Transcript of Ambassador Fried’s call with Czech journalists‏

Ambassador Daniel Fried
Coordinator for Sanctions Policy

Conference Call with Czech Journalists
Moderated by the U.S.-European Media Hub

September 17, 2014

Moderator:  Good morning or good afternoon everybody.  Greetings from the State Department’s Media Hub in Brussels.  I’d like to thank all of you who are calling in or participating from the Czech Republic.  We’re thrilled to have you today.  And we’re especially pleased to be joined by the State Department’s Coordinator for Sanctions Policy Ambassador Daniel Fried.  He’s joining us today from Washington, DC.

We’re going to begin today’s call with brief remarks from Ambassador Fried and then we’re going to open the line up to your questions.  If at any time during the call you would like to ask a question, you can press “star-one” on your phone to join the question queue. And I would just remind you that if you are using a speaker phone, you might need to pick up the handset before you enter “star-one.”  Today’s call is on the record.  With that, I will turn it over to Ambassador Fried. Sir.

Ambassador Fried:  Hello, good day everyone.

Last Friday the European Union and the United States, after coordinating closely, launched the latest of our round of coordinated sanctions against Russia in response to its ongoing aggression against Ukraine.

Russia’s actions constitute a challenge to the world and to the European post-Cold War order, which we all had a hand in putting in place after 1989, including the Velvet Revolution in 1991.

We thought that in a Europe whole, free, and at peace we had passed the era of territorial conquest in Europe by military means, but it appears we have not.  And Europe and the United States chose to act with strong and intensifying sanctions as one of our responses to Russia’s violations of Ukraine’s sovereignty, its actions both military in Eastern Ukraine including sending of Russian regular forces into that country, its attempted annexation of Crimea and claim that Crimea now belongs to Russia, and its overall efforts to destabilize Ukraine.

Sanctions are not a policy.  Sanctions are a tool designed to advance a policy, and the policy we want to advance is a policy of supporting Ukraine’s sovereignty, its territorial integrity, and its right to choose its own future of where it belongs in Europe.

This is a right which the Czech Republic exercised for itself beginning in 1989 with the Velvet Revolution, continuing with the Czech Republic’s efforts, successful efforts, to join NATO, and its subsequent joining of the European Union.

For the Czech Republic and for your Visegrád partners and for all the countries of Central and Eastern Europe, a united Europe is a reality.  This took place with the wholehearted support of the United States.

That Europe, as I said, is being challenged by Russia’s actions in Ukraine, and it is critical that the United States and Europe responded, and we have responded.

I said that sanctions were not a policy.  The policy of supporting Ukraine will not be carried out merely by imposing sanctions.  We need to see a political solution and the outline of that political solution is seen in the 12-point ceasefire program which has been announced and is beginning to be put into place.  That program calls for an end and withdrawal of the outside illegal armed groups and military equipment, a complete ceasefire, a law and implementation of the law on local self-government in parts of Donetsk and Luhansk, the Law on Special Status which has now been passed by the Ukrainian Rada.  The ceasefire also demands the return of all hostages.

The ceasefire is slowly being implemented in parts.  It is not being implemented in full.  We hope that it is.  We hope that a political solution will lead to an end to this conflict and a period of reconstruction and reconciliation in Ukraine.  And we hope it will lead to Russia’s recognition that Ukraine is in fact an independent country with the right, like all independent countries, to choose its own future.

Sanctions can help achieve these goals by putting pressure on Russia.  There is no doubt that sanctions have had an effect.  Whether you look at the course of the ruble or capital flight from Russia or Russian interest rates or the investment climate, sanctions have had a significant direct and even greater indirect effect on the Russian economy.

Sanctions work to that degree.  That is, sanctions change the terrain in which a leader or a government makes cost and benefit analysis of his or her course of action.  That’s what sanctions can do.  They can change the calculation.  They cannot by themselves solve the problem, but they can improve conditions under which others can solve the problem.

We applaud the European Union’s decision on sanctions, and we applaud the decision of the Czech government to support that consensus.  Sanctions are not easy, they are not pleasant.  We look forward to the day when the conditions will exist so that we can start rolling back sanctions.

The European Union, in announcing its latest round of sanctions, stated publicly that it would review sanctions by the end of this month and if appropriate begin to take steps, possibly take steps to suspend them.  We have supported this statement.  We too are prepared to review sanctions at any time and we will work closely with the European Union to this end.

But, what we do with sanctions has to be based on realities on the ground.  So whether we are able to roll back sanctions, which we hope, or whether we have to intensify sanctions, which we don’t want but may have to accept, we need to work together, the United States and Europe, to continue our solidarity in support of peace, security, and our basic principles of state sovereignty and freedom in Europe.

With that I’ll happily take your questions.

Moderator: Great. Thank you so much Ambassador Fried. [operator instructions]

Daniel Anyz:  Hello this is Daniel Anyz with Czech daily Hospodarske Noviny.

Mr. Fried, you mentioned that the sanctions had an effect already, but there is a discussion in Czech Republic going on with what kind of effect because the sanctions which Russia applied are in fact mentioned more often than the other way.  So I wonder what concrete examples could you give us of the impact of the sanctions?

Ambassador Fried:  Well first of all, we did notice that Russia has acted to deprive the Russian people of food, which is a curious way to retaliate.  I remember the Soviet period with special stores, the strange system of hard currency and the ruble where the national currency was an inferior currency in its own country.  So why Russia would want to go back to a system of Soviet special access for food, because you can be sure that the leaders and the ruling elite will have all the foreign food they want, is beyond me.

But to answer your question specifically, at the beginning of this crisis in February the IMF had projected that Russia would sustain about two percent growth this year.  Now that growth looks to be 0.2.  In the intervening period we, of course, have seen the intensification of sanctions.  So from February to today, from two percent to 0.2 percent.

The stock market has declined three, three and a half percent while other emerging market stocks, other emerging market stock markets have gained by 25, even more, 25 percent or even more.

The Russian ruble reached I believe its lowest level in history earlier this week.  It has depreciated about 12.5 percent since the beginning of the year.  That despite the fact that the Central Bank of Russia has spent $30 billion in an effort to stabilize the ruble this year.

Interest rates are up, and capital flight is expected to be as much as $100 billion out of Russia this year.

S&P has downgraded Russia’s sovereign credit rating to BBB- which is a notch above junk bond and with a negative outlook.

On top of this we see numerous reports of investment drying up, deals not being done, companies staying away.

There is no doubt that the sanctions have hurt Russia far far more than they have hurt Western European and Central European economies.

That said, we do not minimize at all the losses that are faced by some European countries, including the Czech Republic.  I notice that the EU is taking steps to help compensate those countries for it.  The United States understands that we have an obligation in our sanctions to take losses if that is necessary to carry out the sanctions. In other words, we’re not looking for carve-outs for ourselves.  We will not do that.  While of course all of our governments in Europe and North America want to protect our own companies, we are willing to take losses, we are willing to see our companies get hit if that’s what it takes to carry out sanctions in a consistent and fair way.

So the sanctions are working.  It is important that Czechs realize that they are working and that there is a sense of solidarity.  All of us will have to carry some of the burden.

Mr. Anyz:  Thank you.

Jiri Roskot:  [Pravo Daily].  Thank you for the question.

Mr. Ambassador, sanctions are quite often being double-edged.  Do you think they would affect USA?  And if, how compared to Europe?  And also, is this a sanction war or possible lifting of those sanctions linked to Crimea being returned to Ukraine?  Because it’s very hard to expect that Moscow would ever do that in the future.

Ambassador Fried:  Those are two very good questions.  The first one I will say yes.  The United States understands that it cannot ask its allies to take losses for sanctions if we are unwilling to do so ourselves.  We have in fact suffered losses.  I expect we will suffer more.  There are large American financial firms who have basically been threatened by the Russian government.  They may lose all of their business in Russia.  We expect that the Russians will try to find ways to go after American firms.

Nevertheless, we are prepared to continue working in solidarity with the European Union and other governments such as Canada, Japan and Australia so that the world acts, the civilized world, acts in solidarity in response to this aggression.  That’s important.

Your second question?

Mr. Roskot:  About Crimea.  Whether the sanctions are linked to Crimea.

Ambassador Fried:  That is a very interesting question.  It has, it seems to me that there could be a situation in which there was a satisfactory and general settlement pertaining to the east of Ukraine, the beginning of that outlined in the ceasefire agreement of September 5th.

Under those circumstances I think you’re right, that Russia would try to hold onto Crimea.  And the question is whether we would, we and the Europeans, would be willing to take down some, most, or all of our sanctions in response, even though Russia might be trying to hold onto Crimea.

Some of our sanctions are specific to Crimea.  The European Union, for example, has banned basically trade and investment with Crimea.  They are ahead of the United States in this respect, but we have sanctions against Crimea also.

I can’t speak directly and specifically to your question, but I would say it is possible that the United States and Europe in contemplating our response to a satisfactory settlement with respect to Eastern Ukraine would find it possible to ease the sanctions that were not, that did not pertain to Crimea, but pertained more to Ukraine as a whole. So that’s possible.

Petr Janousek:  [Lidove Noviny Daily].  Thank you.

I have a question, if you look at the Czech political scene you can see there are different approaches about the sanctions.  Some of the politicians are saying they support tougher sanctions.  Some of them are more, let’s say, reluctant. Did you notice that and should the Czechs be more supportive?  Or how do you evaluate the whole atmosphere of the Czech political scene?

Ambassador Fried:  Well, it’s not for me to tell Czechs what they should think.  All right?  That’s not my business.  The United States learned a lesson from 1938 when we were not part, we were not any part of efforts to stop aggression against Czechoslovakia.  And we all paid a price, and the people of the Czech Republic paid a greater one.  We learned a lesson.

We tried in the decades of the Cold War, but particularly in the 1980s to reach for policies in which no such aggression, such as 1938 or 1968, would ever take place again in Europe.  Where there would be a place for all of the democratic countries to find their own way.  And a place for Russia, to the degree that Russia wanted a place in a larger European and even transatlantic architecture.  That is why we enlarged NATO and the Czech Republic, Czechoslovakia at the time, well it was already Czech Republic with President Havel, played a major role in convincing then-President Clinton in Prague in January 1994 to take this step.

The purpose was not simply NATO enlargement for its own sake, but NATO enlargement as a security pillar for a Europe whole, free and at peace in which this sort of aggression would not take place.

It was fabulously successful as a policy, so much so that I suspect the younger generation in Central Europe can barely imagine a time when they could not travel freely, when they were not sovereign in their own country.  And I suppose for many of them the Soviet occupation of Czechoslovakia and the communist government imposed upon you looks like the history of the 30 Years War, something you read about.

That is why, that is why we need to act now, because the world, the post-1991 world in Europe, which we all built together — the United States, the Czech Republic, the Visegrád countries, all of us built together, is under challenge and we need to see that we do not find ourselves rolled back to a previous darker era.

Mr. Janousek:  Thank you.

Daniel Anyz:  Thank you again.  The assumption as we spoke so far, that Russia [speaks the peaceful] plan, that some of the sanctions could be repealed.  But what about if it goes the other way?  Do you have already some framework or plan, what could be the next tranche of sanctions if you have to go tougher?

Ambassador Fried:  The United States is not going to act unilaterally.  We haven’t, and we won’t.  We have worked throughout with Europe and we have consulted with Europe, and we’re glad we have.

So we are planning for all contingencies working with Europe, consulting closely with the European Union and interested member states.  We very much hope to face the challenge of how to unwind sanctions in the context of a successful ceasefire which is fully implemented.

We accept that we may have to escalate sanctions should Russian aggression continue.

Jiri Roskot:  Thank you again.  Mr. Ambassador, are there any indications that Russia is willing to change its position with regards to Ukraine or the eastern part of Ukraine?  Or do you think, is it fair to say that as the situation stands right now we are on the verge of new Cold War?

Ambassador Fried:  I would say that there is a chance that Russia will recalculate its tactics and allow, hopefully support, but at least allow a fair political settlement to go forward which provides for local self-government for parts of eastern Ukraine, a genuine ceasefire, withdrawal of all the armed groups and all the other elements of the 12-point ceasefire.  That certainly seems to be what President Poroshenko wants.  And if sanctions are successful, they will be a factor in Russia’s calculation.  We think it is possible.

How bad things get also depends on Russia.  How isolated does Russia want to be?  How hostile does Russia want to see its relations with the rest of the world turn?  I can’t answer that.  No American can answer that.  That depends on the Russians.

It is dismaying to see the Russian propaganda machine fill the electronic ether with smoke, misinformation, and downright lies about what they are doing.  That does remind me of Soviet style propaganda.  That’s unfortunate.  But we don’t think that this is, the unpleasant present is necessarily going to be the future.  We hope for better times.

Mr. Roskot:  Thank you, Mr. Ambassador. Thanks.

Ambassador Fried:  My pleasure.

Daniel Anyz:  Thank you again.  President Poroshenko will be speaking in Congress tomorrow, and there is already some proposals coming from Congress for more sanctions.  So I wonder what, how is it connected to the administration’s way, whether Congress could push the White House to do more than was done so far?

Ambassador Fried:  Well, you’re perfectly right, there is legislation being considered which wants to move in the direction of more sanctions.  We think our sanctions right now are pretty good, pretty tough, that is.  We think we have all the authorities we need to impose more sanctions if we need to.  And although I very much appreciate the sentiment of Congress to support Ukraine’s freedom, sometimes legislation which is too inflexible actually gets in the way of our ability to work with Europe on combined sanctions packages.

So we’ll work with Congress because we certainly support their objective, but we want to maintain as much flexibility as we can to work with Europe on the best possible package of sanctions.

Mr. Anyz:  Thank you again, and thank you that you are still interested in Czech Republic.

Ambassador Fried:  Very much so.  As you may know, I spent the bulk of my career working on the issues of post-Cold War Europe.  I think this policy which was one we all built together, people like Sasha Vondra and people in the other Visegrád countries and throughout all of Europe, all of us built this together.  It was a great success.  That success is under challenge now, and we need to act together and remember how it is that Europe became whole, free, and at peace.  How it is that the EU expanded to bring in the Czech Republic, Slovakia, the Visegrád countries, the Baltic states, Poland, Bulgaria, and others.  And what it will take to maintain that free, open, prosperous Europe in the face of challenges from outside.

So thank you very much for your attention.

Moderator:  Thank you, and thank you Ambassador Fried for joining us today, and thank you to all of you journalists who are on the line asking terrific questions. This will conclude today’s call and I will turn it over to the AT&T operator who will explain to you how you can obtain a digital recording of today’s conversation for the next 24 hours.