The EU faced furious remonstrations from Kyiv as Europe’s leaders held back from imposing the potentially most damaging sanction on Russia, even as the Kremlin lay siege to Ukraine via land, air and sea.
Ukraine’s foreign minister, Dmytro Kuleba, voiced his anger shortly before EU heads of state and government decided against blocking Russia from an international payments system through which it receives foreign currency.
With casualties mounting, Kuleba warned that European and US politicians would have “blood on their hands” if they failed to impose the heaviest toll on Moscow by cutting Russia from the Swift payments system.
“I will not be diplomatic on this,” he tweeted. “Everyone who now doubts whether Russia should be banned from Swift has to understand that the blood of innocent Ukrainian men, women and children will be on their hands too. BAN RUSSIA FROM SWIFT.”
With Russian military forces seemingly ready to storm Kyiv, Ukraine’s president Volodymyr Zelenskiy had a “frank” message for EU leaders as he joined their summit via video on Thursday evening.
Appealing for the harshest measures against the Kremlin, he told them that he may not be able to speak to them again given the military situation. Later Zelenskiy claimed that Russian assassins were in the Ukrainian capital and that both he and his family were on a kill list.
What is it?
Swift (the Society for Worldwide Interbank Financial Telecommunication) is the main secure messaging system banks use to make rapid and secure cross-border payments, allowing international trade to flow smoothly. It has become the principal mechanism for financing international trade. In 2020, about 38m transactions were sent each day over the Swift platform, facilitating trillions of dollars worth of deals.
Who owns it?
Swift, founded in the 1970s, is a co-operative of thousands of member institutions that use the service. Based in Belgium, it remains neutral in trade disputes, being run principally as a service to its members.
Why would a Swift ban be so serious?
Boris Johnson told MPs it would harm the Russian economy if it was locked out of Swift. Run of the mill transactions would need to be conducted directly between banks, or routed through fledgling rival systems, adding to costs and creating delays.
Why is the US reluctant to effect a ban?
One reason is that the impact on Russian businesses might not be so serious. The head of a large Russian bank, VTB, said recently he could use other channels for payments, such as phones, messaging apps or email. Russian banks could also route payments via countries which have not imposed sanctions, such as China, which has set up its own payments system to rival Swift. A ban on Russia using Swift could accelerate a the use of China’s rival Cips system. There is also a fear that it could damage to the US dollar’s status as the global reserve currency, and accelerate the use of alternatives such as cryptocurrencies.
The Society for Worldwide Interbank Financial Telecommunication (Swift) is used by over 11,000 financial institutions to send secure payment orders and is key to the movement of funds to Russia’s oil and gas sector.
Removing Russia from the system, it is argued, would make it close to impossible for financial institutions to send money in or out of the country, with consequences for both the country’s oil and gas sector and its European customers.
A number of member states believe there is nothing to be gained from waiting, a position shared by the UK government.
Mark Rutte, the Dutch prime minister, admitted that “many colleagues pleaded for it” but he told reporters that “more work needs to be done to assess what happens if Russia is cut off”.
During a call with the German chancellor, Olaf Scholz, the British prime minister, Boris Johnson, had urged allies to react with the harshest measures, warning that “western inaction or underreaction would have unthinkable consequences”.
UK sources said Johnson had also made a major play for leaders to withdraw Russia’s access to Swift during his G7 speech to other world leaders. Canada’s Justin Trudeau was the only other leader to express support for finding a way to enforce the ban.
“On Swift, I think we all recognise that it is something that has to be done in conjunction with our major allies and will only be successful if that can be achieved as such, we are continuing those discussions,” Johnson’s spokesman said. “There are a range of views on it and we recognise it is a challenge. But it is certainly the prime minister’s intention so we will continue to have those discussions.”
The Irish taoiseach Micheál Martin said his government also supported “the strongest possible sanctions”.
Lithuania’s president Gitanas Nausėda, said the EU needed to learn the lessons that the bloc’s previous sanctions had been “too weak”.
“We cannot have the luxury of being a discussion club,” he said. “Discussions are useful but we cannot forever be in discussions ... They need our support today, tomorrow might be too late.”
Poland’s prime minister Mateusz Morawiecki said that the EU had to be united around severe sanctions “on Putin, on Russia” if Europe was to be relevant around the world.
“This is now a critical moment for the history of the European union, the history of Europe,” he said. “The whole free world is looking at us, at what kind of sanctions, what kind of reactions”
Diplomatic sources suggested that Germany, Cyprus and Italy were among the member states who were the most concerned about taking the measure at this stage, arguing that some leverage needs to be maintained.
“Someone started a war and we want this war to stop here and now,” one EU diplomat explained of the caution over Swift. “You always need to have some doors open to be able to have a dialogue to stop a war.”
The diplomat added that the measures that did have unanimous support within the EU would “be much more effective with high cost and consequences than doing one single issue on Swift, which might be needed for things which are very relevant for some EU member states.”
Later, Scholz confirmed that he was opposed to cutting Russia off from the international payments system.
He said: “It is very important that we agree those measures that have been prepared, and keep everything else for a situation where it may be necessary to go beyond that.”
The fissure in the united front with Ukraine came at what was seen by many as one of the most testing summits for a generation, with the bloc’s capacity to strike convincingly at Russian interests in question.
In the early hours of Friday morning, at the end of the summit, European Commission president, Ursula von der Leyen, said the EU had agreed on measures that would degrade Russian industry, push its economy into recession and block exports of irreplaceable components.
She said: “This package includes financial sanctions that cut Russia’s access to the most important capital markets. We are now targeting 70% of the Russian banking market, but also key state-owned companies, including the field of defence.
“These sanctions will increase Russia’s borrowing costs, raise inflation and gradually erode Russia’s industrial base. We are also targeting the Russian elite by curbing their deposits so that they cannot hide their money anymore in safe havens in Europe.”
Von der Leyen said an export ban on components for Russia’s oil sector would make it “impossible for Russia to upgrade its oil refineries, which gave actually Russia export revenues of €24bn in 2019”.
“The third topic”, she said, “is that we ban the sale of all aircrafts, spare parts and equipment to Russian airlines. This will degrade the key sector of Russia’s economy and the country’s connectivity. Three quarters of Russia’s current commercial air fleet were built in the European Union, the US and Canada. And therefore, they are massively depending on that.”
Finally, Von der Leyen said the EU would be “limiting Russia’s access to crucial technology … such as semiconductors or cutting-edge technologies.”
Belarus will also be subject to a sanctions package that has yet to be prepared for its role aiding Russia’s invasion from its territory.
But a consensus on the need for a major package of sanctions across the financial and energy sectors was marred by a lack of support for what many regard as the most damaging of actions, both for Moscow and European countries with the closest trading ties to Russia.
Those opposed - dubbed the “incrementals” – were said to be pushing to hold back from imposing the most onerous measures.
Officials suggested that Swift may be held back as part of a “third tranche” of sanctions. It is argued by some diplomats in Brussels that Russia could find ways around being blocked from Swift and that the other measures would be just as significant in squeezing the Kremlin.
