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. Act on the news with POLITICO Pro. The top U.S. officials tasked with shaping a sanctions regime that would wallop the Russian economy and isolate Vladimir Putin from the global financial system had a distinct advantage: They’ve been here before. Many of the key decision-makers on sanctions policy today were toiling behind the scenes in 2014, the last time Russia invaded Ukraine. Wally Adeyemo. Daleep Singh. Elizabeth Rosenberg. Peter Harrell. All were deeply involved in crafting the last round of financial penalties from their perches in the Obama Treasury Department, National Security Council, State Department and National Economic Council. From your MM hosts, Kate Davidson and Victoria Guida: “The 2014 penalties were narrower in scope and failed to deter Putin from further land grabs. Now, administration officials say they learned key lessons: They needed to share more information with the Europeans in advance and work together on aligning their reaction for maximum impact.” “We were more resistant to doing that in the [Obama] administration, for all the obvious reasons of trying to protect sources and methods,” a senior Treasury official said about intelligence sharing. “But being able to do that, to find a way to get the information to our friends and allies, was critical.” Another key lesson — they needed to find a way to keep the Kremlin from accessing the massive war chest Russia had built up over the past seven years to cushion the blow from the next round of sanctions. Those lessons have led to one of the most crippling sanctions regimes the U.S. has leveled at any country since the end of World War II. They’ve done it in near lockstep with NATO allies, including the European Union, the U.K., Canada and Japan, and on a remarkably fast timeline. “That we have those relationships, frankly, just means that we have a reservoir of trust with each other, and we know each other and we can speak in shorthand in ways that you can’t when you’re just building a new relationship,” the senior Treasury official said of coordinating with global allies. “And it’s made us more nimble in terms of being able to react quickly.” Sanctions review — Treasury officials last year launched a top-to-bottom review of sanctions policy, which involved close conversations with U.S. allies on how to make the penalties more effective and coordinate more closely in advance. By the time President Joe Biden asked officials to put together a proposal of sanctions options in November, much of the legwork had already been done. The key objectives — Maximize the impact on Russia while minimizing the impact on the U.S. and Europe; have an immediate, significant impact on the Russian economy; and degrade Putin’s ability to project power over the long term. “From the first tranche, we started at a place that was more significant than what we did in 2014, and then we escalated from there,” the senior Treasury official said. Officials spent months working with partners overseas on a raft of trade and financial restrictions, from full blocking sanctions on major Russian banks, to export controls on high-tech sectors, to individual sanctions on Russian oligarchs and their family members close to Putin. The bombshell came last week, when the U.S. and allies announced they would freeze the assets of Russia’s central bank, sending the Russian currency into a freefall and Russian citizens into a panic as they scrambled to find cash amid fears of skyrocketing inflation. The downsides — The initial steps ultimately didn’t deter Putin, said Heidi Crebo-Rediker, chief economist at the State Department during the Obama administration. But they clearly caught him off guard. “I also think he significantly underestimated what the dialing up of sanctions would mean. I think he significantly underestimated the degree to which allies would collaborate, really across the board.” She credited the fact that officials had a playbook “ready to go.” That the allies stuck together is a diplomatic success, especially because it comes with obvious downsides, warned Adam Posen, president of the Peterson Institute for International Economics. “You’re almost certainly going to lose assets” if Russia retaliates, Posen said. “You’re almost certainly going to make some other regimes decide they should be dumping dollar reserves, and making sure they have gold reserves or yuan reserves instead. “You raise the probability of more countries trying to orient into the Chinese system rather than the American system of finance.” IT’S WEDNESDAY — We’ve got the popcorn ready for Fed Chair Jay Powell’s congressional testimony today. Hit us up with your hot takes on the hearing: kdavidson@politico.com, aweaver@politico.com, or on Twitter @katedavidson and @aubreeeweaver.
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