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Sanctions and Solidarity

BRUSSELS – The European Union has finally agreed on its “third-level sanctions” against Russia for its actions in Ukraine. As is usual for the EU, arriving at this point has been a long and difficult process.

A key problem all along has been that, though sanctions serve a common purpose, the costs of implementing them are borne by individual member states. Moreover, the costs are very concrete and visible, as jobs in enterprises that depend on exports to Russia seem to be at stake. So it was not surprising that many member states were more concerned about the potential cost of the sanctions on their economies than they were about the overall foreign-policy goal of signaling to Russia that its disregard of international law and norms has consequences.

That is why a common fund to provide compensation for the economic costs of sanctions should be an integral part of the EU’s emerging foreign-policy stance toward Russia. Creating such a fund would provide a potent symbol of solidarity within the EU, while providing an ideal opportunity to reflect on the nature of the sanctions’ costs.

From an economist’s perspective, a key point is that losing export sales does not represent a cost per se. For example, if a company that produces a generic consumer good like food, or even cars, sells less in Russia than it did before, one should not necessarily count the reduction as a loss. After all, if such goods have a global market, a loss of sales in one market can be compensated by higher sales in another.