Economic and political effects of EU-Russia rapprochement

Economic and political effects of EU-Russia rapprochement

Everything started out with the endless chess game of the two superpowers in Syria, which borders Turkey to the south. The humanitarian destruction as a result of the crisis has of course reached a critical level at this point. While every change, in a global sense, leads to a shift in a country's foreign policy decisions, it also leads to unexpected rapprochements. EU-Russia tensions, which passed a point of no return with the Ukraine crisis, became even more chaotic with the United Kingdom pulling strings in the process. The protective measures taken by U.S. President Donald Trump, who has no awareness of state tradition and is only eager to impose Pan-American fascism upon the world, seem to have changed Europe's long-term action plan.

Over the past 10 years, the European Union has evolved into a structure questioning its existence and power. The trio of France, Germany and Italy, which has been exposed to U.S. hegemony for a very long time, seems to have revolted against the U.S. with the reimposition of the Iranian embargo. It is important not to forget that the survival of the U.S. economy and its military power has been based on the failure of the opposite party to launch diplomacy. As is necessary for imperialism, the toleration level of the U.S. and countries that act similarly in the Middle East to this kind of deterrence should be little, if any. While Iran's ability to continue trade makes both Turkey and Russia the most important countries in the region, it also gives more power to the EU by securing the energy corridor and providing new trade areas. Within this crushing state of change, the U.S. started to take the cruelest actions of the past 50 years, enacting punitive measures against its allies. As every incident sparks a chain of events, these measures will of course lead to an inevitable result: Rapprochement between the West and the East.

Coming closer than ever

Ukraine's political future concerns, dating back to the 1990s, peaked with the Orange Revolution in 2004. While Russia-EU relations became more and more complex in a political and technical sense, the stagnation caused by EU-NATO expansion turned into a depression with Kosovo declaring its independence in February 2008 and Russian presidential elections in the same year. Katinka Barysch said that this relationship can only be reached with "pragmatic necessity," during her presentation titled "Russia, Realism and EU Unity" for the EU think tank, the Center for European Reform, [which] seems to have matured nowadays. The fact that the EU is highly dependent on Russia to provide 38 percent of its natural gas, 35 percent of its petroleum and 25 percent of its coal needs, ties the union's hands in respect to possible sanctions. For the U.S., which meets its energy needs by exploiting the whole world, pressuring the EU to impose sanctions on Russia means suicide for the Union itself. Being left without energy in the middle of winter would likely result in everyone from Merkel to Macron losing their seats. French President Emmanuel Macron's statement last week to his own ambassadors that new alliances should be formed with "European partners, including Russia" was actually a rare sentence to be heard from the European continent. John Hopkins University senior fellow Federiga Bindi's comment that Cold War times when the Soviet Union was a big threat to Europe are in the past, and the statement by Anna Maria Keller, foreign policy and defense expert at the German Friedrich Ebert Foundation, that the biggest threat to Europe was itself, may be considered as signals of incoming change.

It is also useful to look at the economic and financial effects of such a positive rapprochement. According to July 2018 figures, the trade volume between Russia and the EU rose 22.1 percent to reach $119.7 billion in the first five months compared to the same period in 2017. Russia's exports to the EU within the same period also increased by 24.5 percent to reach $83.4 billion, while imports rose 16.9 percent to $36.3 billion. Trade with the EU made up 44.6 percent of Russia's total trade volume in the first five months of 2018, increasing 0.5 percentage points compared to the same period last year. Russian Finance Minister Anton Siluanov, who commented on this rise in trade, said that Russia could to switch to the euro in trade with the EU, angering the U.S. Especially with current Brent oil prices reaching $78 levels. Italy, Greece and Belgium – which all fear a possible rise in natural gas and are also struggling with energy expenditures – may lean toward this proposition. Each agreement made with Russia or Eastern bloc countries and capital moving from West to East are serious moves that can damage the dollar's dominance in the world – not now, but in 10 to 15 years.

France and Germany opting to use the Russia card to increase exports to Iran, Kazakhstan, Turkmenistan and Azerbaijan is quite natural. Time will show us how the EU will equalize the U.S., which even threatens NATO to prevent such European moves from the other side of the Atlantic. Economic privileges from Russia also seem plausible, as the Kremlin continually seeks to maintain a certain level of relations with Germany in order to wear down the NATO solidarity in Europe. As Russian President Vladimir Putin does not want to remain dependent on China in terms of heavy industry and technology know-how, it would be a big mistake to assume that he would not consider any innovative offers from Germany.It is widely known that Russia is eager to diversify its exports, especially to protect its current account balance.

Russia's central bank has increased its gold stock 60 percent over the past three years as a response to the fluctuation in the ruble, and the country seems more and more successful in drawing the interest of the EU. The fact that the parties are quickly moving with a win-win-based understanding by skipping bureaucracy may be effective in reviving the region. In the middle term, Russia reducing its impact over Ukraine and Europe softening its tone of voice will determine the future of trade. Especially if we consider that both parties are plagued with unemployment and commodity inflation, I believe nothing will be the same despite all U.S. efforts.

The United Kingdom will definitely be the one harmed the most in Europe by this rapprochement. The U.K., which will step out of the European system after Brexit, does not want to leave the energy card to the French and Germans. At this point, Russia's foreign policy may remain in between financial and political gains. The decision to be taken by Russia, which will be torn between fixing income distribution by establishing a prosperous East European trade market and leaving the world order to the West, will determine the fate of the region. Russia seems to ensure its "Perestoika, meaning 'rebuilding' – an economic and political movement for reformation within the Communist Party of the Soviet Union in the 1980s," plan this time after tumbling in the transition process from a central economy – suggested by Leonid Brejnev in 1979 and later put into force by Mikhail Gorbachev – to a liberal economy.

* Ph.D. researcher in Private Company Economic Research Department MENA at the Swiss Business School

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