Is the EU bringing the hammer down on Russia?

The EU is expected to move ahead with heavier, sectoral sanctions against Russia next week. Today it added two Ukrainian rebel groups to its list of sanctioned individuals.

A week after the downing of Malaysia Airlines flight MH17, European Union officials today moved ahead with sanctions targeted at Russian specific business sectors, but held back on targeting members of President Vladimir Putin’s inner circle. 

Today’s preliminary decision against Russia focuses on “targeting its access to European capital markets and trade in the defense sector, dual-use goods and sensitive technologies,” the Associated Press reports. The sanctions could end up hitting Russian banks hard if the EU closes capital markets to them.

EU ambassadors are scheduled to meet on Monday and Tuesday to continue discussion on how the 28-member bloc will move forward.

In addition, the EU Council announced today that it has “adopted reinforced EU sanctions in view of the situation in Ukraine,” by adding 15 more people and 18 entities to its list of asset freezes and visa bans. Those targeted include people and entities “responsible for action against Ukraine’s territorial integrity” with a strong focus on groups tied to Russia’s annexation of Crimea in March.

The Wall Street Journal reported that new entities added to the list include two rebel groups in Ukraine: the Donetsk People’s Republic and the People’s Republic of Luhansk. The head of Russia’s security service, the FSB, was also added to the list of individuals targeted. This now raises the total number of individuals under EU sanctions to 87, and entities to 20.

Stepping up sanctions in a 28-country bloc has been fraught with difficulties, as many member states are still recovering from the economic downturn and analyzing what affect sanctions would have on their individual relationships with the Kremlin. The Wall Street Journal described the economic links being examined by many countries:

Germany, Bulgaria and Hungary heavily depend on Russian energy and worry about jeopardizing supplies. For Cyprus, Austria, the Netherlands, Luxembourg and the U.K., financial ties are important. France's major worry is being forced to cancel a €1.2 billion ($1.62 billion) contract to supply two warships to Russia. 

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Governments have decided that these sectoral sanctions should show "balance across sectors and across member states," according to a European Commission paper sent to member states Wednesday night. That's the EU's way of sharing the pain. The difficulty is that it is hard to scale up these sanctions gradually. Stopping the sale of the French warships would be a big blow to France, and would have to be accompanied by sanctions of similar scope in other industry sectors in other countries.

Division within Europe over the distribution of sanctions is already clear. Citing a proposed version of the sanctions, British newspaper The Telegraph wrote that Britain's financial district would "bear the brunt of EU sanctions on Russia.” 

The proposal to bar Russian banks from listing new bond or equity issues on European exchanges would place the biggest burden of punishing Vladimir Putin on London as the EU's financial centre but is unlikely to be agreed amid continuing European divisions over economic sanctions on Russia.

As The Christian Science Monitor reported, the EU and US have been out of step in their application of sanctions. One senior government official told The Monitor, “It’s a little bit of a yin-yang [relationship]. At times we’re catching up with them, at times they’re catching up with us.”