Tuesday

19th Jun 2018

Opinion

Uncertainties multiply in EU's Russia policy

  • Together with a declining ruble, Russia’s export competitiveness has risen dramatically (Photo: Alex F)

In July 2014, following Russia’s annexation of Crimea and support for rebels in eastern Ukraine, the EU imposed substantial economic sanctions, limiting access to finance, banning exports of advanced technology to Russia’s energy sector, and travel bans on senior Russian officials.

Russia, for its part, retaliated with a ban on the importation of food products, including most meats, fish, vegetables, fruits, and dairy products, particularly hurting nearby EU countries such as Finland and the Baltic states.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... our join as a group

These measures have been kept ever since.

The sanctions have seen a collapse in trade between the two economies, which had previously seen a steady growth in commercial relations.

Neither side wants to back down

The result has been a suboptimal equilibrium, both sides being somewhat hurt, but neither willing to back down, especially as both economies have since seen improvement.

The EU, particularly its inner core, the eurozone currency union, had been struggling for years in the face of the 2007-8 financial crisis and a largely self-inflicted sovereign debt crisis in 2011.

Since then, however, thanks to low oil prices, a reinforcing of the Eurozone’s economic governance, and unprecedented action by the European Central Bank (ECB) to prevent the default of any member state, the European economy is enjoying a recovery.

There has been steady, if uneven, growth of over 1.5 percent of GDP in 2015 and 2016.

Unemployment has fallen to its lowest level in five years, though the situation remains painfully bad, even in major states such as France and Italy.

Russia’s food ban had a substantial media impact in many EU countries, especially neighbouring ones and those with struggling farmers.

However, the European Commission’s economists have found that Russia’s measures have not had a major impact on the EU economy overall, despite the pain in certain sectors.

Russian competitiveness grows

On the Russian side, the situation has also been mixed.

As the German magazine Der Spiegel reported, the food ban has been a boon to Russian farmers, protecting them from EU competition.

Together with a declining ruble, Russia’s export competitiveness has risen dramatically.

Russian agricultural exports, for the first time, surpassed that of weapons and in 2015 Russia, also for the first time, produced more grain than the United States.

Yet Russian farmers have struggled to increase production of vegetables and milk.

While the gains for farmers have been paid for by Russian consumers, with high inflation in food prices, reaching over 25 percent in 2015.

The general Russian economy has considerably suffered since the sanctions were imposed, although this may have more to do with the decline in oil prices, depriving the country of a massive source of revenue.

There followed a recession, with inflation over 16 percent, a fall of the ruble of up to 40 percent, and the exhaustion of Russia’s strategic reserve fund accumulated from fossil fuel profits.

While the Russian recession is largely over, growth has not returned.

But all is not doom and gloom: Russian unemployment is low and has even declined to 5.2 percent, while public debt remains low at less than 20 percent of GDP.

Russia has however continued to develop its Eurasian Economic Union (EEU), significantly modeled on the EU, with members including Belarus, Kazakhstan, and Armenia.

The EEU may well form a genuine common market and many Central Asian economies have considerable growth potential.

However, this bloc will continue to be dwarfed by the EU, with its market of over 500 million consumers and considerably higher GDP per capita.

The European consensus against Putin’s foreign policy could shatter

The situation then has all the characteristics of a stalemate, though change may occur because of Ukraine itself.

While the EU and Russian economies are relatively stable, the Ukrainian situation is catastrophic, with collapses in GDP, the national currency, and real incomes.

This bodes ill for Western influence in Ukraine, as BTI notes in its 2016 report on Post-Soviet Eurasia: “Since, in times of doubt, many people put their own obvious interests above more abstract potential gains, the EU risks seeing its attractiveness dwindle if it continues its current reticence.”

In the absence of more concrete guarantees from the West, whether economic or military, Ukraine’s alignment with Brussels and Washington seems insecure.

Russia stable amid western turmoil

Furthermore, while the American and European economies are performing decidedly better than Russia’s today, the political situation is something of a negative mirror image.

Russian president Vladimir Putin has enormously benefited from the conflict with the West through a “rally-round-the-flag” effect: his approval ratings have since consistently topped 80 percent.

Across the West, in contrast, the situation is far more unstable with question marks everywhere: the EU will be lessened by Great Britain’s vote to depart from the bloc, the Italian government lost a constitutional referendum leading Prime Minister Matteo Renzi to resign, and French president Francois Hollande with his 4 approval rating has now waived his candidacy for a second term of office.

Most daunting of all for analysts is Donald Trump’s election as president of the United States, with unclear and potentially revolutionary implications for the West’s Russia policy.

The EU, which requires unanimity to impose sanctions, had long been limited in its approach by relatively pro-Russia states like Hungary and the Czech Republic, to be joined by Bulgaria.

If Trump emerges as a rare pro-Russia American president, the European consensus against Putin’s foreign policy could well shatter.

Nothing seems more uncertain than eastern policy today.

Frank Beauchamp is a European political analyst and writer. He writes for the Bertelsmann Stiftung’s BTI Blog and SGI News.

Is EU retail sector equipped for 21st century?

After a thorough analysis in cooperation with EU countries we have identified many regulatory restrictions that hamper innovation and investment in the retail sector.

EU summit: migrants get a 'vote' too

Non-citizens from Nigeria to Afghanistan get a binding 'vote' on whatever the EU's internal debates submit to them. They will vote with their feet on whether to keep trying their luck when faced with a new system.

Long-distance animal transport: unthinkable still happening

A complete overhaul of animal products' supply chains is needed, privileging local food chains including local slaughtering which is proven to benefit the environment, the resilience of our economy, food safety and animal welfare.

News in Brief

  1. Report: Audi CEO arrested over Dieselgate
  2. EU-Australia trade talks kick off in Brussels next month
  3. France and Germany moving closer to eurozone reform
  4. Merkel to meet Conte to find migration compromise
  5. Seehofer gives Merkel time to strike EU migration deal
  6. Schroeder and Sarkozy appear with Putin at World Cup
  7. Tennis champ and 'EU diplomat' claims immunity
  8. Italy threatens to ditch EU-Canada free trade deal

Stakeholders' Highlights

  1. Macedonian Human Rights MovementMHRMI Launches Lawsuits Against Individuals and Countries Involved in Changing Macedonia's Name
  2. IPHRCivil society asks PACE to appoint Rapporteur to probe issue of political prisoners in Azerbaijan
  3. ACCASocial Mobility – How Can We Increase Opportunities Through Training and Education?
  4. Nordic Council of MinistersEnergy Solutions for a Greener Tomorrow
  5. UNICEFWhat Kind of Europe Do Children Want? Unicef & Eurochild Launch Survey on the Europe Kids Want
  6. Nordic Council of MinistersNordic Countries Take a Stand for Climate-Smart Energy Solutions
  7. Nordic Council of MinistersNordics Could Be First Carbon-Negative Region in World
  8. European Federation of Allergy and AirwaysLife Is Possible for Patients with Severe Asthma
  9. PKEE - Polish Energy AssociationCommon-Sense Approach Needed for EU Energy Reform
  10. Nordic Council of MinistersNordic Region to Lead in Developing and Rolling Out 5G Network
  11. Mission of China to the EUChina-EU Economic and Trade Relations Enjoy a Bright Future
  12. ACCAEmpowering Businesses to Engage with Sustainable Finance and the SDGs

Latest News

  1. Orban to EPP: turn 'Christian democratic' or face challenge
  2. Is EU retail sector equipped for 21st century?
  3. Tear gas bodes ill for Macedonia name deal
  4. EU asylum claims drop, Germany registers most
  5. EU summit: migrants get a 'vote' too
  6. Basque threat of 'second front' for independence
  7. Progressive regulation needed now for 21st century finance
  8. Greece and Merkel's fate top This WEEK

Stakeholders' Highlights

  1. Nordic Council of MinistersCooperation in Nordic Electricity Market Considered World Class Model
  2. FIFAGreen Stadiums at the 2018 Fifa World Cup
  3. Mission of China to the EUChina and EU Work Together to Promote Sustainable Development
  4. Counter BalanceEuropean Ombudsman Requests More Lending Transparency from European Investment Bank
  5. FIFARecycling at the FIFA World Cup in Russia
  6. Nordic Council of MinistersOECD Report: Gender Equality Boosts GDP Growth in Nordic Region
  7. Centre Maurits Coppieters“Peace and Reconciliation Is a Process That Takes Decades” Dr. Anthony Soares on #Brexit and Northern Ireland
  8. Mission of China to the EUMEPs Positive on China’s New Measures of Opening Up
  9. Macedonian Human Rights MovementOld White Men are Destroying Macedonia by Romanticizing Greece
  10. Counter BalanceControversial EIB-Backed Project Under Fire at European Parliament
  11. Nordic Council of MinistersIncome Inequality Increasing in Nordic Countries
  12. European Jewish CongressEU Leaders to Cease Contact with Mahmoud Abbas Until He Apologizes for Antisemitic Comments

Stakeholders' Highlights

  1. International Partnership for Human RightsAnnual Report celebrates organization’s tenth anniversary
  2. Nordic Council of MinistersNordic Cooperation Needed on Green Exports and Funding
  3. Mission of China to the EUPremier Li Confirms China Will Continue to Open Up
  4. European Jewish CongressCalls on Brussels University to Revoke Decision to Honour Ken Loach
  5. Nordic Council of Ministers12 Recommendations for Nordic Leadership on Climate and Environment
  6. Macedonian Human Rights MovementOxford Professor Calls for an End to the Anti-Macedonian Name Negotiations
  7. ACCAPeople Who Speak-Up Should Feel Safe to Do So
  8. Mission of China to the EUProgress on China-EU Cooperation
  9. Nordic Council of MinistersWorld's Energy Ministers to Meet in Oresund in May to Discuss Green Energy
  10. ILGA EuropeParabéns! Portugal Votes to Respect the Rights of Trans and Intersex People
  11. Mission of China to the EUJobs, Energy, Steel: Government Work Report Sets China's Targets
  12. European Jewish CongressKantor Center Annual Report on Antisemitism Worldwide - The Year the Mask Came Off

Join EUobserver

Support quality EU news

Join us