Tag Archives: EU

Russia ready to end ties with the European Union if hit with sanctions

EU High Representative for Foreign Affairs and Security Policy, Josep Borrell (L) and Russian Foreign Minister Sergey Lavrov (R) hold a joint press conference following their meeting in Moscow, Russia on February 5, 2021. (Photo by Russian Foreign Ministry/Handout/Anadolu Agency via Getty Images)

Russian Foreign Ministry | Anadolu Agency | Anadolu Agency | Getty Images

LONDON — Russia has said it is ready to cut ties with the European Union, according to a fragment of an interview published on Russia’s foreign ministry website Friday morning. The comments mark yet another escalation in tensions between the two sides.

When asked if Russia was heading for a break with the European Union, Russia’s Foreign Affairs Minister Sergey Lavrov said: “We proceed from the fact that we are ready (for that). In the event that we again see sanctions imposed in some sectors that create risks for our economy, including in the most sensitive spheres,” according to a translation of the comments by Reuters.

“We don’t want to isolate ourselves from global life, but we have to be ready for that. If you want peace then prepare for war,” Lavrov added.

Neither the Russian foreign affairs ministry nor the European Commission, the executive arm of the EU, was immediately available for comment when contacted by CNBC on Friday.

The relationship between Russia and the EU hit a new low last week when the EU’s foreign policy chief, Josep Borrell, visited his counterpart in Moscow. It has since been described as a “humiliating” trip by analysts.

Borrell went to voice the EU’s opposition to the arrest of Alexei Navalny, a fierce critic of Russian President Vladimir Putin. However, he accused Russia of putting together “an aggressively-staged press conference” during his trip.

In remarks to the press, Lavrov said that, “the EU is not a reliable partner, at least at the current stage.” Borrell failed to address that comment, which sparked anger among some European lawmakers.

In addition, Borrell learned via Twitter during a meeting with Lavrov that Russia had expelled three EU diplomats for attending demonstrations in support of Navalny.

“An aggressively-staged press conference and the expulsion of three EU diplomats during my visit indicate that the Russian authorities did not want to seize this opportunity to have a more constructive dialogue with the EU,” Borrell said in a blog post two days after his trip.

As a result, he has suggested that the EU should impose fresh sanction on Russia — a decision that needs to be approved by European governments.

It would not be the first time that Russian companies and individuals have been sanctioned by the EU. Their relationship has deteriorated significantly since Russia’s annexation of Crimea in 2014, but ultimately their ties are hugely important to both given their shared economic, energy and strategic interests.

Analysts have told CNBC that the latest differences between Moscow and Russia could put pressure on the gas pipeline being built from Russia to Germany, Nord Stream 2.

The project has been sharply criticized, including by the United States, which has imposed sanctions on companies working on the pipeline — a stance that new U.S. President Joe Biden has shown no indication of changing.

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Euro zone economic forecasts

A cyclist rides past the Eiffel Tower following a light overnight snowfall.

LUDOVIC MARIN | AFP | Getty Images

LONDON — The European Commission has turned more negative on its prospects for the euro zone’s economy, projecting a lower growth rate for the region in 2021 as governments grapple with new variants of coronavirus.

The Brussels-based institution expects the 19-member region to grow by 3.8% this year. In November, it had forecast a 4.2% GDP (gross domestic product) rate for 2021.

The latest forecasts come at a tricky time for the European Union as its Covid vaccine rollout faces issues around production, supply and red tape. At the same time, European governments are concerned about mutations of the virus that are deemed more contagious. The longer the health emergency drags, the longer EU countries have to extend social restrictions and lockdowns, which takes their toll on the economy.

“We remain in the painful grip of the pandemic, its social and economic consequences all too evident. Yet there is, at last, light at the end of the tunnel,” Paolo Gentiloni, commissioner for economic affairs said in a statement on Thursday in relation to vaccine rollouts.

Going forward, the European Commission expects 2022 GDP in the euro area to reach 3.8%, having projected a 3% GDP rate for next year in November.

Looking at individual countries, Germany is seen growing by 3.2% in 2021, having contracted 5% in 2020. France on the other hand is expected to see a GDP rate of 5.5% this year, after dropping more than 8% in 2020.

The European Commission’s forecasts assume that social restrictions will be slightly eased in the second quarter of 2021, but that there will nonetheless be some sectoral measures still in place in 2022.

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Russia and EU tensions hit a new low after Lavrov comments in Moscow

EU High Representative for Foreign Affairs and Security Policy, Josep Borrell (L) and Russian Foreign Minister Sergey Lavrov (R) hold a joint press conference following their meeting in Moscow, Russia on February 5, 2021. (Photo by Russian Foreign Ministry/Handout/Anadolu Agency via Getty Images)

Russian Foreign Ministry | Anadolu Agency | Anadolu Agency | Getty Images

 LONDON — A recent press conference between the EU’s top diplomat and Russia’s veteran foreign minister demonstrated diplomatic ties have plunged to a new low, prompting some analysts to question whether the “humiliating” trip could lead to further political consequences.

EU foreign policy chief Josep Borrell visited Moscow on Friday to voice the EU’s opposition to the arrest of Alexei Navalny, a fierce critic of Russian President Vladimir Putin. However, Borrell failed to rebuff his Russian counterpart’s comments when standing next to him at the press conference. Russian Foreign Minister Sergei Lavrov had claimed the EU was an “unreliable partner.”

In addition, Borrell learned via Twitter during his visit that Russia had expelled three EU diplomats for attending demonstrations in support of Navalny.

“My meeting with minister Lavrov highlighted that Europe and Russia are drifting apart. It seems that Russia is progressively disconnecting itself from Europe,” Borrell said in a blog post two days after the press conference. He described it as “a very complicated visit to Moscow.”

“The EU doesn’t have a proper Russia strategy.”

Jade McGlynn

research fellow, Henry Jackson Society

His controversial trip was so poorly received that a group of 73 European lawmakers said European Commission President Ursula von der Leyen “should take action, if Borrell does not resign by his own accord.” In a joint letter, they said Borrell failed “to stand for the interests and values of the European Union during his visit,” which caused “severe damage to the reputation of the EU.”

The links between the EU and Russia have been fractious for some time, but their ties are critical given their shared economic, energy and strategic interests.

Jade McGlynn, a research fellow at the Henry Jackson Society think tank, described the EU-Russia relationship as “coldly combustible” following Borrell’s trip to Moscow. “The EU doesn’t have a proper Russia strategy. There is no point in having a reset with Russia when Russia does not want it,” she said.

‘Very disappointing’ for U.S.-EU ties

Both sides had tried to improve their links on trade, energy, counterterrorism, among others, prior to 2014. In this context, the EU had supported Russia’s accession to the World Trade Organization, which concluded in 2012.

However, the Russian annexation of Crimea in March 2014 was a turning point in their relationship. The EU opposed the move and imposed sanctions on Russian individuals and companies as a result.

Their ties were further frayed by Russia’s intervention in Syria’s long-running war and in other Middle Eastern conflicts. Additionally, several constitutional reforms in Russia have also sparked concern among European officials, including one that allows Putin to stay in power beyond his current mandate.

“Their relationship has always been challenging,” Ian Lesser, vice president at The German Marshall Fund of the United States, told CNBC, noting that now the ties are just “deteriorating on multiple fronts.”

As a result, Lesser expects “more pressure on the Nord Stream (project), including from Washington D.C.”

Nord Stream 2 is a natural gas pipeline going from Russia to Germany and once completed it would double the flow of energy resources between the two, according to Deutsche Welle.

The project has been sharply criticized, including by the United States, which has imposed sanctions on companies working on the pipeline — a stance that the new U.S. presidency has no intention of changing overnight. U.S. Secretary of State Antony Blinken has said Joe Biden’s administration is against the project.

Some European lawmakers are also of the opinion that Nord Stream 2 should be halted in response to Russia’s poisoning of Navalny. Before returning to Russia last month, Navalny had been recovering in Germany after narrowly surviving what has since been independently confirmed as poisoning by a Novichok nerve agent on August. 20. The Kremlin denies poisoning Navalny.

“I can imagine it’s very disappointing” for the U.S. to observe Friday’s press conference in Moscow, McGlynn said over the phone. She added that the U.S. is probably wondering “do we have a reliable partner who can stand up to Russia?”

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Euro zone GDP contracts amid tight covid restrictions, vaccine rollout

A restaurant closed during lockdown on Mitropoleos street next to Monastiraki square in Athens, Greece, on Monday, Nov. 9, 2020.

Bloomberg | Bloomberg | Getty Images

LONDON — The euro zone economy dropped by 0.7% in the final quarter of 2020 as governments stepped up social restrictions to contain a second wave of Covid-19 infections, Europe’s statistics office said on Tuesday.

A preliminary reading points to an annual GDP contraction of 6.8% for the euro area in 2020, Eurostat said.

The region had experienced a growth rate of 12.4% in the third quarter as low infection rates at the time had allowed governments to partially reopen their economies.

However, the health emergency deteriorated in the last three months of 2020, with Germany and France going as far as reintroducing national lockdowns. The tightening of the social restrictions weighed on the economic performance once again.

Data released last week showed that Germany grew 0.1% in the final quarter of 2020. Spain experienced a GDP growth rate of 0.4% in the same period while France contracted by 1.3%. The numbers came in above analysts’ expectations and suggested that some businesses had learnt how to cope as best as possible with lockdowns.

Nonetheless, the three-month period also coincided with news of the first coronavirus vaccine approvals, which renewed optimism that the pandemic could come to an end sooner than expected. However, the rollout has since then been slow and bumpy, with economists fearing it will delay the much-needed economic recovery.

“The fiasco of Europe’s vaccination plan and Brussels’ retreat from its standoff with the U.K. and AstraZeneca have raised doubts about a European recovery, confirmed the worst caricatures of bungling bureaucracy and revived fears that the European Union could break apart,” Anatole Kaletsky, founder of Gakeval Research said in a note on Tuesday morning.

In addition to the uneven distribution of Covid-19 jabs, the number of daily cases has also increased in the new year amid the spread of new variants of the virus. Governments have thus decided to extend or reintroduce lockdowns to contain the spread.

In this context, the International Monetary Fund has lowered its growth expectations for the euro area in 2021. The Fund last week cut its growth forecast for the region by 1 percentage point to 4.2% this year. Germany, France, Italy and Spain — the four largest economies in the euro zone — all saw their growth expectations slashed for 2021. 

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Eurozone Flash PMIs January 2020: Business activity shrinks again

A man over 75 years receives a coronavirus (Covid-19) vaccine shot in Strasbourg, France.

Anadolu Agency | Anadolu Agency | Getty Images

LONDON — Business activity in the euro zone fell to a two-month low in January, preliminary data showed on Friday, on the back of stricter coronavirus-related lockdowns.

The region is grappling with growing Covid-19 infection rates and tighter restrictions as new strains of the virus spread, causing further economic pain.

Markit’s flash composite PMI for the euro zone, which looks at activity across both manufacturing and services, dropped to 47.5 January, versus 49.1 in December. A reading below 50 represents a contraction in activity.

Chris Williamson, chief business economist at IHS Markit, said a double-dip recession for the euro zone was looking “increasingly inevitable.”

“Tighter Covid-19 restrictions took a further toll on businesses in January,” he said in a statement.

“Output fell at an increased rate, led by worsening conditions in the service sector and a weakening of manufacturing growth to the lowest seen so far in the sector’s seven-month recovery.”

European Central Bank President Christine Lagarde acknowledged on Thursday that the pandemic still posed “serious risks” to the euro zone economy.

In addition to the new Covid variants, there are also concerns over a slow vaccination roll-out across the European Union.

“In this environment ample monetary stimulus remains essential,” Lagarde said. The ECB decided at a meeting on Thursday to keep interest rates and its wider stimulus programs unchanged for now, having boosted its support in December.

The ECB expects the euro zone’s GDP (gross domestic product) to expand by 3.9% in 2021, and 2.1% in 2022. This is after a contraction of 7.3% last year. However, these forecasts are dependent on the evolution of the pandemic.

France hires more

Earlier, France’s business activity data also came in at a two-month low, reflecting the imposition of stricter curfews across the country. The country’s composite PMI for January was 47, making a contraction.

However, French businesses hired more employees in January — the first increase in job figures in almost a year.

“The fact that firms have returned to recruitment activity points to some confidence in an economic recovery in the second half of this year,” Eliot Kerr, economist at IHS Markit said, in a statement.

In Germany, business activity managed to grow slightly in January, with the flash composite output index coming in at 50.8. However, the reading represented a seven-month low for Europe’s economic engine.

Phil Smith, associate director at IHS Markit, highlighted a slower momentum in manufacturing activity in the country, and a continued hit to the services sector during January.

“All in all, the German economy has made a slow start to the year, and the extension of the current containment measures until at least mid-February means this looks like being the picture for several more weeks to come,” he said.

The German government decided some days ago to extend the national lockdown until Feb. 14.

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