* Economy Minister Gabriel says no alternative to sanctions
* Cost of EU inaction against Russia would be much higher
* Sanctions will hurt German 2014 growth - economist
By Erik Kirschbaum
BERLIN, Aug 3 Tough new economic sanctions
against Russia will hurt Germany's economy but they are
necessary for the sake of peace in Europe, Vice Chancellor
Sigmar Gabriel said in a television interview on Sunday.
The European Union imposed sanctions that took effect on
Friday targeting Russia's banking, defence and energy sectors
because of Moscow's support for pro-Russian separatist rebels
battling Kiev's forces in eastern Ukraine.
Germany, the EU's largest economy, has extensive trade ties
with Russia but Chancellor Angela Merkel became a firm advocate
of the tougher measures against Moscow after the downing of an
airliner last month over an area of eastern Ukraine controlled
by the rebels. All 298 people on board the plane were killed.
"What would happen if the European Union didn't react?" said
Gabriel, who is also Germany's economy minister and head of the
centre-left Social Democrats (SPD), on Germany's ZDF channel.
"If all the lessons learned in Europe are that someone can
start a civil war in a neighbouring country and nothing happens,
then that would cost a lot more than a few percentage points of
possible growth," he said in the interview, aired on the 100th
anniversary of Germany's declaring war on France in 1914.
Gabriel said in the interview, which is to be aired in full
on Sunday evening, that economic setbacks as a result of the
Ukraine crisis were unavoidable.
"There would be much, much greater negative consequences if
Europe did not act ... Where war and peace are at stake,
economic policies can't be the main concern," said Gabriel, who
has chaired recent cabinet meetings while Merkel is on holiday.
His comments came after the head of Germany's Ifo Institute,
a leading independent economic research group, said German
growth would shrink towards zero in the second quarter of 2014
from a healthy 0.8 percent in the first quarter, due in part to
the worsening Ukraine crisis and sanctions.
Ifo president Hans-Werner Sinn wrote a guest column for
Wirtschaftswoche magazine in which he said the worsening crisis
meant the previous forecast of 0.3 percent growth in the second
quarter from the first quarter would have to be revised lower.
Sinn's outlook contrasts with less gloomy forecasts from
other economists who have said even a complete collapse of
Russian-German trade would have only a limited impact. A recent
Hypovereinsbank research note said losses would be "manageable".
Germany had exports to Russia worth 36 billion euros ($48
billion) in 2013 - or 3 percent of all its exports. About 6,300
German companies, or 10 percent of exporters from Germany, have
sales to Russia.
Before the downing of Malaysian flight MH17 on July 17 by
what Western countries say was a Russia-supplied missile, German
industry had campaigned hard against Russian sanctions, warning
of lasting damage to domestic companies and the broader economy.
German business leaders had said a decline in German-Russian
trade was putting some 25,000 jobs in Germany at risk. Some
300,000 German jobs are dependent on trade with Russia, the
Committee on Eastern European Economic Relations says.
($1 = 0.7447 Euros)
(Editing by Gareth Jones)