Russia: Momentum Building for SWIFT Sanctions

Published on February 25, 2022
SGH Insight
Momentum is building across the European Union to cut Russia from the SWIFT payments system, the “nuclear” option for the financial sanctioning and isolation of Moscow.

Resistance from Germany, Italy, Austria, and Hungary, the EU member states with the closest commercial ties to Moscow, seems to be easing, but it is still there.

The European Central Bank and European Commission are at this moment preparing an analysis of what removing Russia from SWIFT would likely entail, and what the consequences would be for EU countries, which is to be ready within hours.

That will be a significant step forward. The goal is to present this analysis to EU governments as soon as possible so that they can in turn make an informed decision.

Market Validation
Bloomberg 2/27/22

The euro slid and the yen rose Monday amid
heightened market uncertainty after Western nations over the
weekend unveiled harsher sanctions on Russia for the invasion of
Ukraine, including against its central bank.
The euro shed about 1% against the dollar on worries about
risks for Europe’s economy, while the yen -- a traditional haven
in times of stress -- advanced some 0.2%. Commodity-linked
currencies and the pound declined. Bitcoin, the world’s largest
cryptocurrency, dropped below $38,000.
Equity futures for Japan, Australia and Hong Kong climbed
earlier, reflecting a Wall Street rebound Friday, but the fresh
penalties since then have hurt sentiment. Investors are
anxiously awaiting the start of trading in equities, bonds, gold
and commodities such as oil, with Brent still near $100 a
barrel.
The stricter penalties further separate commodity-rich
Russia from global finance by seeking to prevent its central
bank from using foreign reserves to undermine sanctions. They
also exclude some Russian lenders from the SWIFT messaging
system that underpins trillions of dollars worth of
transactions.

Momentum is building across the European Union to cut Russia from the SWIFT payments system, the “nuclear” option for the financial sanctioning and isolation of Moscow.

Resistance from Germany, Italy, Austria, and Hungary, the EU member states with the closest commercial ties to Moscow, seems to be easing, but it is still there.

The European Central Bank and European Commission are at this moment preparing an analysis of what removing Russia from SWIFT would likely entail, and what the consequences would be for EU countries, which is to be ready within hours.

That will be a significant step forward. The goal is to present this analysis to EU governments as soon as possible so that they can in turn make an informed decision.

In what seems like a shift in a long-established position, Germany’s Finance Minister Christian Lindner said regarding SWIFT sanctions today, after talks with other EU finance ministers and central bankers in Paris, “we [Germany] are open, but you have to know what you’re doing”.

There is a good deal of resistance to SWIFT sanctions still from German industry, and Germany opposed cutting Russia off when it was discussed at the summit of EU leaders yesterday, as did Italy, which also very much depends on Russian gas for its energy needs. Both Italy and Germany, plus Austria and Hungary, share the concern that if Russia is blocked from SWIFT, it would leave them with no way to pay for gas deliveries from Russia (see SGH 02/24/2022,” Ukraine: EU and US Response to Russian Invasion“).

The very fact that the ECB and EC are preparing a formal analysis for governments is a sign however that the SWIFT option is being taken seriously, and in delineating the exact costs it raises the pressure on the standouts and fortifies the statements from top politicians that all options, including SWIFT, are still on the table.

The UK and the United States are pushing hard to include SWIFT in the sanctions package, with political pressure in both countries mounting for a more resolute show of force on the sanctions.

We shall see.

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