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Extra sanctions on Russia - will they work?

Monday, April 28, 2014 - 02:04

April 28 - After a U.S. announcement of fresh sanctions on Russia, a new round of punitive measures from the EU may target more companies and wealthy individuals in Russia. Will the new measures have the desired effect? Ivor Bennett reports.

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It's become a familiar sight. Masked armed men guarding a government building - the police headquarters in Kostyantynivka the latest to be seized. According to the West, the pro-Russian separatists are operating under guidance from the Kremlin. Although Moscow denies it, it's a denial few believe. The EU following the US with another round of sanctions. (SOUNDBITE) (French) EU COMMISSION SPOKESPERSON, PIA AHRENKILDE HANSEN, SAYING: "Here and now, we're in a situation where there is no de-escalation, so we are currently considering additional measures such as asset freezing and travel bans to be the appropriate level of response at this point in time, while going forward with the preparation of 'Phase three' measures." Phase three involves targetting sectors, namely banking and energy. Painful for Russia but also the EU. A quarter of the bloc's natural gas comes from Moscow. It's a link that's prompted accusations of self-preservation. But according to German Finance Minister Wolfgang Schaeuble, the gloves are off. (SOUNDBITE) (English) GERMAN FINANCE MINISTER WOLFGANG SCHAEUBLE SAYING: "Nobody should underestimate the decisiveness of Europe. We do not want to have any escalation, we want cooperation. But if we are asked for, we step forward." An important trade partner, Germany is one of those with the most to lose. But despite the escalating tensions, market reaction has been limited. IG's Chris Beauchamp. SOUNDBITE (English) CHRIS BEAUCHAMP, MARKET ANALYST, IG, SAYING: "The headline is bad for markets. They don't like seeing this kind of great power discussion going on. It doesn't help confidence. In the meantime, though, what can they really do to affect Russia. The sanctions are for effect but the actual impact on markets is probably going to be minimal in a week when you've got so much more going on." Until now Moscow has shrugged off the sanctions. But as investors continue to run, the tactic may soon have to change. The central bank has already had to hike interest rates to prop up the ruble. The cost of insuring Russia's debt is now at its highest level in two and a half years.