West insists sanctions hurting Russia as push for more falters

US deputy treasury secretary says capital is fleeing from Russia as Moscow pushes back

The Russian economy is contracting at the fastest rate since 1998, a top Washington official has said as he vowed to work with the European Commission to close off loopholes to stop Moscow evading the effect of sanctions imposed due to its invasion of Ukraine.

It comes as Russia fought back to bolster its economy against a punishing wave of sanctions imposed by the world's richest economies. The fall in value of the rouble has stabilised as the regime of Vladimir Putin said it would demand payment in its currency for gas deliveries, while a collapse in stock prices was avoided as the Russian market reopened under highly controlled conditions for the first time in a month.

The EU has said it will focus on implementing existing sanctions rather than agreeing additional measures for now, as momentum for additional steps falters due to opposition among some member states to the potential economic cost.

Speaking in Brussels as he met Ireland's EU commissioner for financial services Mairéad McGuinness for talks about co-ordinating further on sanctions, the US deputy secretary of the treasury Wally Adeyemo said the sanctions were removing Russia's ability to wage war and that capital was fleeing the country.

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“It’s important to note what’s happening to the Russian economy today because of those significant actions. The Russian economy is contracting at a faster pace than it has since 1998, when it defaulted on its debt,” he said.

“Anyone who has money in Russia today is trying to get that money out as quickly as possible because of our actions. And that’s why the Kremlin has put in place draconian capital controls, ensuring that people who have money in Russia are unable to take that money out,” he added.

“These actions are being taken because the Kremlin is seeing that its resources are dwindling – the resources that it is using to pay for its unprovoked war in Ukraine.”

‘Economic pain’

Mr Adeyemo and Ms McGuinness said the US and EU would now co-ordinate to prevent companies, individuals or countries from evading the effect of sanctions, and to ensure agreed measures are implemented across jurisdictions.

“The key is to ensure effective and full implementation of sanctions across jurisdictions. This is a priority,” Ms McGuinness said.

“Sanctions are crucial for imposing economic pain on Putin’s regime, and those who are complicit in this war. The sanctions make it much harder for the Kremlin to pursue its illegal attack at the expense of its neighbour,” she added.

“We’re in lockstep on sanctions. And we’ll continue to co-ordinate our response with the strongest determination and unity.”

No additional sanctions package was put forward to the EU 27 at a summit last week.

In the weeks ahead of the summit, Poland, Estonia, Latvia and Lithuania had pushed for additional sanctions to be agreed in talks between the diplomats of EU member states.

But they met resistance from countries including Germany, Italy, Hungary and Bulgaria, which were concerned about the economic price of going further and particularly of affecting energy imports from Russia.

Germany had previously also pushed for exemptions in transactions with state-owned companies for aluminium, copper, palladium and iron ore, while extending the time companies have to wind down trade from three to six months, a diplomat said.

Instead of agreeing to pursue additional sanctions, the EU has now said it will focus on implementing the measures already agreed and closing any potential loopholes.

There is concern in Brussels and Washington that China or other global powers may help Russia to lessen the effect of sanctions, such as by doing trade on Moscow's gold reserves. The issue is expected to be in the background at a meeting of Chinese and EU leaders later this week.

Naomi O’Leary

Naomi O'Leary

Naomi O’Leary is Europe Correspondent of The Irish Times