ZEW Survey on the Effectiveness of Sanctions
In response to Russia’s invasion of Ukraine – which is a violation of international law – the EU and Germany have imposed comprehensive sanction measures. The sanctions are designed to put pressure on the Russian economy and thus dissuade Putin from continuing the war. According to a survey of financial market experts conducted by ZEW in March 2022, amongst the enacted measures, the sanctions imposed on the Russian central bank and the exclusion of Russian banks from the SWIFT payment system are likely to have the most severe impacts on the Russian economy. However, these measures are also expected to have limited negative repercussions for the economy of the eurozone. The main impacts to the eurozone will be higher inflation and – to a lesser extent – lower GDP growth. Nevertheless, the sanctions are unlikely to motivate a change in the interest rate policy of the European Central Bank (ECB).
‘The surveyed financial market experts see considerable consequences for Russia due to sanctions, and they attribute the greatest impact to the measures taken against the Russian central bank,’ says ZEW-President Prof. Achim Wambach, PhD. Amongst the survey participants, 91% expect the Russian economy to suffer significant economic harm from this measure, with 40% anticipating a ‘high level’ of damage. At the same time, 88% of participants believe the exclusion of Russian banks from SWIFT will have economic repercussions. In the eyes of 81% of the participants, the political pressure on Western companies to end their business relations with Russian firms will harm the Russian economy. By contrast, the freezing of Russian oligarchs’ foreign assets is not seen as particularly effective; only 43% of participants see damage resulting from this measure.
‘A concurrent aim of the sanctions policy is to avoid causing excessive harm to the European economy, which could be socially destabilising. In the view of the experts, this aim has also been fulfilled,’ says Prof. Wambach. According to the surveyed experts, the negative economic consequences for Germany and the eurozone will be limited. Probably the most damaging measure for the German economy will be the political pressure on Western companies to break off their business relations with Russian firms, the experts said. Although 62% of the survey participants fear damage to the domestic economy from this measure, the effects of the other three measures on the German economy are expected to be low. Only 35% expect damage to result from the exclusion of Russian banks from SWIFT and only 20% expect damage from measures taken against the Russian central bank. Just 11% expect a negative impact on the German economy from the freezing of Russian oligarchs’ foreign assets. The anticipated impacts in the eurozone as a whole are very similar to the anticipated impacts in Germany. According to the surveyed experts, the primary effect of sanctions in the eurozone will be a rise in inflation: 79% of the participants see this as the most significant economic consequence for the eurozone. By contrast, the sanctions are expected to have a moderate impact on macroeconomic performance: 74% of the participants expect a moderate effect on eurozone GDP. Moreover, financial market experts do not expect the ECB to adjust its planned monetary policy: 60% of respondents believe the sanctions will have no impact on the ECB’s prime lending rate.