Wednesday

31st Aug 2016

EU foreign policy chief seeks new 'debate' with Russia

  • Mogherini: Emerging as spokeswoman for the EU's Russia-friendly states? (Photo: eeas.europa.eu)

Federica Mogherini, the EU’s foreign policy chief, has said the bloc should launch a new “debate” with Russia aimed at ending the “confrontation” over Ukraine.

She told Italy’s La Repubblica daily on Saturday (27 December): “The current situation is very difficult for Russia. It would be in its interest to contribute to ending the conflict. At the same time, we all know that Russia plays an important role not only in Ukraine, but also in Syria, Iran, the Middle East, Libya”.

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“We have to open a direct debate with Moscow on our mutual relations and the role that Russia can play in other crises”.

She noted that Ukraine and the US also want a way out.

“Even in Kiev the question that everyone is asking is: How can the conflict be brought to an end?”, she said.

“I often speak with [US secretary of state John] Kerry and there is complete identity of views on the crisis … everyone wants to get out of the logic of confrontation, of wall against wall”.

Mogherini will, on 19 January in Brussels, chair an EU foreign ministers’ “strategic” discussion on Russia, with member states, between March and July, to decide whether to extend sanctions for another year.

EU leaders already held strategic Russia talks earlier this month.

Following the summit, German chancellor Angela Merkel said sanctions can only be lifted if Russia gives up conquered territories in Ukraine.

But France and Italy took a softer line, while Merkel’s foreign minister - Frank-Walter Steinmeier from the centre-left SPD party in the grand coalition - later warned that a Russian economic collapse would be dangerous for Europe.

The Russia-friendly camp includes Austria, the Czech Republic, Hungary, and Slovakia, with Austrian president Heinz Fischer on Sunday echoing Steinmeier in an interview with the Wirtschaftsblatt newspaper.

“The Russian economy has a certain degree of robustness, but the sanctions pose considerable problems … a serious crisis in Russia and an economic collapse would only create more problems. The doors between Europe and Russia must remain open,” he said.

He added that partitioning Ukraine is one way to address Russia’s concerns.

“Serious talk of reforms in the area of decentralisation or federalisation would have to be done, which would create a situation in eastern Ukraine that both sides could live with”.

Russia, Russia-controlled rebels, and Ukraine agreed to a prisoner exchange during talks in Minsk last week. But the meeting failed to reach a more comprehensive agreement.

Meanwhile, the rouble crisis continued to gather pace over the holiday season.

Russia said it will have to triple the size of its bailout for the National Trust Bank to $1.9 billion and to spend a further $5.9 billion to prop up the VTB and Gazprombank lenders.

It also called on Russian firms to start selling dollars for roubles in the coming months in what analysts describe as a form of capital control.

The situation is acute in Crimea, which Russia annexed in March, and which it can only supply by sea.

Ukraine last Friday cut electricity and train services to the region, while new EU and US sanctions saw credit card company Visa block services for card holders in the peninsula.

More pain to come?

The Russian currency crisis arises, for the most part, from a slump in oil prices.

But EU and US sanctions are making matters worse because blacklisted Russian banks, energy, and arms firms cannot roll over their dollar- and euro-denominated debt on international markets.

For her part, Catherine Mann, the chief economist at the OECD, a Paris-based wealthy nations’ club, warned things will get worse in the new year.

She told Britain’s Sunday Telegraph that oil prices could stay as low as $50 per barrel and that Russia’s efforts to become self-sufficient from global markets will cause hardship: “The end game is autarky, and for an economy to return to being disconnected from the global economy, to be farming its own land for food, for the energy to be only used within its own economy, to not import clothing and machinery – this requires painful restructuring”.

Paul Krugman, a US economist and Nobel prize laureate, noted in his column in the New York Times that “what’s making the Russian experience so dire is the linkage oil-rouble-balance sheets, because of all the dollar- and euro-denominated debt”.

Russia’s own finance minister, Anton Siluanov, on Saturday also told press in Moscow that if things don’t change Russia will enter recession in 2015 and use up its $399 billion rainy day fund by 2017.

“We’ll burn through all the reserves in 2016-2017”, he said, Bloomberg reports.

“At one third of all budget spending, defence has too large a share. We need to reshuffle and restructure spending for infrastructure, education, and so on”.

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