(VOVworld) – The 28-member European Union on July 25 reached a preliminary agreement to expand economic sanctions on Russia. The final document is set to be adopted this week. The west said enhancing sanctions is an effective instrument to ensure the so-called regional stability and peace and punish Russia for alleged intervention in the Ukraine crisis. But the price the EU is paying for this is high.

Chancellor Merkel listening to debate about the Ukrainian crisis at the Bundestag in Berlin (photo: Markus Schreiber/AP)

The EU’s preliminary agreement to broaden economic sanctions on Russia came following the shooting down of Malaysian Airline flight MH17 on July 17 in eastern Ukraine which is controlled by the pro-Russian separatists. The EU’s decision has worsened Russia-EU relations since the annexation of Crimea into Russia in March.

Punishing spearhead economic sectors except petroleum

The European Commission was assigned to detail the sanctions on Russia. Key proposed sanctions include to close the EU market to state-owned Russian banks, stop weapons trading with Russia, and restrict energy and technology trading for both civil and military purposes. The sanctions will not cover the petroleum sector and not affect petroleum supply from Russia.

The White House on July 28 said the US and the EU’s sanctions targeted Russia’s main economic sectors. A spokesman for British Prime Minister David Cameron said the EU agreed to commence tougher sanctions on Russia as soon as possible. The reason is Russia has not acted effectively to bring the separatists in eastern Ukraine to the negotiating table and control the situation along its border with Ukraine.

Besides broadening economic sanctions, the EU has added more people and entities subject to asset freeze and EU migration ban. The Director of the Russian Federal Security Service and the Director of the Russian Foreign Intelligence Office are two of the 15 Russian and Ukrainian officials and 18 companies named in the expanded list.

More harm than good

Tougher sanctions on the Russian economy will have side-effect on the west. Economists said EU leaders will have to trade off some percentage of the bloc’s GDP growth rate. Eckhard Cordes, Director of the Committee on Eastern European Economic Relations, said broadening sanctions on Rusia will increase the price the EU has to pay for the crisis. The EU exports an average of 100 billion USD of goods and services to Russia annually. The figure will reduce when the showdown escalates into economic warfare. Germany, the EU’s locomotive economy, will suffer the most. Around 6,000 German enterprises are operating in Russia and 300,000 German jobs are depending on economic exchange with Russia. Germany earned 36 billion USD from exports to Russia last year but export has reduced 14% in the first quarter of this year.

France is the biggest weapon supplier of Russia. France’s contract to sell 2 Mistral warships to Germany will provide jobs for 1,000 people.

London’ financial center will lose important resources due the EU’s sanctions on state-owned Russian banks.

Meanwhile, the Russian Foreign Ministry said the additional sanctions showed that EU member countries have reduced cooperation with Russia in regional and international security issues. Foreign Minister Sergei Lavrov said the US and EU sanctions will not achieve its purposes but to make Russia more economically independent. He said Moscow will not retaliate or take any careless encountering action relating to the Ukrainian crisis.