Katja Hoyer Katja Hoyer

Why Germany’s decision to cut Russian banks from Swift matters

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‘The Russian invasion marks a turning point,’ said Olaf Scholz on Saturday as he announced that Germany would break its long-standing principle of not sending arms into conflict zones by delivering 1,000 anti-tank weapons and 500 Stinger missiles to Ukraine. ‘It is our duty to support Ukraine to the best of our ability,’ he explained.

With the halting of Nord Stream 2 and the offer of weapons, Berlin had already moved remarkably far out of its foreign policy comfort zone. Now it has gone a step further and agreed to exclude ‘selected Russian banks’ from the global payments system, Swift. It is not yet clear which banks will be targeted, which may affect the effectiveness of the sanctions.

Russia’s exclusion from Swift has been discussed for some time. The banking system acts as the world’s main financial artery, connecting 11,000 financial institutions in 200 countries. Cutting Russia out of the loop will hamper cash flow in and out of the country, limiting Putin’s ability to finance a drawn-out conflict in eastern Europe.

If Putin decides that the West has shied away, then there is no real deterrent to moving further than Ukraine

Many countries have argued for this drastic move, which has often been described as the ‘nuclear option’ of economic sanctions, and for good reason. In 2020, Russia’s exports were worth $332 billion and its imports $240 billion. Excluding Russia from Swift makes these transfers much more difficult. Chancellor Scholz had said repeatedly that he felt this severe option ‘must be reserved for a situation when it becomes necessary to step up things.’

This was not an easy decision for the German government to make. Germany is still dependent on Russian energy, with the country continuing to import over half of its gas and over 40 per cent of its oil from Russia.

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