency and go it alone. If the Greek economy collapses without the euro, “you have on the edge of Europe a failed state,” Stiglitz says. “That’s when the geopolitics become very ugly.”

By providing financial aid, Russia and China would then be able to undermine Greece’s allegiance to the E.U. and its foreign policy decisions, creating what Stiglitz calls “an enemy within.” There is no way to predict the long-term consequences of such a break in the E.U.’s political cohesion, but it would likely be more costly than offering Greece a break on its loans, he says.

“The creditors should admit that the policies that they put forward over the last five years are flawed,” says Stiglitz, a professor at Columbia University.What they asked for caused a deep depression with long-standing effects, and I don’t think there is any way that Europe’s and Germany’s hands are clean. My own view is that they ought to recognize their complicity and say, ‘Look, the past is the past. We made mistakes. How do we go on from here?’”

The most reasonable solution Stiglitz sees is a write-off of Greece’s debt, or at least a deal that would not require any payments for the next ten or 15 years. In that time, Greece should be given additional aid to jumpstart its economy and return to growth. But the first step would be for the troika to make a painful yet obvious admission: “Austerity hasn’t worked,” Stiglitz says.

TIME U.K.

British Legislators Give Overwhelming Support for a Referendum on the U.K.’s Future in the E.U.

The British Union flag and European Union flag are seen hanging outside Europe House in central London
Toby Melville —Reuters The British Union flag and European Union flag are seen hanging outside Europe House in central London on June 9, 2015.

The bill has to pass through several more stages before a referendum takes place, however

Lawmakers in the U.K. cleared the first hurdle for a new nationwide referendum on Tuesday, which could allow voters the chance to decide whether the U.K. stays in the European Union in the future.

On Tuesday, members of the Parliament voted 544 to 53 in favor of the referendum plan.

“An entire generation of British voters has been denied the chance to have a say on our relationship with the European Union. And Mr. Speaker, today we are putting that right,” said Foreign Secretary Philip Hammond, according to the BBC.

The bill must now make it through several debates and additional votes before a referendum is unveiled, however.

[BBC]

TIME energy

Could Iran Play a Part in E.U. Energy Security?

iranian-flag
Getty Images

As Europe looks for alternatives to Russian gas, Iran could provide Europe "new routes"

Azerbaijan’s energy minister, Natig Aliyev, says the gas pipeline originating in his country can also transport fuel to Europe through the Trans-Anatolian Pipeline (TANAP) from Iran and other neighboring nations in both the Middle East and Central Asia.

“Gas from Turkmenistan, Iran, Iraq, as well as from Israel and Cyprus, can be connected to the Southern Gas Corridor,” Aliyev told the Caspian Oil & Gas Conference in Baku on June 3. “The extensive work done by Azerbaijan stands behind all of this.”

The minister said that as Europe is looking for alternatives to Russian gas, its attention is being drawn increasingly to Azerbaijan because it could provide “a new source of energy for Europe, and it offers Europe new routes.”

Azerbaijan could become a major source of energy for the West, Aliyev said, given that it produced 42 million tons of oil and 29 billion cubic meters of gas in 2014. Looking to the future, he said, his country intends to maintain that level of oil output, or even increase it to 45 million tons per year, and that it plans to double its output of gas.

Aliyev pointed to Europe’s growing concern about its current reliance on gas deliveries from Russia via a pipeline that transits Ukraine. Because of political and pricing disputes between Kiev and Moscow, these deliveries have been briefly interrupted three times in the past nine years. “Europe imports about 90 percent of oil, 60 percent of gas and 42 percent of coal,” he said.

TANAP would run west from Baku, through Turkey, then the Balkans and connect with the Trans-Adriatic Pipeline (TAP), which finally would deliver the gas to Italy and on to the rest of Europe. Already Turkmenistan, on the other side of the Caspian Sea from Azerbaijan, has expressed interest in joining TANAP, and Aliyev said Iran, with its huge energy resources, also would be a prime candidate.

“Iran’s cooperation with the world was always good,” Zanganeh said at the time, “but they were unkind to us. However now they are returning to the cooperation.” Besides, he said, Iran has more energy reserves than it can consume domestically.

And on June 3, addressing Aliyev’s comments, Mohsen Pakaein, Iran’s ambassador to Azerbaijan, said his government was considering the invitation to join TANAP as part of Tehran’s plans to establish a strong presence on the world’s gas market.

Construction already has begun on TANAP, while a rival pipeline through Turkey, sponsored by Russia, is still in the planning stages. Whichever of these two conduits is completed would replace Russia’s South Stream pipeline to Europe, a project that was scuttled in late 2014 because of an EU rule that forbids one entity from owning both the pipeline and the gas it carries.

The 1,100-mile-long TANAP is expected to begin delivering natural gas by 2020. The initial volume of fuel will be about 16 billion cubic meters per year, increasing eventually to 31 billion cubic meters per year.

This article originally appeared on Oilprice.com.

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TIME europe

E.U. Ministers Discuss Jihadist Threat in Wake of Charlie Hebdo Terrorist Attacks

BELGIUM-EU-FRANCE-ATTACKS-MEDIA
Emmanuel Dunand—AFP/Getty Images European Union flags fly at half-mast at the European Parliament in Brussels on Jan. 8, 2015, following the attack against French satirical weekly Charlie Hebdo

The meeting comes days after authorities foiled terrorist plots in Belgium, France and Germany

Twenty-eight Foreign Ministers are set to meet in Brussels on Monday to discuss persistent threats against the European Union from Islamist militants, as well as the renewed fighting between the Ukrainian military and separatist insurgents.

However, the ministers are not scheduled to hammer out any decisions regarding how the bloc will respond to threats from potential terror cells, according to Agence France-Presse.

Last week, authorities in Belgium foiled a failed terrorist plot, resulting in the death of two armed suspects. Similar raids were also launched in Germany and France a week after three gunmen linked to Yemen- and Syria-based terrorist networks carried out a series of high-profile attacks across Paris that resulted in the deaths of 17 people, including a dozen at the offices of satirical newspaper Charlie Hebdo.

Thousands of Europeans are believed to have traveled to battlefields in both Iraq and Syria to fight alongside Islamist militias, raising concerns among E.U. officials over what the battle-hardened jihadists are capable of doing if they return home.

The ministers are also slated to discuss renewed tensions between Kiev and Moscow as fighting between the Ukrainian military and pro-Kremlin insurgents has escalated in recent weeks.

Reports swirled on Monday that Ukrainian troops retook Donetsk airport over the weekend after launching a massive counteroffensive against Russian-backed separatists in the area.

TIME U.K.

Anti-Immigration Party’s Win in U.K. Rings Alarm Bells in Europe

Newly-elected UK Independence Party MP Douglas Carswell poses for photographers with a copy of the local paper in Clacton-on-Sea, in eastern England, on Oct. 10, 2014.
Leon Neal—AFP/Getty Images Newly-elected UK Independence Party MP Douglas Carswell poses for photographers with a copy of the local paper in Clacton-on-Sea, in eastern England, on Oct. 10, 2014.

The first British parliamentary seat for the U.K. Independence Party intensifies—and reflects—the crisis of mainstream politics in Europe

Many forces are at work in British politics, but nominative determinism may not be one of them. When last month a member of parliament named Mark Reckless defected from the Conservative Party, Britain’s largest mainstream political party and senior partner in the country’s coalition government, the move looked, well, reckless.

Reckless resigned his parliamentary seat to join the right-wing, anti-Europe, anti-immigration United Kingdom Independence Party (UKIP), which had not yet succeeded in getting any MPs elected to Westminster. UKIP did well in some local and European elections, but conventional wisdom suggested the party benefited from protest votes against the big established parties and would struggle gain a foothold in the U.K. legislature.

On Thursday, those predictions proved wrong as another Conservative Party defector, Douglas Carswell, won back his parliamentary seat for UKIP with a thumping majority. In another by-election held the same day in a district that had previously been a solid Labour Party area, UKIP came within 617 votes of defeating the Labour candidate, overturning another piece of conventional wisdom that misconstrued UKIP as a threat only to the right-leaning Conservatives.

Reckless, who is preparing for a Nov. 6 by-election to try to capture his old seat for his new party, no longer looks reckless and conventional wisdoms appear anything but orthodox. Alarms are ringing not only among members of Britain’s mainstream parties but across Europe. An obvious focus of fear is what the rise of UKIP means for Britain; not only its attitude to Europe, but also towards its own diverse population.

In his victory speech, Carswell called for UKIP to be “a party for all Britain and all Britons, first and second generation [immigrants] as much as every other.” But UKIP’s party leader Nigel Farage was already busily undermining this message of tolerance, responding to criticism of an interview in which he called for HIV-positive migrants to be turned away at British borders by going still further, proposing a ban on any migrants with “life threatening diseases” getting treatment within Britain’s National Health Service.

The characterization of UKIP as a protest party fails to acknowledge the way such rhetoric resonates in communities that feel they are losing jobs and opportunity to immigrants. The mainstream parties have a shamefully thin record of speaking up for the necessity of immigration and an even more shameful record of harnessing anti-immigration sentiment while chasing short-term electoral gain. At other times, they find it more comfortable not to broach the subject at all—one reason Labour came so close to gifting UKIP a by-election victory.

Britain’s rumbling debate about its membership of the European Union may appear on the surface to be about bossy Brussels regulators and distorting subsidies and laws, but it is more often a proxy for the immigration debate that isn’t happening. Mainstream politicians don’t want to be tarred as Little Englanders, but increasing numbers of them, mostly Conservatives but also Labour members, are attracted to the idea of an exit from the E.U., which would instantly restrict the flow of immigrants from other, poorer E.U. countries currently entitled to live and work in Britain.

Continental Europe worries—with justification—that the U.K. is edging closer to ditching its E.U. membership. Yet the shudders attending UKIP’s latest win are not merely caused by the prospect of a so-called “Brexit“. In the flounderings and failings of Britain’s big political parties and the upsurge in support for populist alternatives sounding anti-immigration, anti-Europe rallying cries, E.U. leaders outside Britain see reflections of the turbulence in their own countries. Even in Germany, the crucible of pro-E.U. sentiment where memories run deep of its disastrous experiment with the narrowest possible vision of national identity, a euroskeptic party is gaining ground.

UKIP’s win is, with a certain irony, part of a pan-European phenomenon. Such parties grow because the political mainstream gives them the space to do so.

 

 

 

TIME U.K.

U.K. Edges Toward Departure from European Union

Prime Minister David Cameron walks with Mayor of London and Parliamentary candidate Boris Johnson at the Conservative party conference on Sept. 29, 2014 in Birmingham, England.
Peter Macdiarmid—Getty Images Prime Minister David Cameron walks with Mayor of London and Parliamentary candidate Boris Johnson at the Conservative party conference on Sept. 29, 2014 in Birmingham, England.

As Britain's Conservative Party holds its last party conference ahead of May's general elections, the Euroskeptic message looks like a winning one

It’s hard to imagine anything more insular than a British party political conference—except, perhaps, for an island.

The ruling Conservative Party is currently meeting in the U.K.’s second largest city, Birmingham, but delegates tightly ringed by security and focused on the narrow issue of how to win the next election may as well be on a coral atoll for all the connection they have with the wider world.

Events in Hong Kong go unremarked. U.K. participation in the military campaign against ISIS barely merits a mention. A lone protestor standing beyond the crowd barriers bellowed rage against Britain’s fresh involvement in Iraq for hours Monday, but his words whispered in the convention center like distant waves. Even so, events on this artificial island may yet carry global significance. Britain is getting ever closer to the brink of leaving the European Union.

That is the probable outcome if the Conservatives win the U.K. general election next May, as they have pledged to allow Britain’s increasingly Euroskeptic population a referendum on whether to stay or go. Polls suggest a sizeable majority would vote to leave the E.U. under the current terms of membership.

Admittedly a Conservative victory is far from a sure thing in 2015. The Labour Party enjoys a lead of several points in most opinion polls and the Conservatives, in coalition with the Liberal Democrats since 2010, should expect to be punished by voters for implementing painful austerity policies that have reduced the budget deficit (but not by as much as they promised). But even though Labour may look like the likelier winner, it doesn’t act like it. Neither party members nor the wider public have faith in the current Labour leader Ed Miliband, who capped a lackluster conference last week by forgetting key chunks of the speech that should have energized his troops and instead demoralized them.

In truth all three mainstream parties are suffering from a loss of connection with the public — voters feel they’re untrustworthy, and incapable of championing Britain, whatever form that might take. This disenchantment is fostering the rise across Britain of populist parties that promise a new, more honest mode of politics and more localism. In Scotland this means the Scottish National Party strengthening largely at the expense of Labour, which will struggle to retain its 41 Westminster seats there at the coming election.

But in England, it is the anti-immigration, Euroskeptic United Kingdom Independence Party (UKIP) that has been attracting support on the back of its strident views, which it calls “unashamedly patriotic”. The party’s manifesto not only calls for departure from the European Union, but also restrictions on the numbers of immigrants entering the country, less foreign aid, and priority in the allocation of social housing given to “people whose parents and grandparents were born locally”.

It’s a message that appeals to many who might otherwise be inclined to vote for the Conservative party. The eastwards expansion of the E.U. was enthusiastically supported by past Conservative governments, because they thought a larger union might be less inclined to move towards federalism and consequent impingements on British sovereignty. But enlargement has increased the pool of E.U. citizens entitled to work in the U.K, and fostered resentment among conservative voters, as the British economy struggles to recover from the economic slump. UKIP has capitalized on that resentment; two Conservative MPs have recently defected to UKIP and more are rumored to be considering jumping ship.

“The biggest issue on the doorstep is immigration,” says Phillip Lee, the Conservative MP for Bracknell, west of London, “but this is also related to Europe.” His constituents would like to see an Australian-style points system applied to jobseekers from abroad, he says. That’s a policy UKIP already proposes for all immigrants, whether they come from the E.U. or further afield.

Even so, the Conservatives are better positioned than Labour—which opposes giving Britons a vote on E.U. membership—to fight UKIP on its own turf. Prime Minister David Cameron’s post-Scottish referendum promise of “English Votes for English Laws” plays to demands for more local control, while his party is ramming the message home at every opportunity during its conference that only a Conservative government will deliver an in-out referendum on the E.U. It will doubtless be a pivotal passage in Cameron’s keynote address to delegates tomorrow.

Cameron first made the offer partly in an effort to hold together a fractious party that has a long history of falling out over Europe. But his official position—that he wants Britain to remain in the E.U., but on renegotiated better terms—also happens to be his real preference, not least because many British businesses worry that an E.U. exit will load costs and obstacles on to their European operations. His ideal is to retain the advantages of E.U. membership while shielding Britain against moves to closer E.U. integration precipitated by the euro zone crisis. But in a BBC interview this morning, Cameron made clear that he wouldn’t be too upset if Britain left the E.U. entirely. The sales pitch being rolled out in Birmingham is clear: vote UKIP, get Labour, lose the chance of a referendum.

Despite what the polls say, many Conservatives believe this is a winning formula, and they could well be right. But the same urges the Conservatives would be tapping to win election victory would inevitably still be in play if and when Britons voted on their relationship with Europe. An exit would mean a period of extended turbulence for Britain and for the E.U., used to British intransigence but also used to Britain as a counterbalance to German muscle and French protectionism. The rest of the E.U. hopes Britain stays put, and so does Washington, which still often looks to the U.K. as a bridge to Europe.

British politicians hear these voices but their message, like the shouts of the man outside the Conservative Party conference, are muffled. This island nation with its parochial politics could well be headed for greater insularity.

TIME europe

Europe’s Economic Woes Require a Japanese Solution

Rome As Italy Returns To Recession In Second-Quarter
Bloomberg—Bloomberg via Getty Images A pedestrian carries a plastic shopping bag as she passes a closed-down temporary outlet store in Rome, Italy, on Tuesday, Aug. 12, 2014. Italy's economy shrank 0.2 percent in the second quarter after contracting 0.1 percent in the previous three months.

The region’s economy is starting to resemble Japan’s, and that threatens to condemn Europe to its own lost decades

No policymaker, anywhere in the world, wants his or her national economy to be compared to Japan’s. That’s because the Japanese economy, though still the world’s third-largest, has become a sad case-study in the long-term damage that can be inflicted by a financial crisis. It’s more than two decades since Japan’s financial sector melted down in a gargantuan property and stock market crash, but the economy has never fully recovered. Growth remains sluggish, the corporate sector struggles to compete, and the welfare of the average Japanese household has stagnated.

The stark reality facing Europe right now is that its post-crisis economy is looking more and more like Japan’s. And if I was Mario Draghi, Angela Merkel or Francois Hollande, that would have me very, very nervous that Europe is facing a Japanese future — a painful, multi-decade decline.

The anemic growth figures in post-crisis Europe suggest that the region is in the middle of a long-term slump much like post-crisis Japan. Euro zone GDP has contracted in three of the five years from 2009 and 2013, and the International Monetary Fund is forecasting growth of about 1.5% a year through 2019. Compare that to Japan. Between 1992 and 2002, Japan’s GDP grew more than 2% only twice, and contracted in two years. What Europe has to avoid is what happened next in Japan: There, the “lost decade” of slow growth turned into “lost decades.” A self-reinforcing cycle of low growth and meager demand became entrenched, leaving Japan almost entirely dependent on exports — in other words, on external demand — for even its modest rates of expansion.

It is easy to see Europe falling into the same trap. Low growth gives European consumers little incentive to spend, banks to lend, or companies to invest at home. Europe, in fact, has it worse than Japan in certain respects. High unemployment, never much of an issue in Japan, could suppress the spending power of the European middle class for years to come. Europe also can’t afford to rely on fiscal spending to pump up growth, as Japan has done. Pressure from bond markets and the euro zone’s leaders have forced European governments to scale back fiscal spending even as growth has stumbled. It is hard to see where Europe’s growth will come from – except for increasing exports, which, in a still-wobbly global economy, is far from a sure thing.

This slow-growth trap is showing up in Europe today as low inflation – something else that has plagued Japan for years on end. Deflation in Japan acted as a further brake on growth by constraining both consumption and investment. Now there are widespread worries that the euro zone is heading in a similar pattern. Inflation in the euro zone sunk to a mere 0.4% in July, the lowest since the depths of the Great Recession in October 2009.

Sadly, Europe and Japan also have something else in common. Their leaders have been far too complacent in tackling these problems. What really killed Japan was a diehard resistance to implementing the reforms that might spur new sources of growth. The economy has remained too tied up in the red tape and protection that stifles innovation and entrepreneurship. And aside from a burst of liberalization under Prime Minister Junichiro Koizumi in the early 2000s, Japan’s policymakers and politicians generally avoided the politically sensitive reforms that might have fixed the economy.

Europe, arguably, has been only slightly more active. Though some individual governments have made honorable efforts – such as Spain’s with its labor-law liberalization – for the most part reform has come slowly (as in Italy), or has barely begun (France). Nor have European leaders continued to pursue the euro zone-wide integration, such as removing remaining barriers to a common market, that could also help spur growth.

What all this adds up to is simple: If Europe wants to avoid becoming Japan, Europe’s leaders will have to avoid the mistakes Japan has made over the past 20 years. That requires a dramatic shift in the current direction of European economy policy.

First of all, the European Central Bank (ECB) has to take a page out of the Bank of Japan’s (BOJ) recent playbook and become much more aggressive in combating deflation. We can debate whether the BOJ’s massive and unorthodox stimulus policies are good or bad, but what is beyond argument at this point is that ECB president Draghi is not taking the threat of deflation seriously enough. Inflation is nowhere near the ECB’s preferred 2% and Draghi has run monetary policy much too tight. He should consider bringing down interest rates further, if necessary employing the “quantitative easing” used by the U.S. Federal Reserve.

But Japan’s case also shows that monetary policy alone can’t raise growth. The BOJ is currently injecting a torrent of cash into the Japanese economy, but still the economic recovery is weak. Prime Minister Shinzo Abe finally seems to have digested that fact and in recent months has announced some measures aimed at overhauling the structure of the Japanese economy, by, for instance, loosening labor markets, slicing through excessive regulation, and encouraging more women to join the workforce. Abe’s efforts may prove too little, too late, but European leaders must still follow in his footsteps by taking on unions, opening protected sectors and dropping barriers to trade and investment in order to enhance competitiveness and create jobs.

If Europe fails to act, it is not hard to foresee the region slipping hopelessly into a Japan-like downward spiral. This would prove disastrous for Europe’s young people — already suffering from incomprehensible levels of youth unemployment — and it would deny the world economy yet another pillar of growth.

TIME russia

Over 27,000 Russian Tourists Are Stranded as E.U. Sanctions Take Effect

A group of 30 Russian tourists wait at Antalya Airport in Turkey on Aug. 4, 2014, after their Russian tour company went bankrupt
Anadolu Agency/Getty Images A group of 30 Russian tourists wait at Antalya Airport in Turkey on Aug. 4, 2014, after their Russian tour company went bankrupt

Oligarchs are having to ditch their private jets, too

Over 27,000 Russian tourists have been left stranded abroad after the collapse of Russian tour operator Labirint. The firm cited a “negative political and economic situation” as a reason for its failure, Sky News reports.

Labirint is the fourth Russian tour company to tank in three weeks. “We worry that this is only the beginning and that there will be a domino effect,” a spokeswoman for the country’s Federal Agency for Tourism told radio station and news site Echo of Moscow.

The marooned tourists, in countries such as Egypt and Bulgaria, are a visible sign that the E.U.’s sanctions on Russia, imposed over Moscow’s role in the ongoing Ukraine conflict, are having some effect. Tougher punishments were imposed last week, following the downing of a Malaysia Airlines jetliner in eastern Ukraine on July 17, purportedly by a missile fired by pro-Russian separatists.

Besides affecting tour operators, sanctions have also led to a grounding of Russian budget airline Dobrolet, a subsidiary of state-controlled Aeroflot. The carrier ended up on the sanctions list because it provides direct flights from Moscow to Crimea, the Ukrainian region annexed by Russia earlier this year.

The targeting of Russian banks, meanwhile, has caused Russia’s second oil producer Lukoil to scale back investment plans because it cannot access funds, while Reuters reports that leading Russian banks have been forced to reassure clients that they are able to meet their commitments despite being on the E.U. list.

Prominent Russians are also being inconvenienced. Gennady Timchenko, a billionaire businessman close to President Vladimir Putin, has had his private jet grounded after Gulfstream stopped servicing the aircraft and its pilots were prevented from using its navigation equipment. However, he told Russia’s Itar-Tass news agency that he’d found an alternative to his Visa and MasterCard credit cards.

“As soon as the sanctions came in I got myself [a Chinese Union] card … and it works brilliantly!”

The sanctions could also hurt European businesses, however. Adidas has scrapped its revenue and profit target for next year because of its exposure to the Russian market, U.S. aviation giant Boeing could lose its contracts with Dobrolet, and the German Committee on Eastern European Economic Relations has said that more than 25,000 German jobs are in danger. There is an expectation among European investors that future growth may be hampered, with the euro zone’s Sentix investment index in August dropping to its lowest level in a year.

“As this slump derives from an event which is subject to politics and power play, the central banks, particularly the European Central Bank, will have difficulty in trying to counter this,” Reuters reported Sentix as saying.

Moscow has begun to hit back at sanctions by imposing bans of its own, mostly on food products. It has already banned Polish apples (it says for health reasons, but Polish farmers think the move is retaliatory) and Australian beef. Now, Reuters reports, Moscow is mulling a ban on U.S. poultry — it currently buys around 8% of U.S. broiler-meat exports each year.

TIME Russia sanctions

Flight MH17: Europe Unlikely to Enforce Tougher Sanctions on Russia

Analysts say the European Union is unlikely to go beyond sanctioning individuals

On Tuesday, European Union (E.U.) foreign ministers will meet to discuss increasing sanctions against Russia following the downing of flight MH17. The U.S. has blamed the incident on separatist rebels who, it claims, shot the plane down using weapons supplied to them by Moscow.

The meeting will be the bloc’s first opportunity to discuss the tragedy which took the lives of 298 people, the majority of whom were from countries within the E.U.

In March, the E.U. and the U.S. imposed sanctions against Russia for Moscow’s involvement in the Ukrainian conflict. These were tightened July 16, the day before flight MH17 was shot down.

The E.U. has enforced “tier two” sanctions which affect individuals by freezing their assets and banning them from traveling. So far, 72 Russian politicians and aides of Putin have been affected. However, with the U.S. having imposed sanctions against Russia’s biggest companies, including state oil company Rosneft, there is pressure on the E.U. to match these “tier three” sanctions that go beyond individuals. But, despite U.K. Prime Minister David Cameron calling for tier three sanctions on Monday, analysts remain skeptical.

“I think that it’s highly unlikely at this stage that the E.U. is planning anything further than individual sanctions,” says William E. Pomeranz, Deputy Director at the Kennan Institute for Advanced Russian Studies. “The EU has a much more substantial trade relationship with Russia than the U.S. does, it has a heavy reliance on Russian gas.”

Jonathan Eyal, International Director at the Royal United Services Institute, echoes his sentiment. Eyal told TIME: “The Russia of today is not the Soviet Union of the Cold War. It is very deeply integrated into the economies of Europe particularly in terms of energy resources.”

Despite Cameron’s bluster, he will be painfully aware of this. In March of last year, British oil and gas giant BP bought shares worth close to 20% in Rosneft, the state-backed Russian oil and gas giant.

Eyal refers to a “disgraceful competition” within the E.U. that’s preventing a firm response towards Russia. According to Eyal, Britain is worried about the effect sanctions will have on London’s financial district. France fears damaging its impending sale of two warships to the Russian navy, whilst in Germany, there are concerns about jobs linked to Berlin’s trade with Russia. “This leads to the lowest common denominator being sought in sanctions,” Eyal notes.

Economic interdependence isn’t the only reason for Europe’s weak sanctions. “The legacy of the financial crisis has left some European countries feeling vulnerable,” comments Jeffrey Mankoff, deputy director at the Center for Strategic and International Studies’ Russia and Eurasia program. “They have less appetite to do something that will lead to economic disruption.”

Even for European countries that have pulled through the 2008 financial disaster, Russia’s immediate presence can be a significant deterrent. “Geography always plays an important role in international relations,” states Pomeranz. “Obviously the E.U. has to be mindful of its neighbors.”

Meanwhile, Washington also seems unwilling to push Moscow too far. And if Washington isn’t prepared to lead, it’s unlikely Europe will follow. “Europe has always been a free rider on the back of the U.S.,” says Eyal.

Mankoff shares his view, adding: “U.S. leadership on [sanctions] has been relatively lacking so far. And because it’s been lacking it’s been relatively easy for the Europeans to drag their feet.”

Were the U.S. to challenge Russia more directly, there is no guarantee, however, that Europe would follow suit. Constrained by trade relations, geography and shaky economies, Europe is both unwilling and unable to risk poking the Russian bear.

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