EU prepares sanctions with ‘serious consequences’ for Russian economy

EU capitals are preparing a far-reaching package of sanctions that would freeze some transactions with a wider range of Russian banks, bar a set of state-owned companies from new listings on EU stock exchanges, and stop Russian nationals from making large new deposits in EU institutions.

The proposed new regime would also bar sales of aircraft and jet parts to Russia, ban the sale of equipment needed to upgrade Russian oil refineries, and suspend visa-free travel for holders of Russian diplomatic passports, according to people familiar with the plans.

The proposals are being put forward to EU leaders who are convening in Brussels on Thursday night to decide how to respond to the biggest security threat faced in Europe since the second world war.

They will need to gain approval at the summit, with some leaders still pushing for wider measures. Diplomats will then need to work through detailed legislation with the aim of getting the package enshrined in law as soon as Friday.

The Russian foreign ministry pledged on Thursday to respond “harshly” to EU sanctions, as officials said EU ambassadors meeting in Brussels had on Thursday backed plans from the European Commission for a “massive and targeted” package.

The measures would extend the list of Russian banks blocked from EU financing to two private banks, Alfa Bank and Bank Otkritie, on top of five state-owned institutions. Lending and purchase of securities would be prohibited in a series of state-owned Russian enterprises including companies in the aerospace and defence sector, shipping and shipbuilding among others.

The new regime will contain a wide-ranging regime of export controls on goods that can be used by the military as well as a range of advanced technology items, including electronics, sensors, telecommunications, marine applications and lasers. Russians would not be able to make any new deposits of more than €100,000 in EU banks.

But the measures are not expected to include new sanctions on individual oligarchs — the EU is working on legal changes that would allow it to target a wider range of people.

“We don’t need sanctions that bark, but we need sanctions that bite in a very thorough way, that have a big impact on the Russian side,” said Alexander De Croo, Belgium’s prime minister, on his way into the summit. He said that it was important to touch the Russian economy and military complex. “We need to make it extremely difficult for them to operate in an international environment.”

Earlier, Ursula von der Leyen, European Commission president, said the planned measures would include “financial sanctions that harshly limit Russia’s access to the capital markets” and “cut off Russia’s industry from the technologies desperately needed today to build a future”.

“These sanctions will have a heavy impact,” she said. “These sanctions will suppress Russia’s economic growth; increase the borrowing costs; raise inflation; intensify capital outflows; and gradually erode its industrial base.”

The EU’s measures, which have been in development for months in conjunction with the US, UK, Canada and other allies, are not expected to directly target Vladimir Putin, Russia’s president, or foreign minister Sergei Lavrov, diplomats said.

Some countries have raised the possibility of this being an option in future. “You have to keep something up your sleeve,” said one official. Legal issues specific to the EU’s sanctions regime will delay the EU blacklisting of some Russian oligarchs and their families, according to diplomats familiar with the EU discussions.

Cutting Russian banks from the Swift international payments system remains an option, but diplomats doubt that EU leaders will give it the green light as soon as Thursday evening.

EU leaders are also due to consider the bloc’s wider response to the crisis, including the brewing humanitarian and refugee crisis on its borders.

Earlier in the day, Romania reported that thousands of people were lining up at the country’s checkpoints with Ukraine. Poland and Hungary also reported an increase in arrivals.

According to the summit’s conclusions, seen by the Financial Times, the leaders will call for the sanctions to be put into law “without delay”. They also demand a new round of sanctions on Belarus, which permitted Russian troops to operate from its territory, amid complaints from Baltic states that the existing regime contains too many loopholes.