After the European banking crisis came the economic crisis and then it was growing concern over the “too rapid” enlargement of the European Union. Now, another crisis has come to the fore and it could have an even worse economic impact on Europe’s beleaguered economy and a huge knock-on effect on the stock markets. 

It’s the Ukraine crisis and it has raised the following questions: Should we fear an escalation of the crisis? And, if so, what will it mean for Europe?

While the international community breathed a sigh of relief when United States President Barack Obama announced that he has ruled out military involvement over Ukraine, it is probably not enough. The spectre of civil war still looms over the horizon. 

Despite the morose economic environment (in countries like Greece, Argentina, Venezuela, Brazil and Turkey), the global economy has not been affected by the Ukrainian crisis – at least not yet.  But downward revisions to growth forecasts in some economies, namely China and Russia, could be a bad omen. 

In fact, we are already starting to witness a capital outflow in Russia. During the first quarter of this year, an estimated 70bn left the country, according to Ivan Tchakarov, chief economist for the City of Moscow. The threat of economic stagnation in Russia is real. So is the risk of pushing Russia into a recession in the medium term. 

What is more, the sanctions imposed on Russia, and their rather questionable effects are not particularly reassuring. The idea itself has revived old tensions between the two “rival” blocks that are reminiscent of the Cold War.

The sanctions, which were imposed against 20 high-level personalities and one bank (Bank of Russia), are rather unique. One can argue that they are purely symbolic. 

However, if the crisis deepens it is very likely that a second wave of sanctions will affect the Russian economy in a much more targeted fashion (energy, banking, finance and arms). The heads of the G7 countries have already issued the warning.

As for the US ratings agencies, they have not missed the occasion to degrade Russia’s sovereign credit rating outlook from stable to negative. Even Visa and MasterCard stopped processing some Russian transactions in response to Washington’s announcement of the sanctions on Russia. 

For the time being, the direct impact of the sanctions remains minor. However, Russian President Vladimir Putin’s unyielding position on the Crimea peninsula is likely to force the European Union and the United States to expand the sanctions against Russia.

While stock indicators suggest investors are trying to remain optimistic, a careful economic analysis of the situation shows that the cooling of relations between Russia and the West is a significantly negative factor for economic growth and capital outflow.

From an economic, energy (increase in oil and gas prices) and geopolitical point of view, and given the interdependence of countries that are directly or indirectly involved in this crisis, one thing is certain: It is still too early to fully measure the “collateral” economic effects of the crisis on the global economic prospects that were finally making a long-awaited recovery.