EU businesses anxious to end Russia sanctions

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In a sign of the growing frustration amid companies across Europe to get back to business as usual, the French Senate on Wednesday was due to vote on a resolution urging the government to lift economic sanctions on Russia.

For years, the European Union was Russia's biggest trading partner, but two years ago the EU imposed sanctions in response to its actions in Ukraine. They range from banning the export of oil equipment to barring Russian banks from accessing long-term lending. In retaliation, Russia moved to ban all vegetable, dairy and meat exports from the EU.

EU imports from Russia dropped by a third last year compared with 2013, the year before the sanctions, while agricultural exports to Russia halved.

French oil, auto and food companies have suffered from the sanctions and Russian embargo and have long quietly lobbied French politicians to lift them. Several pro-Russia lawmakers in the French parliament, mainly in the conservative Republican party, have complained that the sanctions are hurting the French economy and argue that France and Europe should not follow U.S. policy on Russia.

France's Socialist government, however, supports the sanctions. President Francois Hollande recently said at the G7 meeting in Japan that the sanctions hinge on whether the Minsk peace deal for Ukraine is implemented.

One of the countries where businesses are most worried about the impact of the trade war is Germany, Russia's biggest trading partner before the sanctions.

German businessmen are anxious for sanctions to be lifted and the longer they are in place, the more difficult it will be for the German companies to reclaim their market share, said Matthias Platzeck, chief executive of the German-Russian Forum, a powerful lobby group that works to advance the interests of Germany in Russia and Russia in Germany.

Platzeck, a former Brandenburg governor and longtime critic of the sanctions who was visiting Russia earlier this week meeting with Russian and foreign businesses, says he feels that German politicians seem more inclined to lift the sanctions than a year ago.

"I have a feeling that many people in Europe have now realized that the policy of sanctions, it brings nothing," he said speaking of European politicians.

The sanctions initially didn't meet any major resistance from business in Germany, but dairy producers have been grumbling recently that they have been left with a glut of milk that they've been unable to export to Russia, among multiple other problems, causing prices to fall below costs. The government has pledged at least 100 million euros to help, and is in talks with authorities in Brussels for further solutions.

In recent weeks, both Vice Chancellor Sigmar Gabriel and Foreign Minister Frank-Walter Steinmeier have talked up the possibility of rolling back sanctions against Russia, but making clear that this would only be possible with the implementation of the Minsk peace agreement for eastern Ukraine.

The sanctions against Russia were initially imposed over its annexation of Ukraine's Crimea and were extended after Russia threw its weight behind separatist rebels in eastern Ukraine. Russia's mediation in the Minsk talks was seen as a sign that Moscow was willing to stop its interference and use its influence on the rebels to stop the ongoing war.

Privately some German diplomats acknowledge that the sanctions have not had the desired effect yet and that the EU could not drop them without a major loss of face even if it wanted to.

Dmitri Trenin, director of the Carnegie Moscow Center, says the sanctions have certainly hurt Russia but they aren't fatal.

The Russian economy contracted by nearly 4 percent last year and unemployment is on the rise, but prudent fiscal policies and a sizeable rainy-day fund have saved Russia from disaster.

"Russia cannot step back because if it does — can you imagine Putin giving up Crimea and surviving? I can't," he said.

In order for the EU to renew its sanctions against Russia at the end of July, each member state has to support them, or the vote will not get through.

German Foreign Ministry spokesman Martin Schaefer acknowledged there were some countries whose interest in continuing the sanctions was wavering, and said that Germany would work to try to make sure there was unified support when it came to a vote.

Despite the flagging economy and the lack of investment, agriculture in Russia is one of the sectors showing growth, which was in part boosted by the EU import ban. Cheese production last year increased by 18 percent and production of vegetables by 13 percent.

Responding to calls from farmers anxious that they will have a tough time once European produce is back on the market, Prime Minister Dmitry Medvedev last month asked the government to extend the ban until the end of 2017.

Western businesses are worried that the longer the sanctions stay, the more difficult it will be for Western companies to reclaim their market share.

"Returning (to the market) is getting more difficult by the year," Platzeck of the German-Russian Forum says. "I wouldn't be surprised if we were to find other players in those market niches three or four years from now."


David Rising and Frank Jordans in Berlin, Niko Price in Moscow, Angela Charlton and Sylvie Corbet in Paris contributed to this report.