EU to blacklist officials after Moscow sends troops into Ukraine

Good morning after quite an eventful evening, in which Russia’s Vladimir Putin ordered troops into eastern Ukraine under the guise of peacekeepers, proving that he has no intention of heeding any warnings and diplomacy attempts from the west.

We’ll examine the European response to his announcement that he will recognize the independence of the two separatist regions in Ukraine – following his own playbook for an invasion – and why foreign ministers were at odds yesterday over the scope and timeline of sanctions.

Meanwhile, with EU contingency planning well under way, including for extra cash and support for refugees from Ukraine, the migration commissioner will visit Poland today.

The country is likely to become the main destination for people displaced by a large-scale Russian attack. But Poland will also be in focus because of its rule of law issues, as EU affairs ministers hold another hearing in the so-called article 7 proceedings that began in 2017 (the last hearing was held in June 2021).

On a very different note, the EU’s new regime on corporate reporting is set to be unveiled tomorrow, so we’ll bring you up to speed with the latest provisions aimed at cracking down on abuses in supply chains.

And the mood music in EU-UK relations has improved somewhat, so I’ll give you the rundown of how yesterday’s Brexit meeting went and what the remaining sticking points are.

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Sanctions, but which sanctions?

Josep Borrell warned yesterday evening that Vladimir Putin would face a “strong and united front” if the Russian president recognized two Kremlin-backed separatist regions in eastern Ukraine, write Sam Fleming and Henry Foy in Brussels.

Hours later, that pledge was firmly put to the test as Putin used a televised rant against Ukraine’s right to exist to announce he would indeed recognize the independence of Luhansk and Donetsk – and then ordered Russian troops to cross the border as “peacekeepers” in those territories.

EU Council President Charles Michel and European Commission Chief Ursula von der Leyen condemned the move and said that “the union will react with sanctions against those involved in this illegal act” – without spelling out exactly who or what was in line of fire. EU ambassadors are set to meet this morning to discuss whom to target.

US President Joe Biden has already unveiled penalties to target “new investment, trade, and financing by US persons to, from, or in the so-called DNR and LNR regions of Ukraine”. Additional sanctions will follow, the White House said, adding that these measures were separate from the “swift and severe” economic measures the US has been preparing with its allies should Russia further invade Ukraine. The UK also announced targeted sanctions as soon as today.

All this brought some clarity after a day in which foreign affairs ministers meeting in Brussels gave conflicting messages over what triggers they should set before implementing any sanctions on Russia.

At one end of the scale were hawks such as Lithuania, where foreign minister Gabrielius Landsbergis arrived yesterday morning arguing that the allies should already be discussing sanctions given the damage Russia has been doing to Ukraine. Others, such as France, have been more circumspect about pre-emptive punishments for fear that they could derail last-gasp diplomatic efforts to find a negotiated solution to the crisis.

The EU has never set out a sliding scale of triggers for different levels of sanctions, preferring to avoid a mechanistic approach. So there remains the risk that member states will stumble as they seek to define what level of hostilities by Putin would trigger the full-blooded response hitting Russian companies and economic sectors, as well as individuals, they have been planning for months.

The steps announced by the Kremlin on Monday night provide the allies with a trial run, which will probably result in a relatively narrow package aimed at those involved in the actions in Donetsk and Luhansk. One senior EU official said to expect “something quick, solid, visible and quite tough”, along the lines of those imposed on individuals involved in the 2014 annexation of Crimea.

But it seems increasingly likely that far wider sanctions will become necessary as the full extent of Putin’s plans becomes clearer in the coming days.

Chart du jour: Turkish inflation

Chart showing that Turkish inflation is set to be close to 50 per cent on average this year.  Successive consensus forecasts for average CPI inflation in 2022 as a whole (%)

President Recep Tayyip Erdogan is backing unorthodox measures to stabilize Turkey’s currency and curb inflation, which is expected to top 50 per cent this year, but analysts are skeptical it will work. With average deposit rates standing at 17 per cent in mid-February, the value of savers’ money still faces severe erosion. (More here)

Due diligence

After a drawn-out and occasionally fraught internal debate that has run into this week, the commission will come out tomorrow with its long-awaited rules forcing companies to crack down on abuses in their supply chains, writes Sam Fleming in Brussels.

The latest draft, seen by Europe Express, is largely in keeping with earlier versions of the plans. The rules will be of acute interest to larger companies with complex supply chains that straddle the world.

Here are the key provisions of the draft directive, which will need to be thrashed out by the European Parliament and Council before becoming law:

  • Governance: Under the directive, companies will need to have adequate governance and management systems to crack down on human rights and environmental abuses in their operations and supply chains.

  • Sanctions: It will be up to member states to lay down the rules on sanctions that will apply to infringements of the rules, and civil liability provisions will mean injured parties can take the companies to court in pursuit of damages.

  • Bonuses: The draft sets out duties of care on company boards in this area, and may include provisions to link aspects of the rules to directors’ pay depending on where the internal debate lands.

  • Scope: The rules aim at EU companies with worldwide revenue of more than € 150mn ($ 170mn) and at least 500 employees, as well as firms in “high-impact” industries, including clothing and mining, if they make more than € 40mn a year and have 250 employees. Non-EU companies that have significant operations within the union will also be covered if they meet the revenue thresholds.

Brexit stalemate

The mantra coming out of yesterday’s Brexit meeting in Brussels was that “there was neither a breakthrough, nor a breakdown in talks”, according to commission vice-president Maros Sefcovic after meeting UK foreign secretary Liz Truss.

The same issues remain unresolved, including uncertainties and potential bureaucratic traps surrounding 3mn EU citizens who should benefit from the same rights as before Brexit, which the two sides have been discussing for more than a year.

On customs checks, while the UK now has an IT system in place, it is still negotiating the terms and conditions of EU officials being granted access to that system.

And on the European Court of Justice, the EU’s position remains that it cannot be eliminated from the arrangements governing the post-Brexit relationship without having to reopen the Northern Ireland Protocol.

But at least the tone between Truss and Sefcovic is markedly better (they even put out a joint statement yesterday) than it was with her predecessor, Lord David Frost.

Sefcovic said his relationship with Truss was “excellent” and that they’ve been calling each other at least once a week and plan to continue to do so and keep their respective teams engaged, even as in-person meetings are likely to take a back seat in the run-up to May elections in Northern Ireland.

By contrast, Frost engaged in some Twitter trolling yesterday, when he juxtaposed the security talks on Ukraine with the EU worrying about “the strategic risk from olive oil”.

The EU official who gave that example later in the day noted that any goods, be they olive oil or children’s toys, could become a safety threat if the EU cannot check what’s coming in on its market. “Everyone should be honest and clear about what’s at stake and perhaps also be honest and clear about how we got here,” the official said.

What to watch today

  1. EU affairs ministers hearing with Poland on rule of law breaches

  2. EU migration commissioner Ylva Johansson visits Poland on Ukraine contingencies

Notable, Quotable

  • Propaganda war: Russia and the Moscow-backed separatists in eastern Ukraine have made increasingly lurid accusations in recent days of border-area attacks, which Kyiv flatly denies and many observers believe to be falsified pretexts for starting a war.

  • UK rowback: The British government yesterday distanced itself from suggestions by the new Brexit opportunities minister that the UK might cut red tape by unilaterally accepting EU regulations and conformity assessments on industrial goods.

  • Swiss leaks: Switzerland’s attempts at shedding its long-held reputation as the global banking center of choice by oligarchs, corrupt government officials and drug smugglers has been dealt a blow by the leak of documents detailing the accounts of 30,000 Credit Suisse clients, some dating back decades.

  • Big Phil throwback: Ireland’s former EU commissioner, Phil Hogan, has been vindicated by an Irish court over his alleged breach of Covid-19 travel rules, back in 2020. In an interview with Liberation, Hogan said he was considering legal action against his former boss, Ursula von der Leyen, for having pushed him out of his job. A commission spokesperson would not comment beyond the fact that Hogan had tendered his resignation after discussions with von der Leyen.

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