Obserwator Finansowy: It’s a great honour to have you here at the studio of Obserwator Finansowy. I would like to ask you a question concerning the sanctions imposed on Russia. During the academic session you mentioned that financial sanctions have a wider impact than trade ones. Why is that so?
Luigi Palumbo: Thank you for inviting me for this conference and for the interview. With regard to your question, what we find out is that financial sanctions were more effective in disrupting price levels in Russia and much more than the trade-related ones. Also, like one of the other speakers in the session pointed out, trade sanctions, overall, were easier to circumvent to a certain extent and there were other partners that were not sanctioning Russia, that were actually replacing EU and US exports to Russia. So that’s why we think those trade sanctions proved to be less effective in impacting the Russian economy compared to financial related ones which were easier to enforce across the board.
So the question is whether the sanctions work. Does Russia have a very efficient way of evading the sanctions imposed on it?
Well, in this respect, I’ll point to the work that I presented, which basically proves that there was a substantial excess inflation in Russia following the enacting of the sanctions so even the circumvention was not cost-free. And also, a recently published work from Bank of Italy proved that the tax income from the export of oil and gas dropped substantially for the Russian government after the enacting of a different package of sanctions related to energy products – oil and gas. So, overall, I would say the sanctions had an effect.
Can we estimate how big an impact on the Russian economy, and on Europe as well, they may have?
Well, it’s quite difficult to forecast and I would also point to the other study that was presented in the same panel by Professor Gironi. And he showed that in an economy where there is also the rest of the world, the sanctions are, overall, less effective if the rest of the world does not enact them and also in our work I showed how the effect of sanctions on prices is waning over time. So, yes, there are ways for the Russian economy to circumvent the sanctions and there is a bloc in the world which is not ‘in line’, not enacting EU or US sanctions, so this is an issue for the policy of those two blocs. But I don’t have any suggestion in this respect, unfortunately.