Fifty Shades of Sanctions: a Bifurcation Point in Russo-German Relations

This research deals with the analysis of the impact of the Ukrainian crisis on German foreign policy towards Russia. The paper attempts to figure out the logic and calculations of Berlin’s decision making circles behind their push for the adoption of individual and then sectorial economic sanctions. Further, the sanctions are assessed for their efficiency in (1) reversing the Russian policy and (2) containing it. The methodology of this study includes game theoretical modeling and statistical analysis. Two formal models are proposed for the analysis of German (and more broadly EU’s) leadership’s rationale behind the adoption of sanctions. The first model mathematically outlines why the sanctions have been and would be ineffective in reversing Russian policy course and returning to the status quo of February 2014. In the forms of finite and infinite repeated games, explanations are provided for two cases of Russian perceptions of how far Germany (and EU) intends to go with the sanctions course. At the same time, hypothesis concerning the effects of the audience costs on German decision to impose sanctions is generated and tested empirically. The role of the factor of the energy dependence on Russia has also been assessed in the course of analysis through cross-sectional data from all of the EU-member states and their positions on Russia. The second game is designed to assess the efficiency of sanctions in containing the escalation of fighting intensity in the East of Ukraine. Several hypotheses on possible channels of effective impact that the sanctions may have were generated. These hypotheses were further tested through negative binomial regression. The dependent variable was the daily number of Ukrainian soldiers killed, which was selected as a proxy for the intensity of fighting. The operationalized independent variables, representing the channels through which the sanctions may affect the Kremlin decision to deescalate fighting in Donbas, were studied for their influence on the dependent variable. Several control variables, like oil prices and the valuation of escalation from the military point of view were also included in the model. The findings testify for the statistically significant and positive relationship between the economic performance of Russia, quarterly GDP growth, strength of the national currency, oil prices as well as public support for the policy course on one side and the level of fighting intensity on the other side. Though the main causal weight belongs to the oil price, the sanctions have also had their weak but statistically significant effect in decreasing the casualty rate of the Ukrainian forces. Conclusions were drawn based on the findings of this research.