By Katya Golubkova and Christian Lowe
MOSCOW (Reuters) - Italy plans to propose to other European Union members that the European Bank for Reconstruction and Development (EBRD) resume lending to small- and medium-sized enterprises in Russia, on hold since 2014, the Italian ambassador to Russia said.
The EBRD froze new investments in Russia in 2014 over Moscow's role in the Ukraine crisis. Around 90 percent of the bank's investments in Russia in 2013, prior to the decision, were in the private sector.
Pasquale Terracciano said Italy wants to discuss relations with Russia at the EU Foreign Affairs Council meeting in Brussels next month.
Terracciano told Reuters the EU had agreed that "we should facilitate, encourage the evolution of Russian civil society and foster contacts and cooperation people-to-people. The Italian position is that civil society must include an economic dimension."
There are 23 members on the EBRD board of directors, representing the bank's shareholders, who include the United States and Russia. The EU has a majority on the board.
Terracciano said that in 2014 when the EBRD decided to freeze investments in Russia, the bank argued that the distinction between the public and the private sector in Russia "is blurred".
"This is true for the big conglomerates – but definitely not true to the SMEs. The inclusion of SMEs was probably a decision taken without considering in detail, the depth of the issue but just taken in the heat of events (in eastern Ukraine)," he said.
"There was an oversight when the sanctions regime was applied by the EBRD. Now we have an opportunity to correct this."
Italy is among the EU nations who take a less hardline stance on Russia, arguing that both the western sanctions and Russian counter-sanctions hurt business. The other camp, led by Germany, has taken a tougher line on Moscow.
"There are those (in the EU) who are afraid that any positive movement could be interpreted as if we are softening the sanctions," Terracciano said.
"This would not be a reversal of the sanctions system. We are not proposing to abolish or change the sanctions system as there have been no positive developments (in the Ukraine crisis). But we are saying that there is a field which should not fall into the domain of sanctions."
DISCUSSIONS AT THE EU LEVEL
Set up by governments in 1991 to invest in the ex-communist economies of eastern Europe and owned mainly by developed countries, the EBRD has expanded its mandate in the last decade to now operate in more than 30 countries.
The EBRD still has around a 3 billion euro portfolio of Russian investments. It has recently lost its stake in Promsvyazbank following the central bank's bailout and sold a stake in another Russian lender, Rosevrobank.
Terracciano said preliminary discussions within the EU showed there was "interest" in Italy's proposal as "everybody sees the logic" to change the EBRD stance, so big firms would still be affected but the sanctions would not target ordinary Russians.
He said there had not yet been discussions with the EBRD board on the proposal to resume lending to SMEs. The EBRD did not immediately reply to a Reuters request for comment.
Terracciano said the discussion at the EU level should happen in April, after which any possible steps could be considered.
"Obviously, we would first have to wait for a discussion at the EU level (in April)... and then see how this reflection can be taken on by the EBRD."