France's powerful farm lobby asked last Friday for an immediate removal from the market of all EU fruits and vegetables that can no longer be exported to Russia. A similar action was urged with regard to milk, milk products, meat and fish.
The fear is that excess supply would crush food prices and a heavily subsidized EU farm sector.
The European media are abuzz about sanction effects. Dutch News.nl, for example, reported today (Sunday, August 10) that last Friday one kilogram (2.2 pounds) of spinach in the city of Zaltbommel was down to €0.30 from €1.1 when the sanctions hit the market on Wednesday, August 6.
At this writing, an expert group is working at the EU Commission to assess the impact of this initial round of economic warfare with Russia. A broader group of national farm officials is expected to meet next Thursday, and Brussels is promising that "up to €400 million" could be paid out to compensate the sanctions-hit farmers.
Looking at all this, several things come to mind.
First, this should have come as no news to the EU. Russia has been repeating for months that it would respond to Western sanctions. After the third wave of crippling measures directed at several sensitive sectors of Russian economy in mid-July, Moscow warned that it would target the EU farm business, and that further action will affect trade in automobile, aircraft and shipbuilding industries. Russia delivered on the first part of its counter-sanctions on August 6, 2014.
EU unprepared for trade war
In spite of all the warnings, the EU now seems totally surprised and indignant that Russia dared to respond. That is an unfortunate lack of EU preparedness to play this deadly serious sanctions game. As a result, a number of countries (Finland, Poland and some Baltic states) have already asked Brussels to compensate them for their trade losses.
Second, the compensation of "up to $400 million euros" promised by Brussels is wholly inadequate.
Russia is the second-largest market for EU farm exports. It takes 10 percent of EU farm products representing annual sales of €12 billion. France alone accounts for about €1 billion of that export trade with Russia.
No wonder the influential German and French media are now turning on their governments.
Witnessing the sinking of their equity market (down 11 percent since its peak in late June), the Germans are reminding themselves of how much their government ignored the teachings of their own war strategist (General Carl von Clausewitz) about the management of hostilities. And in an apparent dig at Chancellor Merkel, her Foreign Minister Steinmeier complained recently that "sanctions alone are not a policy." The raw nerve was apparently also touched by the news last Friday that the company Rheinmetall is now asking the government to use taxpayers' money to compensate it for a €100 million contract it was forced to cancel with Russia.
The beleaguered French President Hollande – facing dismal approval ratings,stagnant economy and rising unemployment -- did not dare cancel the contract for the delivery of two warships entirely paid for by Russia. He also showed considerable urgency last Friday in endorsing the farm lobby's request for action at the EU level. In spite of that, the center-right opposition is virulently attacking Hollande for France's falling influence in world affairs – a coded message for an alleged loss of France's independent foreign policy, the most serious accusation one might level at a French leader.
To make things worse, the European trade war is coming at a very difficult time in French-German relations.
Fully supported by Italy, France never gave up insisting on its long-standing request for less stringent fiscal policies (imposed by Germany) to give some oxygen to struggling euro area economies. In a broad-ranging newspaper interview last Monday (August 4), Hollande also called on Germany to stimulate its domestic demand, and to recycle its huge external surplus of €200 billion – the largest in the world, representing about 7 percent of the German gross domestic product (GDP) – by investing in projects that could benefit its euro partners.