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Thursday, August 14, 2014 2:57 PM


Rule of Small Prices; European Sanction Solidarity Goes Up in Flames: Slovakia "We Can’t Sacrifice Our Interests in the Name of Some Duel"


Tit-for-tat sanction cracks widened to the breaking point today following a report Ukraine Approves Law on Sanctions Against Russia.

Europe is particularly concerned about a Ukraine statement that "European energy companies would have to agree major contract revisions when purchasing Russian natural gas if parliament approved sanctions on Gazprom."

Slovakia prime minister Robert Fico was so concerned he made a few common sense, yet very pointed statements to reporters in Bratislava.

  • Sanctions imposed by European Union and Russia against one another are "senseless on both sides and will lead to a weaker EU."
  • "I understand this is about principles, but I am far from believing in justice in international politics.”
  • "Isn't it strange that a country, which has signed an association agreement, a country, which we are all trying to help, is taking steps that jeopardize the interests of individual EU members?"
  • "We don’t want be held hostage by the Russian-Ukrainian conflict, we can’t sacrifice our interests in the name of some duel."

I picked those statements up from ZeroHedge who cites Bloomberg, but I can find no other reference.

Putin’s Trade Blow Throws Finland’s Exporters Into Shock 

One reader objected to my post 800 Finnish Dairy Workers Furloughed Due to Russia Sanctions, Others Fired; Brussels to Buy Fruit with Public Money because the source of the information was RT.

OK. Instead, please consider the even more damning Bloomberg article Putin’s Trade Blow Throws Finland’s Exporters Into Shock 

Fallout Unfair Says Finland, Lithuania, Poland

Also consider Russia Isolation Fuels Finnish Dismay as Fallout Seen Unfair.
After backing the European Union in expanding sanctions against Russia, Finland is now regrouping to consider what it describes as the disproportionate fallout of the crisis on its own economy.

No other euro nation is as exposed to the aftermath of the crisis in Ukraine as Finland, trade figures for the single currency bloc show. Prime Minister Alexander Stubb last week underscored the need for “solidarity” in the EU, making clear he expects any measures to “treat EU members similarly. If the impact isn’t equal, we’ll consider what kind of solutions we will seek.”

The opposition euro-skeptic The Finns party, the third-biggest in the legislature, wants Stubb to compensate businesses by providing extra funds to the nation’s export-guarantee programs, according to an Aug. 8 e-mail.

Yet Finland isn’t alone in pointing to the uneven fallout of the sanctions against Russia. Poland needs to apply “as soon as possible” for EU compensation to local growers hurt by Russia’s import ban on fruits and vegetables, Economy Minister Janusz Piechocinski said Aug. 5.

Lithuania will assess potential losses and may seek compensation from the EU, it said today.
Rule of Small Prices

I have talked about "small prices" on a number of occasions recently.

August 8, 2014: "Small Price to Pay"

August 9, 2014: Scathing Anti-West Editorial in German Handelsblatt; Reader Emails on "Small Price to Pay"

Here is the formalized "Rule of Small Prices"

People are willing to pay a "small price" as long as they are the ones not paying it. Those who have to pay the price inevitably consider it "unfair".

Do Sanctions Ever Work?

Iran faces some of the toughest sanctions in history. Is the policy a success? If so, for whom?

Did Iran back down? Nope. And oil prices are at least 10% higher by some estimates.

That's a small price to pay though, because people don't place cause and effect properly. And what about the Humanitarian Impact?
Pharmaceuticals and medical equipments do not fall under international sanctions but the country is facing shortages of drugs for the treatment of 30 illnesses including cancer, heart and breathing problems, thalassemia and multiple sclerosis (MS) because Iran is not allowed to use the international payment systems.

A teenage boy died from hemophilia due to a shortage of medicine caused by the sanctions on Iran. Delivery of some agricultural products to Iran have also been affected for the same set of reasons.

In 2013, The Guardian reported that some 85,000 cancer patients require chemotherapy and radiotherapy which are now scarce. Iranians with serious illnesses have been put at imminent risk by the unintended consequences of international sanctions, which have led to dire shortages of life-saving medicines such as chemotherapy drugs for cancer and bloodclotting agents for haemophiliacs. Western governments have built waivers into the sanctions regime to ensure that essential medicines get through, but those waivers are not functioning, as they conflict with blanket restrictions on banking, as well as bans on "dual-use" chemicals which might have a military application. In addition, there are 40,000 haemophiliacs who can't get anti-clotting medicines. Operations on haemophiliacs have been virtually suspended because of the risks created by the shortages. An estimated 23,000 Iranians with HIV/AIDS have had their access to the drugs they need to keep them alive severely restricted. The society representing the 8,000 Iranians suffering from thalassaemia, an inherited blood disorder, has said its members are beginning to die because of a lack of an essential drug, deferoxamine, used to control the iron content in the blood. To make matters worse, Iran can no longer buy medical equipment such as autoclaves (sterilising machines), essential for the production of many drugs because some of the biggest western pharmaceutical companies refuse to have anything to do with Iran.

In recent reports, the development of a medicinal black market has come to the forefront of international news, a desperate population resorting to any means to obtain, at times life saving, medications. Though vital medicines are not affected by sanctions directly, the amount of hard currency being made available to the Minister of Health is what's causing a huge backlash on the amount of vital medicines being made available to the public. Iran's first female Minister Marziyeh Vahid Dastjerdi (since the Iranian Revolution) was dismissed in December for speaking out against the lack of support from the government in times of economic hardship. Furthermore, Iranian patients are at risk of amplified side effects and reduced effectiveness because Iran is forced to import more medicines, and chemical building blocks for other medicines, from India and China, thereby replacing the higher quality products from Western manufacturers. Imports from American and European drug makers were down by an estimated 30 percent in 2012 and falling. Given the nature of patents in the world of pharmaceuticals, substitutions for advanced medicines is often unattainable, particularly when it comes to diseases such as cancer and multiple sclerosis.
Let the Bombing for Justice Begin

Death is a small price too, as long as it is someone else who is dead, and someone else who has their property and livelihood destroyed.

 So let the bombing of Donetsk begin. Actually, it already has. The Financial Times reports Bombs fall in centre of Donetsk.

Not to worry. That is a small price to pay for peace. Lives destroyed, forever. That's a small price. European recession? Another small price.

Has anyone added up these small prices? Good question.

Here's a corollary to the Rule of Small Prices.

Small Price Corollary 1 and 2

  1. Proponents of the "small price" never bother to total all the small prices. 
  2. What matters is the principle: No price is too big, no destruction too great, no deaths too many to preserve the international policy of peace.

In contrast Slovakia prime minister Robert Fico believes

  1. Sanctions are "senseless on both sides and will lead to a weaker EU."
  2. "I understand this is about principles, but I am far from believing in justice in international politics.”
  3. "We can’t sacrifice our interests in the name of some duel."

Take your side. I side with Fico.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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