LONDON, UK — When the leaders of what is once again the Group of Seven leading industrial countries suspended Russia from what was recently the G8 on Tuesday, they stopped short of enacting economic sanctions against Moscow.
The United States and European Union have already banned travel and frozen assets for a few dozen Russian and Ukrainian officials with close involvement in Russia’s annexation of Crimea.
However, experts believe they’re not enough to put serious pressure on the Kremlin, which is continuing its efforts to destabilize Ukraine by massing troops on its border.
With all eyes now on Brussels, where President Barack Obama is due to meet EU leaders for a summit on Wednesday, it’s far from clear there will be appetite for new sanctions on a continent that relies on Russian trade.
Here in Europe’s financial capital — where Russian oligarchs and their entourages fight their legal battles, send their children to school and snap up luxury homes — a photographer recently snapped a document in a senior official’s hand that read, “UK should not support, for now, trade sanctions … or close London’s financial center to Russians.”
That was before Russia officially annexed Crimea, a move Foreign Secretary William Hague called the 21st century’s “most serious risk to European security.”
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British officials have since sounded hawkish, with Hague insisting that Britain was “certainly prepared” to absorb any necessary economic consequences of financial strictures.
There’s a lot of Russian money in London. But there’s a lot of money here, period.
Many financial analysts are skeptical of claims that a slowdown in Russian investments would strike a painful blow.
London holds an estimated $44.5 billion in Russian investments, according to the London-based think-tank Open Europe. That's just 0.5 percent of the City’s total European assets.
As for all those financial, business and insurance services the UK provides to the Russian elite? They still amount to a mere 1 percent of total UK financial service exports.
Even those big luxury flats in Mayfair and Kensington are a relative drop in the bucket.
Russians account for a mere 2 percent of London’s prime real estate market, according to the real estate firm Savills. The capital’s housing stock is extremely limited, and plenty of wealthy overseas buyers would be happy to snap up flats vacated by departing oligarchs.
“The links that have been made out between the City of London and Russian money have been overblown,” says Nina Schick of Open Europe. “Even Portugal has more invested in the UK than Russia.”
The $44.5 billion of Russian money may be an eye-popping figure to mere mortals. The Russian millionaires who racked up a $214,000 tab in three hours at the London club Kitsch last fall may even blink at that amount. It’s enough for a Russian tycoon like Roman Abramovich to buy up professional soccer teams, most notably the $231 million he paid for Chelsea Football Club in 2003.
But compared to countries like France and Germany, which each have well over $1 trillion invested here, Russia’s financial footprint here is barely bigger than that of a matryoshka doll.
“In the scheme of things, all numbers in London are big,” says Raoul Ruparel, Open Europe’s head of economic research. “It’s a huge hub, and London will be able to adjust and react if there was any break in the business between London and Russia.”
But that’s not true for other EU member states with deeper economic ties to Russia.
Political and economic ties with Russia vary widely across the member states, says David Cadier, a fellow at LSE IDEAS, a London School of Economics research hub.
Countries such as Poland and Lithuania are almost entirely dependent on Russia for its energy. Nevertheless, they’ve still advocated for a strong international stance against Putin.
Then there are players like Germany, a major importer of Russian gas that has typically played mediator between Russia and the rest of the West. Achieving consensus there won’t be easy.
“Cameron has an advantage, which is that the members of the EU who are more keenly in favor of being very tough on Russia aren’t the most prominent members of the EU,” says Gonzalo Pozo-Martin of King’s College London.
“I think Cameron will try to talk the talk in the European context, knowing he’s got plenty of margin to protect the City’s interest.”
In the short term, the crisis in Russia could even boost London’s coffers.
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Russians with the means to do so will surely want to put their money somewhere safe. Russia expects $70 billion to leave the country in the first three months of this year, a government official said Monday.
After last year’s seizures of bank deposits in Cyprus — typically Russia’s preferred parking lot for overseas assets — Britain will prove an attractive choice, with its safe banks, valuable real estate and broad network of offshore tax havens.
“I would expect an upsurge in Russian money coming to Britain in the wake of this crisis. It will probably be a different set of people than before,” says John Lough, associate fellow with the Russia and Eurasia program at the London-based think-tank Chatham House.
“They will not by any means be friends and colleagues of Mr. Putin.”
Should Russia take more aggressive steps, such as sending troops into eastern Ukraine or encroaching on Moldova’s pro-Moscow breakaway region Transnistria, the EU will have to re-evaluate its stance.
Observers say finding measures that strike the right balance between punishing Russia and preventing more aggression is key.
“No one wants to take a lot of pain here,” Lough says. “Western countries are looking for ways to punish the Russians and send a signal that if you carry down this road, it’s going to get very nasty for you and we’re prepared to take some of the pain ourselves.”
The worry, he adds, is that Russians have a higher pain threshold.
“How to inflict damage and remain relatively unscathed ourselves — that’s the dilemma we face.”