Issue link: https://maltatoday.uberflip.com/i/1471699
maltatoday | SUNDAY • 26 JUNE 2022 8 INTERVIEW 'Impose sanctions, if you must; Recently, you sounded a stark warning about the EU's sanc- tions against Russia: "Don't destroy the European economy, simply because you [the Euro- pean Commission] made a mis- calculation on inflation." This echoes misgivings expressed by Finance Minister Clyde Caru- ana: who argued that "the peo- ple in the countries imposing the sanctions are being affect- ed more than those in the coun- try on which they are imposed." Is this how you interpret the current situation: that the EU is hurting itself more than Russia, by imposing sanctions? Let's start by breaking it down into different segments. First of all, it is important to clarify that the current economic problems we are dealing with, are caused by the supply side of the equa- tion: not the demand side. Today's inflation, for instance, is not being caused by 'excessive demand for goods and services'; but by a shortage of supply. And the war in Ukraine is not the only reason for this. First, we had the COVID-19 pandemic, which created shortages in the supply-chain. Then, those short- ages were further exacerbated by problems in the shipping sector – with major international ports (including Shanghai) having to close during the pandemic – and on top of that, just as we were coming out of that crisis… we had the invasion of Ukraine. What we are looking at, then, is a shortage of supply; which in turn will have an inflationary ef- fect on prices: regardless of any sanctions. So unless we are going to take any measures to some- how 'unlock', or increase, that supply… the current inflation is only going to persist. But what can realistically be done, to 'increase the supply' of a commodity such as Ukrain- ian wheat, for instance? (Short of 'ending the war', of course… which is, after all, what the EU sanctions are intended to do?) There are ways in which some of the foodstuffs that are current- ly held up in depots in Ukraine – because it's not just wheat, by the way; Europe depends on Ukraine for a lot of other food exports – could be released. The European Union is already establishing 'sol- idarity lanes', to create alternative routes for Ukrainian agricultural to be exported, for instance. If we take a longer-term view of the issue, however: we should al- so be exploring ways to increase the availability of agricultural land, in the rest of Europe: part- ly as a means of addressing the immediate shortages – though it would take a lot of time – but partly also to decrease our de- pendency on only a handful of countries (including Ukraine), for our most basic commodities. Instead, however, the Europe- an Central Bank has chosen to increase interest rates – follow- ing in the footsteps of the USA's Federal Reserve – but while that may be a means of curbing infla- tion, through monetary policy… I myself can't see why they would raise interest rates now: when the real problem relates to the supply of commodities. So unless we are going to in- crease the supply of wheat, food- stuffs, fertiliser - which is espe- cially important, in view of the need to 'speed up', as it were, ag- ricultural production – and other commodities, that are not being imported because of the com- plexities of sanctions… the prob- lem of inflation will stay with us, at least for the short-to-medium term… 'Because of the complexities of sanctions': I take that to mean that the sanctions themselves have already contributed to the problem, somehow. Can you expand on that? This is the second problem I was coming to. One of the issues with sanctions – any sanctions – is that they always take time, to be implemented on the ground. If you look at it from the per- spective of the economic oper- ators who will have to abide by them, for example: first, they have to actually understand the sanctions themselves – what it being sanctioned; who they can or cannot do business with, etc. Then, they have to adapt their business models, to fit the new regulations. And this takes time. To give you an example from the United States: when sanctions were in- troduced [e.g., against Iran], eco- nomic operators were constantly asking the Office of Foreign And Asset Control (the agency that monitors and enforces US sanc- tions): 'Listen, can we do this? Can we trade with this, or that company…?" And the situation was so fluid, that they had no time to digest it all; to understand the conse- quences, if they did not abide by the sanctions. The bottom line is that it took those economic oper- ators a while to adjust to the new reality; and this stifled their abil- ity to do business, in the mean- time. This is true also of the EU's sanctions on Russia: especially in view of how they were imposed… that is to say, both cumulative- ly, and consecutively. From the EU's side, there were six separate packages of sanctions, all an- nounced at regular intervals – on a weekly, then monthly basis. Now: when imposing sanctions on any commodity, there will inevitably be a delay, as all the economic operators adjust to the new reality. And this is stifling imports from Russia, as well as – obviously – exports to Russia… But surely, that was the whole point of imposing sanctions on the first place? To place eco- nomic pressure on Russia, by limiting its ability to import/ex- port commodities…? Yes, but we also have to ask ourselves who will ultimately be hurt more: the Russian economy, or the countries abiding by those sanctions? When I was a student in Brus- sels, for instance, we had sessions with the International Red Cross. Its president, Peter Maurer, used to tell us: 'OK, if you're going to impose sanctions… impose them. But then, make sure you're tar- geting the right people. Because ultimately, it will be the ordinary citizens who end up suffering'. This is, in fact, what happened in the case of Iran. After the im- position of US sanctions, not even the most basic humanitar- ian and medical equipment was arriving in that country: not nec- essarily because they were on the Economist CLINT FLORES argues that unless Europe also addresses the supply-chain problems caused by the war in Ukraine, its economic sanctions may end up hurting Europe's economy more than Russia's Raphael Vassallo rvassallo@mediatoday.com.mt