(Bloomberg) -- European Union efforts to circumvent U.S. sanctions on companies with business in Iran showed signs of unraveling as some member states questioned whether measures to counteract the penalties would do more harm than good.
While Chancellor Angela Merkel was among EU leaders who unanimously gave the green light last week for the bloc to take action, in private the German government is worried some of the steps responding to the U.S. threat could become an overwhelming burden, according to a government official. Germany is especially concerned that a regulation forbidding companies from complying with U.S. sanctions would inflict too dire a cost, said the official.
This so-called blocking statute, which the EU plans to have in force before Aug. 6, may backfire for those companies that are still interested in serving the U.S. market, according to a government official from a separate member state. Both asked not to be named discussing internal government deliberations.
The reservations reflect the concerns of following through on Europe’s harsh criticism of Trump’s decision to withdraw from the accord and deny Iran the economic benefits that were supposed to flow from curtailing its nuclear activities. The European Commission, the EU’s executive body, invoked the blocking statute on Friday, and took steps aimed at bringing central banks and the European Investment Bank on board to secure financing and payment flows for Iran-related activities.
“Employing the blocking statute is understandable, but its effect is unclear,” Germany’s BDI industry federation said in a statement. “It would be prudent to analyze the effects thoroughly to avoid causing damage” to European companies. “It’s clear that the blocking statute can interfere significantly with German industry’s U.S. business.”
The blocking statute, which would forbid EU companies “from complying with the extraterritorial effects of U.S. sanctions,” would also allow firms to recover damages arising from the sanctions and would nullify the effect in the EU of any foreign court judgments based on them, according to the commission.
The EU could realistically offer support only to companies that have no U.S. exposure or aren’t selling in the U.S. market, according to one of the officials. Companies for which the U.S. business is more relevant than the Iran business will have little choice but to play along U.S. rules, they said. With the world economy even more connected globally than in 1996, when the blocking statute was last invoked, its effectiveness could be limited.
After meeting with other leaders last week in Sofia, Merkel warned that the EU shouldn’t “encourage illusions” that the EU could “compensate industry in a comprehensive manner for U.S. measures.” French President Emmanuel Macron echoed that sentiment, saying that his defense of the nuclear accord was based on concerns about security and stability, not commerce, so neither France nor the EU had any intention of imposing sanctions or counter-sanctions on U.S. companies over Iran.
The commission is also looking at creating special purpose vehicles to allow transactions with Iran, the people said. The effectiveness may also depend on whether the U.S. treats them as a circumventing tool, one of the people said.
“If in the end jobs will be lost in Germany, one has to ask whether this is the right thing to do,” German Economy Minister Peter Altmaier said in a TV interview last week.
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