The European paradox on sanctions: Preaching morality, doing business

When eminent historians like Niall Ferguson speak, the Western elite listens. Recently, he attested to Russia’s surprising economic stability: Wages are rising, unemployment barely exists, in short, business is running smoothly. Ferguson, who is hardly suspected of being a Putin sympathiser, is partially entirely correct. His meta-analysis of the Russian situation is remarkably accurate: Russia’s economy has not collapsed, and Western sanctions have not triggered an immediate systemic crisis. The Russian leadership has succeeded in establishing a functioning war economy. What we are witnessing in Russia is not primarily the result of Russian economic genius, but rather a war economy on steroids. This is financed, ironically—and here lies the bitter point—by precisely those European moral apostles who shout Slava Ukraini the loudest.

Ferguson is fundamentally right—but details matter

Ferguson’s basic thesis is sound. The government debt-to-GDP ratio of 16.4 per cent is indeed dramatically lower than that of all developed Western economies. The 2024 budget deficit of 1.7 per cent of GDP is practically as modest as Ferguson claimed (he cited 2.4–2.5 per cent, which corresponded to earlier projections). In this respect, Ferguson is right: Russia has maintained impressive fiscal stability when viewing these indicators in isolation.

Nevertheless, differentiation is necessary. When Ferguson speaks of rising real wages and cites a figure of 22 per cent since the war began, one must note that the actual real wage increases since the war began stand at approximately 15–18 per cent, with 2024 alone recording “only” 8.7 per cent real growth. This is still impressive, but it is not 22 per cent. Disposable income, which Ferguson cited at +48 per cent, has actually risen by approximately 12–18 per cent cumulatively. Retail sales, which allegedly jumped 28 per cent, actually grew by around 7 per cent.

These differences are not merely statistical pedantry. They reveal something crucial about the nature of Russian “stability”: Nominal figures are significantly better than real figures. Russians are spending nominally more, but not necessarily because they are becoming more productive. They spend more nominally because inflation of approximately 9 per cent erodes their roubles, and because they know that savings will be worth less tomorrow. This is not pure welfare improvement; it could be the beginning of panic dressed up in statistical clothing.

He also presents rising real wages as proof of Russian stability while ignoring that these increases are extremely concentrated: 22 per cent of Russian households experienced income increases of 50 per cent or more—the so-called “war winners” in defence and State sectors. Twenty-five per cent saw income declines. Forty per cent experienced moderate growth between three and 25 per cent. This is not broad welfare improvement; this is economic redistribution through war.

Russia’s fiscal stability is not sustainable. The value added tax is set to rise from 20 per cent to 22 per cent in 2026. The VAT threshold is falling from 60 million to 10 million roubles—approximately two to three million additional small business owners will be forced into the formal tax system. The expected additional revenue: three trillion roubles, approximately 35 billion dollars. The Kremlin pumps 7.1 per cent of GDP into armaments, which is tantamount to capital destruction, not capital accumulation. Tanks burning in Ukraine. Aircraft shot down over the sea. Ammunition exploding into ordnance. The National Welfare Fund is being depleted to war-reserve levels. The 2025 deficit will reach approximately 3.2 per cent of GDP, nearly doubling since 2024. Ferguson was right that Russia remained stable in 2024. He should have mentioned that this stability is eroding.

Ferguson’s implicit thesis is correct, but incomplete

Ferguson’s central claim remains correct nonetheless. Those who hoped that Western sanctions would drive Russia to immediate economic capitulation are disappointed by Ferguson’s data. He is absolutely right about that. Sanctions have not succeeded in forcing Russia to peace. However, sanctions have not failed because Russia’s economy is so brilliant. They have failed because the West has sabotaged itself.

The European paradox: Preaching morality, doing business

This is the story that receives too little media attention. While Ursula von der Leyen pronounces new sanctions packages in Brussels with a grave expression, European exports to Central Asia are exploding. This explosion is no accident; it reveals the structural failure of a sanctions policy that is impressive only on paper. The reality paints a different picture: German auto exports to Kyrgyzstan rose a staggering 5,500 per cent in 2023. To Kazakhstan by 720 per cent. To Armenia by 450 per cent. To Georgia by 340 per cent. Does anyone in Berlin and Brussels truly believe that shepherds in the Kyrgyz steppes suddenly developed an insatiable desire for German luxury cars? That tech companies in Uzbekistan suddenly need 18 times more electronics?

The European Bank for Reconstruction and Development (EBRD) documented these patterns systematically. As EU exports of sanctioned goods to Russia fell by approximately 80 per cent, EU exports of the same goods to Central Asia rose by an additional 30 per cent relative to other goods. Kazakhstan suddenly exported 18 times more electronics to Russia in 2022 than before the war. Most of these electronics originate from Europe.

The mechanics are simple: We supply the chips, components, and machinery that power Putin’s war machine simply via a detour. Kazakhstan and Kyrgyzstan are members of the Eurasian Economic Union (EAEU)—a customs union with Russia. What arrives in Bishkek or Almaty can be forwarded to Moscow with virtually no control. Border controls don’t function because both countries are members of the same customs union. This is not a clandestine violation of international agreements; it is official trade policy.

The EU knows this, of course. The British government warned companies in five jurisdictions—Kazakhstan, Uzbekistan, Kyrgyzstan, Georgia, and Armenia—explicitly about sanctions if they help Russia circumvent Western restrictions. The EU introduced the “No Russia Clause,” obligating exporters to prohibit re-exports to Russia in their contracts. These measures are largely symbolic, however. The deeper truth is even more uncomfortable: EU exports of critical dual-use goods reached a value of €132 billion in 2024. That is approximately four per cent of total EU export value. Not all these goods are directly military. They are industrial components—semiconductors, sensors, optical systems—used in civilian applications. Yet in a war economy, these components become militarised. A German semiconductor in Astana finds its way via the EAEU to Russia and ends up in a radar system, aircraft computer, or drone guidance unit.

Cognitive dissonance as State policy

The EU’s behaviour borders on schizophrenia, institutionalised at the highest level. On one hand, companies are threatened with new compliance measures and the “No Russia Clause,” signalling determination. On the other hand, Central Asia is courted as a new strategic partner for European energy security and raw material supplies. At the EU-Central Asia summit in Samarkand in April 2025, the European Commission pledged €12 billion in investments, three billion euros for transport, 2.5 billion euros for critical raw materials, 6.4 billion euros for water, energy, and climate.

The EU is thus financing the infrastructure of countries that are undermining its own sanctions. Brussels is building transportation corridors that make trade with Russia more efficient. The bitter truth is: Europe was never truly prepared to pay the price for genuine sanctions. We wanted to isolate Russia without sacrificing our export revenues. We wanted to support Ukraine without endangering our business relationships with Central Asia. We wanted to demonstrate moral leadership without making economic sacrifices. The result is a sanctions architecture that is impressive on paper but a harmless in practice.

Russian resilience is not the result of superior Russian economic policy. It is the result of European incoherence. Ferguson sees a stable Russia and concludes that sanctions have failed. The more accurate conclusion would be: Russia is stable because it has access to Western technologies, components, and raw materials—via detours that the West itself created and financed.