Background Briefing on the G7 Meeting

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9:00 P.M. CET

SENIOR ADMINISTRATION OFFICIAL:  So I'll just give a readout of the meeting and go through some of the key points in the statement, and take a couple of questions.

So, first of all, the President hosted the meeting and led the discussion.  He kicked it off with opening comments about the seriousness of the situation in Ukraine, the challenge to the international community, and the need for a strong and unified response.  All of the leaders spoke during the course of the meeting and then the President summarized the way forward at the conclusion of the meeting.  And there was agreement on The Hague Declaration, which is a very strong joint statement that hits all of the key elements that we were seeking to get out of this G7 meeting.

I'll just go through what we believe the key points of that statement are.  First of all, there’s a very clear statement that what Russia has done is a violation of the principles on which the entire international system is built.  And this was a key part of the discussion, that the challenge in Ukraine goes beyond simply the violation of Ukraine’s sovereignty and territorial integrity; it goes to the heart of the principles of international law upon which the international system is founded.

In that vein, there was a condemnation of the illegal referendum held in Crimea and a reaffirmation that neither the referendum, nor the annexation of Crimea are recognized by the G7 countries, who, of course, represent countries in Europe, North America and Asia.

Furthermore, there was a strong statement from the G7 that Russia’s actions will have significant consequences.  We've already imposed a cost on Russia in the sanctions that we've issued in coordination with Europe, Canada, and Japan as well.  But, importantly, going forward, the G7 made clear that they have a variety of sanctions that can be carried out against Russia and individuals and entities responsible for what’s taking place in Ukraine.  But importantly, the G7 made clear that they’re ready to intensify actions, including coordinated sectoral sanctions that will have an increasingly significant impact on the Russian economy if Russia continues to escalate the situation.

So this reference to sectoral sanctions tracks very much the executive order that the President issued several days ago, signaling our willingness to sanction sectors of the Russian economy.  This would obviously have a significant impact on the Russian economy going forward and gives the international community a very powerful tool to hold Russia accountable and to impose costs on Russia if they do not reverse course.

There was a point taken to make clear that there is a diplomatic avenue open to Russia to deescalate the situation, that part of that must mean that Russia engages in discussions with the government of Ukraine, and that the international community stands ready to provide mediation and monitoring associated with the de-escalation.  In that vein, there was a reference to the monitors from the OSCE that are already in Ukraine that provide one constructive avenue for monitoring both against any violation of the rights of the citizens of Ukraine and also any mediation effort.

Furthermore, in addition to the economic measures referenced, a clear statement of Russia’s political isolation was issued by the leaders.  They made clear that they will not be participating in the Sochi summit, that they are suspending the G7’s participation in the G8 with Russia until Russia changes course and there is an environment in which the G8 could have a meaningful discussion.  In short, Russia is suspended from the G8 pending its current activities in Ukraine, and the necessity is now on Russia to deescalate to avoid this continued isolation from the international community.

So in place of the G8 in Sochi in June, the G7 will be meeting in Brussels to discuss the broad agenda that would have been discussed otherwise at the G8.  They’ll obviously continue to focus on the situation in Ukraine.  Furthermore, they cancelled the foreign ministerial that was scheduled for April in Moscow.

In addition, a decision was taken that the G7 energy ministers should meet in the coming weeks to strengthen the collective energy security of the G7.  And this provides a forum to discuss ways, for instance, to diversify energy supply for Europe as we consider potential sectoral sanctions, including on the energy sector in Russia. 

At the same time, there was broad support for the government and people of Ukraine.  The reform agenda announced by the Ukrainian government was welcomed, and the G7 expressed its support for the IMF taking a central role in providing a robust package of economic support for the government of Ukraine and integrating the economy of Ukraine in the multilateral system.  With that IMF support, the countries also made clear that that would unlock additional assistance from individual nations, from the World Bank, from other financial institutions including the EU and, again, bilateral sources as well. 

So to step back and summarize: clear political isolation of Russia in terms of suspending participation in the G8; determination to hold the G7 in Brussels in June; a clear reference to sectoral sanctions as a step that the G7 could take to intensify its pressure on Russia going forward, particularly if the situation continues to escalate; and a clear expression of support for the Ukrainian government and the Ukrainian people, with an IMF package at the center of that and individual contributions from nations to supplement that.  And of course, the United States is working on our own package of support as a part of that effort.

The only other thing I’d mention is that there was also a discussion around NATO and the need to continue to provide reassurance and support for Eastern European allies in particular.  This is something that the President will be discussing in Brussels with the Secretary General.  We stand prepared to provide additional support to Easter European allies as we already have with Baltic air policing and additional aviation deployments to Poland.  We’re prepared to build out on that effort and we are discussing with NATO allies how they might also come with us and provide additional support. 

And I’ll take a couple of questions here.  Julie.

Q    When you talk about the sectoral sanctions, what kind of concerns did some of the European countries like Germany have, especially when you were talking about energy sector?  And then, what do you guys make of Lavrov’s meeting with his Ukrainian counterpart today?

SENIOR ADMINISTRATION OFFICIAL:  Well, on the sectoral sanctions, I think there’s agreement on what the most important sectors are to focus on.  Energy is one of them; finance and banking is another; the arms sector is another.  And the leaders did discuss that moving to sectoral sanctions would bring economic consequences for the global economy and for some of the individual countries.  And everybody recognizes that there is a cost associated with those actions.

However, number one, the cost is far greater for the Russians who stand much more to lose from isolation from the global economy.  And we’ve, of course, already seen that impact on their market.  And, secondly, there’s a cost of inaction -- that if we fail to take steps in response to Russian escalation, ultimately that’s going to carry with it grave costs for the international system as a whole.  So putting these sectoral sanctions on the table sends a message to Russia to refrain from any escalation, particularly, for instance, going into Eastern or Southern Ukraine and to provide a framework for de-escalation. 

With respect to Foreign Minister Lavrov, look, it’s important that they do engage the Ukrainian government directly. So we see that as a necessary step.  The question is whether that engagement leads to de-escalation.  The Ukrainian government has been quite reasonable in saying that they are open to constitutional reform that could include discussion of autonomy, for instance, for regions like Crimea.  So we encourage that type of bilateral dialogue.  Secretary Kerry encouraged it when he met with Foreign Minister Lavrov, but we’ll have to see whether it leads to anything substantive.

Q    It sounds like the G7 is implying that if he doesn’t do anything else, if Russia doesn’t do anything else, but does sort of -- keeps Crimea, doesn’t pull back either -- then there’s no sectoral sanctions.  Is that the way we’re supposed to read this?

SENIOR ADMINISTRATION OFFICIAL:  Well, Chuck, it depends on -- there are a lot of different ways this could go.  Clearly, escalating by going into Eastern and Southern Ukraine would be the most likely trigger for these types of sectoral sanctions, and it’s meant to deliver that message.  But at the same time, we’ve seen Russia escalate in other ways to try to destabilize the situation inside of Ukraine, to try to stir up, for instance, instability in parts of Ukraine.  There are steps that they could take to escalate the situation in terms of violence in Crimea even.  So while I would identify that as the most immediate source of concern for escalation, I don’t want to suggest it’s the only source of concern. 

And I would also say that we’ve already taken steps based on what they’ve done in Crimea that go beyond individuals that go to a bank.  And we’re prepared to continue to look at additional steps in coordination with our G7 partners as well, based on what’s already happened. 

So, again, I would say that, yes, Eastern and Southern Ukraine is the clearest trigger for these sectoral sanctions.  But it’s on the table.  And the key principle in the statement is further escalation will bring further costs.  But the type of status quo that we’re currently in has already brought significant sanctions, and we reserve the right to move ahead with sanctions if we don’t see a --   

Q    I guess that’s what I’m trying to understand.  So status quo could still mean more in sanctions?  Could they mean sectoral sanctions?

SENIOR ADMINISTRATION OFFICIAL:  Status quo could mean more sanctions.  Well, it depends on how that status quo evolves, to be completely candid with you.  Again, to what extent is Russia seeking a de-escalation?  To what extent are they engaged in acts that attempt to destabilize the Ukrainian government?  We’ll have to assess all that going forward and calibrate our actions against that.  So, again, clearly the biggest hammer that can drop is sectoral sanctions.  The clearest trigger for those is Eastern and Southern Ukraine.  But I don’t want to suggest that we’re taking off the table the sanctions that we have already in place in our executive order.  We’ll have to calibrate it on how events transpire.

Q    If this is such a clear violation of international law, and as you said earlier today, the whole international system as we know it is at stake just over Crimea, not over anything else, why not use the sectoral sanctions now to register that condemnation in a much more tangible way to Russia?

SENIOR ADMINISTRATION OFFICIAL:  Well, Major, I think it’s already been tangible.  The people we’ve sanctioned are very close to President Putin, who have significant resources.  The bank that we’ve sanctioned, the additional sanctions that we -- the sanctions that the Europeans have also imposed for what’s happened in Crimea has had an impact on the Russian market, on the Russian economy, on Russia’s own economic forecast.  So we believe we’ve imposed a cost and we’re going to continue to impose a cost for what they’ve done in Crimea.  They’ve been suspended from the G8.  They’ve been isolated politically as well as economically.

So we believe that they’re already facing a cost.  What this gives us the ability to do is to ramp up that cost to calibrate it based on what the Russians do going forward.  And again, these would be significant actions that would have an impact -- a far-reaching impact on Russia.  We want to make sure that we are using those prudently.  Again, the clearest trigger is Eastern and Southern Ukraine, but we’re going to have to monitor the situation as it evolves on a daily basis.

Q    Ben, you just said that sectoral sanctions are the biggest hammer that could drop.  Does that mean that’s the maximum penalty for doing anything in Ukraine in terms of incursions?

SENIOR ADMINISTRATION OFFICIAL:  Well, I think in terms of -- I think you can’t go beyond -- I mean, you can’t go bigger, frankly, than starting to designate and get at the -- I mean, these aren’t just sectors; these are basically the significant elements of the Russian economy.  If you look at energy, if you look at banking, if you look at -- we identified engineering; arms, of course, and defense.  So I think that that would impose a far-reaching consequence on the Russian economy.

Look, we have not said that we believe that military action, for instance, would be the right course for the West to take inside of Ukraine.  We’re focused on affecting Russia’s calculus through these economic and political measures.  And again, I think that if you moved in these sectoral sanctions you would see a far-reaching impact on the Russian economy.  You’ve already seen a very consequential impact from what we’ve already done in terms of their markets going down significantly; in terms of their economic forecast from their own ministries revising downward; in terms of their currency.  So we’re seeing an impact, and we can calibrate that impact based on how events transpire in the coming days.

Q    Can you explain the language in the kicking out of Russia?  You said that the G7 leaders are suspending themselves from the G8 as opposed to Russia being suspended.  Was there any consideration to a different suspension language?  Or is that just the way that you have to phrase something like this?

SENIOR ADMINISTRATION OFFICIAL:  So basically the G8 is the entity that includes Russia; the G7 is the entity that doesn’t.  So the G7 countries are removing themselves from the G8, and we’re going forward with the summit without Russia.  You should see that as Russia being suspended from participation in the G8 pending the de-escalation and resolution of this crisis.

Q    Ben, can you give us any color about the leaders and what they said?  And was there any disagreement at all about any of these issues?

SENIOR ADMINISTRATION OFFICIAL:  There really wasn’t much disagreement.  I think that, really, the tone was seeking to figure out the best way of solving this problem.  And so there was discussion, again, of the future of the G7.  There was discussion of how can we implement this IMF reform package in a way that helps Ukraine get on its feet as soon as possible, supplemented by additional assistance.  There was discussion of what types of sanctions would have the most impact.  And there was a discussion, as I said earlier, of what consequences there might be from those types of sectoral sanctions on different countries and different economies.

But again, I think the common thread was everybody was seized with the fact that it was worth taking those steps, as difficult as some of them may be, because the cost of inaction is far greater given the threat to the international system.  And again, there are ways to mitigate some of these costs, and having an energy ministerial is directly tied to looking at energy security, looking at diversification.  You saw another license from the Department of Energy today.  We can work with Europe, we can work with Ukraine, on dealing with issues associated with energy security.  So you can take into account some of those costs that we might foresee going forward.

So it was more about what is the best forward than resolving disagreements.  And again, I think that everybody was seized with the urgency of the situation.  The focus was entirely on Ukraine with the exception of some discussion of NATO reassurance for Eastern European allies in particular.

END
9:18 P.M. CET