The single most painful sanction imposed on Russia has been the joint western move to block the Russian central bank's access to its foreign currency reserves.
In actions that now seem prescient, Russia had worked to build up an estimated $600 billion (€552 billion) in foreign currency reserves since its annexation of Crimea in 2014, as a bulwark against the effect of any sanctions to come.
One European leader was key to recognising the strategy and understanding how to combat it: Italian prime minister Mario Draghi.
Draghi led the European Central Bank from 2011 to 2019 and has a strong relationship with the US treasury secretary Janet Yellen, built during their time when they jointly fought crises at the helm of the EU and US central banks.
The importance of this relationship was highlighted in a Financial Times article recently that described a scene on the third day of the invasion, when EU officials were anxiously waiting for confirmation from Washington about the plan to freeze the reserves, and nervous that Moscow could get wind of it first.
“We were all waiting around, asking, ‘What’s taking so long?’” an EU official recalled to the newspaper. “Then the answer came: Draghi has to work his magic on Yellen.”
Moscow didn't see it coming. The sudden lack of access to the reserves hobbled its ability to intervene to support the rouble, and this week Russia's central bank chief, Elvira Nabiullina, vowed to try legal action to get them back.
“This freezing of gold and foreign exchange reserves was unprecedented,” she was quoted to say by the Russian Tass news agency.
The revelation of the significant behind-the-scenes role of the Italian leader is something of a corrective to reports that emerged in British media early in the war, that cast Draghi as personally intervening to get a sanctions carve-out for luxury goods.
Luxury goods
An important industry for Italy, luxury goods had been discussed by lower-level officials prior to the invasion, as the EU worked pre-emptively to build consensus on sanctions. But the Italian government flatly rejects that it was an issue once the Russian tanks rolled in. Indeed, sanctions on luxury goods were duly imposed by the EU on March 14th, banning the export to Russia of items worth more than €300.
This will hit Russian elites, whose taste for Italian luxury has been visible.
The now-famous long table at which Vladimir Putin was pictured during meetings in Moscow was claimed by Renato Pologna as the work of his northern Italian furniture company Oak. He estimated its value at €100,000, part of an order worth €20 million delivered to the Kremlin in 1995.
When Putin appeared to address a patriotic pro-war rally in Moscow last month, he was wearing a navy parka worth €12,000 by Italian ultra luxury brand Loro Piana. Embarrassed, the company was forced to publicly distance itself from the regime and explain it had already stopped sales in Russia.
The reality is that Italy has taken a tougher stance on Ukraine than could have been the case.
In previous decades, strong economic and political ties grew up between Moscow and Rome. This was illustrated most luridly at the height of a 2009 sex scandal, when a leaked recording of then-prime minister Silvio Berlusconi revealed he had a piece of furniture known as "Putin's bed".
Italy’s parliament has no shortage of erstwhile Putinophiles and, in other circumstances, Rome could have posed a significant problem for EU unity.
EU sanctions
But despite Italy being one of the countries most dependent on Russian gas, Draghi has said he will not block EU sanctions on the fossil fuel. He has moved to secure alternative supplies from Algeria, while levelling with the public that they may have to use less air conditioning this summer. This has left Germany exposed as the major force in Europe opposing such a move.
Some of the most striking illustrations of Europe’s changed relationship with Russian wealth came in the videos issued by the Guardia di Finanza, showing their police officers boarding the sumptuous yachts that usually float around off the Italian coast each summer.
Italy has a well-honed apparatus for going after mafia assets and financial crime, which was helpful when it came to seizing the assets of sanctioned oligarchs. But political will was also required. Decisions to seize assets covered by sanctions are made within national ministries of finance.
In a press conference last month, Draghi was being deliberate when he chose to switch to English to make a point that such political will was lacking elsewhere.
“I’d really like to see similar measures taken by all our countries,” he said. “Now we must all be rapid in the implementation of this.”