Editor’s Note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our s each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. A ct on the news with POLITICO Pro. Will the threat of economic sanctions help deter President Vladimir Putin from invading Ukraine, or serve as an effective cudgel if he does? It’s the question at the heart of the debate over how the U.S. and its allies should respond to Russia’s latest military threat. A U.S. delegation is in Europe this week to discuss technical coordination around potential sanctions and export controls in the event Russia does take military action, an administration official tells MM. Among the group — Liz Rosenberg, assistant Treasury secretary for terrorist financing; Thea Rozman Kendler, assistant Commerce secretary for export administration; and Molly Montgomery, deputy assistant secretary in the State Department’s Bureau of European and Eurasian Affairs. The delegation will travel to the UK, France, Belgium and Germany to meet with European counterparts, including finance, foreign and trade ministries, the official said. Previous rounds of sanctions, including those imposed following Russia’s 2014 annexation of Crimea, had only a modest negative impact on Russia’s economy, the Congressional Research Service said in a January report. (An oil price shock in 2015-16 and the Covid-19 pandemic took a bigger toll.) That was largely by design: The U.S. and its allies have typically sought to limit collateral damage to the Russian people and to themselves by targeting sanctions at individuals and specific firms connected to Putin. U.S. officials, a number of whom were involved in the 2014 sanctions push, have made clear this time will be different. “We've learned a great deal of lessons,” Deputy Treasury Secretary Wally Adeyemo said Sunday on CBS’s “Face the Nation.” “And what I can tell you is the actions that we would take if Russia were to invade Ukraine this time would be far more significant.” Some of those economic effects are already being seen, Adeyemo said — “The ruble is having the worst performance among emerging economies thus far this year. You’re looking at their borrowing costs increase.” The new tool that could make the biggest difference , says sanctions expert Jeffrey Schott, is the use of stringent export and re-export controls. Those measures could limit Russia’s ability to obtain goods for its military or high-tech sectors, such as semiconductors or advanced machinery and manufacturing equipment. What’s more, they are expected to apply to third-country exports — that is, U.S. technology that is exported to, say, China, that’s put in a product and shipped to Russia. That would go well beyond the steps officials took eight years ago, said Schott, a senior fellow at the Peterson Institute for International Economics. “Those types of sanctions would have a corrosive effect over time on the Russian economy,” he said. “Not necessarily hamstring it immediately, but it would weaken the ability of the Russian economy to move forward as quickly with its development as it otherwise would.” Adeyemo referred to these measures Sunday, when asked about the effectiveness of Western sanctions given Russia’s deepening relationship with China: “What I’ll tell you is that China can’t give Russia what they don’t have. There are critical technologies that Russia is dependent on the United States and our allies on, technologies that … China does not have access to.” A key question is how comprehensive such restrictions would be — would they target specific firms, a particular sector or the entire Russian economy? The broader the scope of the controls, the more difficult it could be for U.S. partners to remain in compliance. A senior administration official last month said the controls would “hit Putin's strategic ambitions to industrialize his economy quite hard,” and could affect areas from artificial intelligence or quantum computing to defense and aerospace. Those measures would be coupled with financial sanctions, which Adeyemo said would cut off Russian elites from the global financial system. He said 80 percent of Russia’s daily financial transactions are in U.S. dollars. Then there’s the matter of Nord Stream 2 — President Joe Biden and German Chancellor Olaf Scholz on Monday emphasized they are united on a package of “severe sanctions” against Moscow if Russia invades Ukraine. But there seemed to be space between the two leaders on what to do about the Nord Stream 2 pipeline, our Myah Ward reported. Russia normally ships about 40 billion cubic meters of natural gas to Europe through Ukraine, and the U.S. has been working with allies to ensure that Europe has adequate energy supplies if Putin decides to cut off shipments. Biden pledged to shut down the pipeline, but Scholz kept his answer vague, saying, “We will act together. We will not be taking different steps.” IT’S TUESDAY — BU beats Harvard 4-3 to advance to their 55th men’s Beanpot Final . Making Monday nights in February a little bit more bearable. (Go Terriers.) Have a hot tip or a story idea? We want to know: kdavidson@politico.com, aweaver@politico.com, or on Twitter: @ katedavidson or @ aubreeeweaver.
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