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President Barack Obama speaks on the South Lawn of the White House in Washington, Tuesday, July 29, 2014, as he announces new economic sanctions against key sectors of the Russian economy in the latest move to force Russian President Vladimir Putin to end his support for Ukrainian rebels. (AP Photo/Manuel Balce Ceneta)
U.S., Europe impose tough new sanctions on Russia
First Published Jul 29 2014 05:28 pm • Last Updated Jul 29 2014 05:38 pm

Washington • Spurred to action by the downing of the Malaysian airliner, the European Union approved dramatically tougher economic sanctions Tuesday against Russia, including an arms embargo and restrictions on state-owned banks. President Barack Obama swiftly followed with an expansion of U.S. penalties targeting key sectors of the Russian economy.

The coordinated sanctions were aimed at increasing pressure on Russian President Vladimir Putin to end his country’s support for separatists in eastern Ukraine whom the West blames for taking down the passenger jet nearly two weeks ago. Obama and U.S. allies also warned that Russia was building up troops and weaponry along its border with Ukraine.

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"Today Russia is once again isolating itself from the international community, setting back decades of genuine progress," Obama said. "It does not have to be this way. This a choice Russia and President Putin has made."

Tuesday’s announcements followed an intense lobbying effort from Obama aimed at getting European leaders to toughen their penalties on Russia and match earlier U.S. sanctions. Europe has a far stronger economic relationship with Russian than the U.S., but EU leaders have been reluctant to impose harsh penalties in part because of concern about a negative impact on their own economies.

However, Europe’s calculus shifted sharply after a surface-to-air missile brought down the passenger jet, killing nearly 300 people including more than 200 Europeans. Obama and his counterparts from Britain, France, Germany and Italy finalized plans to announce the broader sanctions Monday in an unusual joint video conference.

European Union President Herman Van Rompuy and the president of the European Commission, Jose Manuel Barroso, said the sanctions sent a "strong warning" that Russia’s destabilization of Ukraine cannot be tolerated.

"When the violence created spirals out of control and leads to the killing of almost 300 innocent civilians in their flight from the Netherlands to Malaysia, the situation requires urgent and determined response," the two top EU officials said in a statement.

Despite the West’s escalation of its actions against Russia, Obama said the U.S. and Europe were not entering into Soviet-style standoff with Russia.

"It’s not a new cold war," he said in response to a reporter’s question.

Still, U.S. officials say sanctions already rippling through Russia are having a detrimental impact on the country’s economy. Russia’s growth projections have been downgraded, and Obama said $100 billion in capital was already expected to flee Russia even before Tuesday’s joint U.S.-European announcements.


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The sanctions, Obama said, "have made a weak Russian economy even weaker."

Yet it remains uncertain whether the tougher penalties will have any impact on Russia’s actions in Ukraine — nor was it clear what other actions the U.S. and Europe were willing to take if the situations remains unchanged. U.S. officials said they believe economic pressure remains their most effective tool, and Obama reiterated his opposition to sending lethal aid to the Ukrainian military.

The new European penalties a ban on the unapproved sale to the Russians of technology that has dual military and civilian uses or is particularly sensitive, such as advanced equipment used in deep-sea and Arctic oil drilling. The EU also approved an arms embargo, though it would not restrict past agreements, allowing France to go forward with the delivery of two warships to Russia, a deal that has been sharply criticized by the U.S. and Britain.

To restrict Russia’s access to Europe’s money markets, EU citizens and banks will be barred from purchasing certain bonds or stocks issued by state-owned Russian banks, according to EU officials.

The specific targets of the EU actions will be published Thursday, when they will take effect.

U.S. officials said they expected Europe’s list of targets to include some of the same energy companies, defense entities and financial institutions the Obama administration hit with sanctions the day before the Malaysian airliner was shot out of the sky. The White House has been pressing Europe in recent days to bring its penalties in line with the U.S., both to increase the economic pressure on Moscow and present a united Western front.

As part of that effort, Obama also announced an expansion of the U.S. sanctions on Russian economic sectors. Among the targets were three major Russian banks: the Bank of Moscow, Russian Agricultural Bank and VTB Bank, Russia’s second largest bank.

Administration officials said 30 percent of the Russian banking sector’s assets were now targeted by U.S. sanctions. The main function of the sanctions is to curtail the financial institutions’ ability to access U.S. debt markets, not to block individual users from using their accounts or credit cards, according to the officials, who spoke on the condition of anonymity because they were not authorized to discuss the sanctions by name.

Analysts said the effort was aimed at cutting off access to resources that these banks would need to support their own lending operations, an action that could weaken economic activity in Russia.

"This limits the ability of these banks to do new business. That means the Russian economy will suffer because the banks will not be able to make as many loans," said Sung Won Sohn, an economics professor at the Martin Smith School of Business at California State University Channel Islands.

He said that barring financing from U.S. institutions to these banks will likely have a ripple effect. "It is likely that other Western banks and banks in Asia will be reluctant to do business with them," Sohn said.

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