Germany Changes Its Tone On Russia, And EU Sanctions May Follow

German Chancellor Angela Merkel says that Russia risks "massive political and economic damage" if it continues its policy on Ukraine and that the European Union's relationship with Russia may suffer.

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From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.

ROBERT SIEGEL, HOST:

And I'm Robert Siegel.

The chancellor of Germany is warning Russia to step back from its confrontation with the West over Ukraine.

CHANCELLOR ANGELA MERKEL: (Foreign language spoken)

SIEGEL: Angela Merkel says if Moscow continues its present course, it will change Europe's whole relationship with Russia. She told the German Parliament today that this would cause massive damage to Russia, economically and politically. It's a sharp change in tone for Merkel. Up until now, the German leader has played more of an intermediary role on the subject of Ukraine. And there are fears among business leaders in Germany that penalizing Russia economically could backfire, at least in the short-term.

NPR's Soraya Sarhaddi Nelson is in Berlin and joins us now. Hi, Soraya.

SORAYA SARHADDI NELSON, BYLINE: Hi, Robert.

SIEGEL: And what accounted for the change in Chancellor Merkel's approach?

NELSON: She's clearly losing patience and, like many Germans, she is very worried about another Cold War. She's worried about the military escalation. She also wants to show unified European response to the crisis. She spoke about the EU deciding in the coming days, in fact, to freeze assets and issuing a travel ban on individuals who are seen as responsible for this escalation.

But there are a lot of things that the Europeans don't agree on. For example, the British want to penalize Russia financially, while the French are looking to hurt them by banning arms exports.

SIEGEL: Any reaction from the Russians to the chancellor's words?

NELSON: They seem to be thinking about a tit-for-tat and that's certainly what they're threatening. The Russian Interfax news agency is quoting the country's deputy economics minister as saying his country is prepared to retaliate in kind to any sanctions imposed by the EU or the U.S.

SIEGEL: Now, as you mentioned, Soraya, the EU is looking to impose severe sanctions against Russia in the coming days. What effect would those have on Russia economically?

NELSON: Well, Russia is definitely going to suffer the worst, at least according to most accounts that we are hearing from business leaders, economic leaders and experts. Germany's main trade body, the BGA, is saying that a trait conflict would be, quote, "life-threatening for the Russian economy."

SIEGEL: And I also spoke with Marcel Fratzcher who is the president of the German Institute for Economic Research. And he says it's going to be really hard for Russia to access imports if the EU turns away. For example, on the financial side, investors would be reluctant to invest in Russia. That means that the ruble, which is the Russian currency, would depreciate. And investors, including Russian ones, will take their money out of Russia to diversify their risk.

The trade benefits both sides. What might the effect be on Europe of such sanctions?

In Germany, in particular, there's a lot of concern about an endless spiral of reciprocal sanctions. Germany, for example, has 6,200 firms that do trade with or invest in Russia. But main problem is gas, as Europe really depends on Russian imports of that commodity. Germany, for example, gets a third of its supply from Russia. And those supply patterns can't be changed very quickly.

Fratzcher, the economist, says that the European goal is to seek alternative gas supplies suppliers in the Middle East and possibly even the United States, if it's willing to export some of its shale gas and oil reserves.

Soraya, thank you.

NELSON: You're welcome, Robert.

SIEGEL: That's NPR's Soraya Sarhaddi Nelson speaking to us from Berlin.

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