Sanctions

"Anti-Putin" Alliance Fraying: Germany, Slovakia, Greece, Czech Republic Urge End To Russian Sanctions

Zero Hedge,

16 August, 2014

Last week Germany reported that in the second quarter, its GDP declined by 0.2%, worse than Wall Street consensus. This happened a few shorts days after Italy reported a second consecutive decline in its own GDP, becoming the first Europen country to enter a triple-dip recession. What's worse, Europe's slowdown took place before the brunt of Russian sanctions hit. Surely in the third quarter the GDP of Germany, a nation whose exports accounts for 41% of GDP, will be even worse, with whisper numbers of -1% being thrown casually around, but one thing is certain: Europe is about to enter its third recession since the Lehman collapse just as we forecast at the end of 2013, a "triple-dip" which may become an outright depression unless Draghi injects a few trillion in credit money (which will do nothing but delay the inevitable and make it that much worse once the can can no longer be kicked), and unless normal trade ties with Russia are restored.

Which means one thing: for Europe to resume the status quo, it needs to break away from the "western" alliance and the sanctions imposed upon the Kremlin which solely benefit the populist agenda of Washington, and certainly not Europe proper, which it is now quite clear, is far more reliant on Russia than vice versa. it is also something Putin apparently was aware of from the very beginning.

And now, that realization is starting to spread to Europe's own countries, which - while the new cold war was only one of rhetoric were perfectly happy to go for the ride - but now that trade war has finally broken out, suddenly increasingly more want out.

As we reported previously, it all started with the Greeks, a nation of heavy food exports into Russia, who were the first to announce their displeasure with the "Stop Putin" coalition:

the moment Russia retaliated, the grand alliance started to crack. Enter Greece which has hundreds of millions in food exports to Russia, and which was the first country to hint that it may splinter from the western "pro-sanctions" alliance. According to Bloomberg, earlier today the Greek foreign minister and former PM said that "we are in continuous deliberations in order to have the smallest possible consequences, and if possible no significant impact whatsoever."

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And making it very clear that this will be a major political issue was a statement by the main opposition party Syriza which today said that the Greek government's "blind obedience to the Cold War strategies of Brussels and Washington will be disastrous for country’s agriculture." In a moment of surprising clarity, Syriza asked govt to immediately lift all sanctions to Russia, as they don’t contribute to a solution of the Ukrainian crisis, and "instead fuel an economic and trade war, in which Greece has unfortunately become involved." Syriza concluded that the government hasn’t weighted Greece’s special interests and bilateral relations with Russia.

Then it was Slovakia whose premier Robert Fico criticized Ukraine for preparing sanctions against Russian persons and companies, and he has called on Ukraine not to approve them, expressing concerns that the legislation could result in a halt to natural gas supplies:

If the conflict between Ukraine and Russia escalates, the legal norm could cause interruption of natural gas supplies to Slovakia (and to Western Europe) via Ukraine from Russia, he said. 

Slovakia depends on supplies of Russian gas. However, if gas supplies via Ukraine were interrupted, Slovakia would get gas through backflow from the West.

"It is strange that a country that has signed an association agreement with the EU and which we are trying to help is taking one-sided steps that endanger the individual economic interests of EU member countries, instead of coordinating its approach with the EU," Fico said.

"We do not want to be a hostage in the Russian-Ukrainian problem. We expect Ukraine not to adopt formal steps that, if implemented, can endanger our interests. A country that has signed the association agreement should not behave like that," Fico declared.

Poland too complained last week, however for now it finds the fault not with the "alliance" but with Russia for daring to retaliate to western sanctions

Poland's agriculture minister went on television to announce the country was taking action against Russia's new import ban. "We believe Russia has broken international law in both its embargo against Poland and its embargo against the EU," Marek Sawicki said. Russia banned the import of Polish fruit and vegetables in early August - a move Sawicki said would cost Poland 0.6 percent of GDP.

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"If a WTO member state believes another WTO member state has taken a measure that is not in conformity with WTO rules, the affected WTO member state may request mediation," attorney and WTO expert Eric Pickett said.

Good luck. It is only a matter of time before this futile anger at Putin turns not to the logical response to sanctions, but at the instigator of the sanctions themselves.

Then it was most vibrant economy in central Europe, the Czech Republic, where overnight the finance minister voiced the loudest anger at Russian sanctions yet. 

From Bloomberg:

• SANCTIONS ON RUSSIA MAKE NO SENSE, CZECH FINANCE MINISTER SAYS

And finally, it is the country whose fate is what this conflict is all about, because should Germany decide it has had enough of DC's geopolitical brinksmanship, one which always "costs" European allies far more than it does the US, and aligns with the Russia-China-India axis, then the "Eurasian Crescent" will be complete, and the countdown to reserve currency transition may officially begin. 

Sure enough, Bloomberg reports that sanctions against Russia are hurting sentiment at German companies, according to Focus magazine which cites the BGA Federation of German Wholesale and Foreign Trade, and the DIHK German Association of Chambers of Commerce and Industry.

According to the magazine, "loss of trust in Russian partners is hurting business more than the sanctions themselves, as German companies cut trade more than required."

The implications are clear: cost-benefit analysis has shifted too far to the left, and while Germany was ok with supporting  the "west" in its game of escalating sanctions vs Putin, at this point there is no further support, and in fact the pendulum is starting to swing in the opposite direction.

So with increasingly more eastern and central European nations vocally opining against Russian sanctions, and with the Ukraine government now clearly engaging in open provocations to curry popular support for some "unfathomable" warmongering cause (unless of course it can provide evidence it did indeed destroy a Russian military convoy on its territory), how long until the "western" alliance finally folds under its own weight and has no choice but to roll back the sanctions and de-escalate, in the process handing Putin the biggest diplomatic knockout round yet?

Russian food embargo leaves Europe with glut of fruit, pork and mackerel

Producers across EU race to shift perishable items, with concern that surplus will further push down prices

the Guardian,

15 August, 2014

A glut of French pears, warehouses full of German sausage, rotting Polish peppers and unwanted Scottish mackerel: Russia's move to ban European food imports in retaliation for EU sanctions is having a telling effect across a continent already slouching towards another recession.

Last year, EU farm exports to Russia were worth €11bn (£9bn). Officials in Brussels are scrambling to come up with measures, which may be announced early next week, to soften the impact of a ban that could cut that export market in half.

But already there is sign of dissent. In recent days, the leaders of Hungary, Slovakia and Sweden have all spoken out about the damage done by tit-for-tat sanctions that are really starting to bite for businesses on both sides of the standoff. Most notably, Hungary's Viktor Orbán called it "shooting oneself in the foot". And it is farmers in the major food exporters – Germany, the Netherlands, Poland, Spain and France – who have been hobbled.

Germany

The Germans export more food and agricultural produce to Russia than any other EU country – €1.6bn-worth in 2013, and there are concerns that the Russian imports will force German farmers into a fierce competitions with other European countries for new markets. Germany's biggest export to Russia is pig meat: of the 750,000 tonnes of pork, worth over €1bn, sold to Russia last year, about a quarter came from Germany.

The association of German pig farmers, ISN, has calculated the average farm could lose out on as much as €40,000 this year.

"Luckily Europe's meat exporters have been able to open up new markets in other countries over the last few months, thus balancing out the amounts usually sold to Russia," the ISN said. "Especially the Philippines, Japan and South Korea have increasingly received exports from Europe. The demand may increase as South American suppliers take their meat to Moscow instead."

The German agricultural minister Christian Schmidt, of the Christian Democratic Party, said that while the Russian import ban would have "noticeable consequences" for German farmers, he also believed that "it is clear there need to be no concerns about market turbulences".

Value of EU agri-food products banned from entering Russia (€m 2013 figures)

France

The French exported €1bn of foodstuffs to Russia last year, and the embargo is hitting France's 27,000 fruit and vegetable farmers hardest: 1% of its fresh fruit and 3% of vegetables – 50,000 tonnes a year in total – leave France directly for Russia. A further 50,000 tonnes more are exported to Russia via the Benelux and Baltic countries in a trade worth €48m a year. Of these 100,000 tonnes, 54% are apples, 20% potatoes, 8% tomatoes and cucumbers, 6% pears and 6% cauliflowers.

Xavier Beulin, head of the main French agricultural union, has asked to see the French president, François Hollande, and said he was worried a glut of fruit and vegetables destined for Russia would flood the European market, dragging down prices, especially produce that has a limited shelf life. He warned that some producers had already started laying off staff.

"The European market is already very stretched in certain areas ... meaning prices that don't allow producers to cover the cost of their work," he said. "The produce that's no longer going to Russia is likely to find itself on the European market and we fear a crisis."

The French fruit producers federation fears this will aggravate what they describe as "commercial dumping" of fruit, particularly peaches.

Its president, Luc Barbier, said: "The Russians will continue to eat apples, tomatoes and peaches, except that they will no longer come from Europe, they will come from Asia, Brazil, South Africa and elsewhere. So, when the (Russia) market reopens it will take years to regain part of the market. It's terrible."

Eric Guasch, an apple producer from the Avignon region, sells 80% of his fruit to the Russians, and has already laid off the nine seasonal workers he had taken on.

"We are still in a state of shock over the embargo, which fell just like that.," he said. "It wasn't just that all the orders we had were cancelled, but that our lorries already on the road were stopped at the Russian border and turned back.

"So we have a problem of dealing not just with unsold stock, but produce in transit."

Spain

Spain is counting its blessings: though fruit, meat and vegetables were included in the Russian sanctions, wine and olive oil were not.

But some Spanish farmers are still feeling the pinch, particularly as 30,000 tonnes of tomatoes, peaches and mandarin oranges exported to Russian annually will now have to find another home on a continent facing a glut.

"Orders have been cancelled yesterday and this morning," noted COAG, an association that represents Spanish farmers. Producers in the regions of Murcia, Valencia and Andalusia are expected to be hardest hit by the sanctions.

Russia's tit-for-tat ban came as many in the sector were already struggling. A burst of warm weather in spring made peaches and nectarines available much earlier across the Eurozone, lengthening the season. The increased supply saw prices drop even before the ban came into effect, noted COAG. "The sector is already suffering a deep crisis with respect to pricing, which is being aggravated by the closing off of this important market." Now the rush is on for producers to find ways to rid themselves of the excess produce before the value of their products evaporate on the European market.

Poland

The most notable response to the ban here has been a social media campaign urging Poles to "stand up to Putin by eating apples". But it is more perishable vegetables being harvested now such as peppers and cabbage that are greater cause for concern. "Apples can be stored for up to 9 months while vegetables like paprika have to be sold immediately after harvesting, and Russia has been the destination for some 40% of our produce," complained Roman Sobczak, head of Polish Paprika, a producer group. The price of some vegetables has fallen by about 50%.

Poland's agriculture minister, Marek Sawicki, expressed "disappointment" this week after talks with EU officials on the issue. While Sawicki went to Brussels demanding immediate compensation for Polish farmers, he was told the EU needed to wait until it had more data with which to analyse potential losses from the Russia ban. However, Sawicki did say that EU agriculture commissioner Dacian Ciolos had promised to speed up compensation procedures regarding the most sensitive Polish agricultural products, namely those which cannot be stored for longer periods of time.

United Kingdom

Mackerel is the most valuable stock to the Scottish fishing fleet, and about 20% – £16m worth – is exported to Russia annually.

Bertie Armstrong, chief executive of the Scottish Fishermen's Federation, said: "Russia is a very important export market for Scottish mackerel, and the denial of access would have serious implications for both mackerel fishermen and the onshore processing sector. We recognise that this is a serious geopolitical issue, but the downstream impact will hit a number of business sectors including Scottish fishing."

The Scottish government's cabinet secretary for rural affairs, food and the environment, Richard Lochhead, met his UK government counterpart, Elizabeth Truss, on Friday to discuss the impact of Russian trade sanctions on Scotland's mackerel fleet and processors.

Lochhead highlighted the need for the UK to look at export insurance to help the industry with exports to Ukraine and to explore with the EU the possibility of "banking of quota", meaning leaving fish in the sea.

Alex Wiseman, a mackerel fisherman and chair of the Scottish Pelagic Fishermen's Association, foresees serious economic hardship as a result of the ban. "Trying to find a market out there to replace to hole left by Russia is impossible in the short term," he said.

Though the widely publicised health benefits of eating oily fish have increased demand in the UK and mainland Europe in recent years, Wiseman said there was "no way" that this demand could pick up the shortfall. "It might happen but it could take 10 years," he said, explaining that countries with emerging markets for mackerel would have to invest in cold storage infrastructure to handle sufficient volume.

He said the ban could not have come at a worse time for fishermen: "Our quotas have been increased by 80% this year because the stocks were so healthy.

"We are asking the UK government to let us leave the fish swimming in the sea, then we can catch it and evenly distribute it into the market next year when things have improved. This doesn't involve storage costs or adjusting the quota, but we have to go through layers of EU bureaucracy to get there."