- Eight European finance ministers say that Russia's wartime economic boom is a false narrative.
- Russia is depending on unsustainable sources of growth, borrowing from the Soviet-era playbook, they said.
Russia's wartime economy isn't the easygoing, sanctions-immune bulwark that Moscow lets on. Sanctions are instead straining Russia, and could do more if the West is patient enough, a group of eight European finance ministers jointly argued in The Guardian.
At face value, a lot is going well in the country. After the Kremlin's 2022 invasion of Ukraine, "war machine" manufacturing has boomed, wages have jumped, and trade with alternative markets has strengthened.
The European ministers disagree.
"When taking a closer look at the signals, it becomes clear that everything is not as rosy with the Russian economy as Moscow would have us believe," wrote the group, which included representatives from countries such as Sweden, Poland, and the Netherlands.
Although Russia's expanding GDP may give off the illusion of stability, the authors asserted that its underlying source of growth is by no means sustainable.
Large financial stimulus is the chief tailwind keeping Russia resistant, but the ministers noted that isn't an endless pillar of support. Two years into Moscow's war in Ukraine, the government has nearly halved the liquid assets in Russia's national wealth fund, they wrote in one example.
The authors also cited extreme interventions to question Russia's stability, including export bans and strict capital controls. These policies, coupled with hefty investment in Russia's wartime industry, indicate that Moscow is slipping back into a Soviet Union economy:
"What could be perceived and mistaken as a 'boost' to Russian growth is, in fact, the beginning of a re-Sovietisation of the economy," the authors said.
They continued: "History clearly shows that this is not a successful long-term strategy," citing that private sector overheating will likely result in stagnation and boost inflation.
The eight ministers argued that these conditions make Western sanctions more important than ever, adding that pressure should be cranked up on Russia. They called for tighter restrictions on Moscow's energy, finance, and technology sectors.
If the US and its allies maintain pressure on Moscow, the country's continued need for stimulus will force the Kremlin to turn toward monetary financing. According to the ministers, this will erode Russian cash reserves and add inflationary pain.
They noted that if the West is patient enough, Russia's confidence will eventually slump as long-term damage takes hold.
Not only should pressure be amplified on the Kremlin, but Western leaders should take a tougher stance on countries that provide Russia with needed goods for its war, the ministers argued.
"Both border and source countries should continue working on closing the loopholes that allow delivery of all goods that feed the Russian war machine, directly or indirectly," the ministers wrote, and added: "It is also essential to implement mirroring sanctions on Belarus and put more pressure on other major enablers of sanction circumvention in east Asia and the Middle East."