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Russia and Euroland: Two key players in the centre of the global stage 2011-2014

Article published in the GEAB, 15-10-2010

October 2010 (GEAB N°48)

The global systemic crisis increasingly conditions relations between the major global players, relativizing the bilateral aspects of their interactions by placing them in the broader context of the search for new global balances. Thus each day, for the leaders of the major powers, the central question becomes less the positioning relative to the United States (the dominant theme in recent decades) than the ability to defend its own interests and contribute to shape the world after the crisis. In this game of historic transition, according to LEAP/E2020[1], between 2011 and 2014, two very particular players are preparing to play crucial roles at the heart of this transition which must succeed in order not to open the door to a decade of world conflict[2]: Russia and Euroland[3]. Russia is, in fact, the first global player to have completed the transformation from a world power constituted after 1945, which it was,  to a power in the world after the global systemic crisis that we are currently experiencing[4]; as for Euroland, it’s an effective player, directly rooted in the desire to exit the world order created after 1945[5], which is in the course of asserting itself before our eyes on the basis of its monetary identity and which, de facto, increasingly guides decisions throughout the EU[6]. Therefore, both, Russia and Euroland are part of what we might call the first global players “renewed” by the crisis.

And under the growing pressure of the global crisis, these two players are now discovering that they share a capacity to set a common international agenda, namely the identification of key issues and challenges and the willingness to take action to confront them. Beyond the agenda, even in the approach, Russia and Euroland will find themselves followers of the same operational pattern, namely the activation of networks that can effectively bring together like-minded players whilst avoiding the creation of hierarchical relationships. To LEAP/E2020, this operational pattern seems especially suited to a world in transition where power relationships will become very fluid[7].

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Progression of Russian foreign exchange reserves (2008 et 2009) (in blue: €; in green: $) – Source: Econompic, 2009

  

Russia-Euroland: Two “renewed” players discovering one another

Of course, these two “renewed” actors are first of all faced with a major bilateral challenge: to recognize each other for what they are. From the European side, it is a matter of understanding that Russia is not the USSR and the current Russian leadership, though inherent to the twenty-first century, should be seen as their predecessors of before 1917, that’s to say partners structuring a Eurasian continental balance, with a capacity for global action, but without an ideological vision of the objectives and methods (contrary to the USSR). From the Russian side, it is necessary to “decipher” the complex progression of the European side recognizing that between the often slow and disappointing European Union in its search for a strategic partnership and the traditional bilateral attraction of France, Germany and Italy[8], there is now another level of strategic action, i.e. Euroland, a country still emerging but already very really tangible because Moscow, Beijing and the rest of the world hold its currency in billions in their foreign exchange reserves[9].

This mutual recognition is, therefore, a real emergency that requires the proliferation of articles, reports and meetings on this topic. Most difficult in a period of transition is to extract oneself from the world which is disappearing and its already moribund ideas. This is the challenge that Russians and Eurolanders must take up as a matter of urgency in the next two years if they want to be able to influence global decisions between now and mid-decade.

In this regard, the abolition of visas between EU and Russia is becoming a requirement to facilitate human and intellectual mobility between the two players and increase the ability to forge joint initiatives (in the scientific, technical, industrial, commercial[10] and cultural fields) 

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Euroland trade balance with Russia (2003-2008) – Source: Eurostat 2009

 

Russia-Euroland: Already two strategic partners

But already, in a sort of historic trial and error, the two players have begun their strategic partnership. Thus, during the “Euro crisis” of Spring 2010 set to music by the City of London in particular[11], Moscow came to the rescue of the single European currency (as did Beijing for that matter[12]) by recalling Russia’s confidence in Euroland and never ceasing its diversification out of the US dollar in favor of the Euro. Meanwhile France, Germany and Italy (the Euro heavyweights) have directly contributed to the rapid resumption of normal relations between Europeans and Russians after the Georgia crisis, while asserting their opposition to NATO’s objectives of future extensions to the East. On this point, if Washington seems surprised to discover that the question of European security now seems to concern Moscow more than Washington for an increasing number of Europeans, a simple re-reading of history schoolbooks would reveal that Washington’s disproportionate role in the affair is an historical interlude which is coming to an end, like many other things as well, at the time of this global crisis of historic proportions[13].

With NATO in complete disarray, against the background of a defeat in Afghanistan  in 2011, and preparing to undergo the full brunt of a first wave of major budget cuts coming from the European NATO countries (lead by the United Kingdom[14]) before being hit by the inevitable sharp decline in US military spending from 2011/2012, the issue of European defense will become increasingly similar to that of the security of the European continent, and for this reason take place by way of close cooperation between Russians and Europeans which can give birth to a treaty on European security between now and 2014. Euro-Russian cooperation in the fight against piracy already provides a good model of the potential for such a partnership in the fight against terrorism.

But beyond the “traditional” Euro-Russian agenda (neighbourhood[15], defense, energy, science / technology cooperation, investments), the global systemic crisis increasingly imposes on the two global players – Russia and Euroland, a common agenda and timetable to facilitate a peaceful transformation of global governance. For these two “renewed” powers, it’s going to be a question of their own strategic interests in the short and medium term as well as their respective abilities to influence the world’s long term progress.

Russia-Euroland in the face of the major challenges of future global governance in “the world after”

Both sides share the aspiration to organize a balanced multi-polar world and consequently do not want a Chinese hegemony to-be to replace the US hegemony which is breaking up. They want a reorganization of the global monetary system to prevent currency wars as well as the structural instability of the current system of floating exchange rates. They are in favor of a deep restructuring of the governance of major international institutions (UN Security Council, IMF, World Bank …). Euroland is by nature adept at international relations operating in a network, without hierarchical powers; Russia has recently become adept at the same operational rationale as shown by its advocacy for BRIC country structuring.

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Why they matter! BRIC country’s share of global GNP, foreign exchange reserves, exports, direct investment and CO2 emissions (as a percentage of the world total / in green:1995, in blue: 2009/ in dark: Chinese share) – Source: The Economist, 04/2010

 

Contrary to the dominant discourse in the European or US media, the BRIC countries are more than a vague concept formulated by a Wall Street banker. In fact, since 2006 (the year of the first BRIC ministerial meeting) at the initiative of Vladimir Putin, Russia has been very proactive in bringing relations between these four powers (Brazil, Russia, India and China) to fruition. This has allowed the creation of cooperation mechanisms between the four countries on most major global issues including regular foreign ministers and finance ministers’ meetings[16], monthly consultations of ambassadors to the United Nations, coordination of G20 positions and summits at Head of State level (Yekaterinburg in June 2009[17], Sao Paulo in April 2010). As Dmitry Medvedev recalled recently, for Moscow the BRIC network has officially become the second priority of foreign policy after the partnership with the EU. By simultaneously implementing this pro-BRIC and pro-Euro diplomacy, Russia appears as one of the great champions of a post-crisis world that is not composed of blocs in various conflicts with each other.

And this is also an aspect that joins Euroland’s basic objectives (like the EU’s): to avoid a world of conflicting blocs that would lead straight to the worst post-crisis scenario. Meanwhile, every quarter that goes by forces Euroland leaders to note that China, India, Russia and Brazil are key partners over almost all major global issues whilst, from the Middle East to Afghanistan via the Dollar, Washington seems incapable of solving the problems that are gathering on its table.

Of course, in this context of general convergence Russia and Euroland have several specific issues where differences exist that the continuation of the crisis could well mitigate significantly:

 

The case of China: Threat and partner at the same time

Relations with China follow two very different rationales here since Moscow, while not wishing a future Chinese hegemony, wants to maximize its cooperation with its big Asian neighbor. Russian-Chinese solidarity is thus exemplary in monetary affairs:  both countries are calling for a restructuring of the global monetary order and reject any central responsibility of the Yuan in contemporary monetary disorder, pointing out that it’s the Dollar at the heart of the current system which creates instability. While for now, the EU remains loyal to the old order based on the Dollar and tends to follow Washington on this issue. However, from Paris to Berlin (and Frankfurt, with the ECB) since the crisis in Spring 2010[18], we are beginning to see the dawning of a different opinion which now wants to ask the question of the international monetary system as a whole. The next two years, because of the inevitable weakening of the US currency based on the monetization of US debt under the guise of successive ineffective boosts by the Fed, will no doubt harden Euroland’s position here, allowing Russia and Euroland to hold a similar position.

This in depth convergence on the monetary issue should allow both entities to open a very candid discussion with China on the trade issue which interests the Europeans especially (thus including the issue of exchange rates and their growing opposition to a Chinese “monetary dumping”) and on the security issue (which is a major Russian concern). Russia has thus cooperated effectively with China since 2001 as part of the Shanghai Cooperation Organization, which quite simply aims to prevent any future NATO incursion (or the United States alone) in Central Asia[19]. But at the same time Moscow is very concerned about China’s rise in power with whom it shares a 4,300 kilometer border and can’t forget that the only successful invasions of Russian territory always came from the East! Russia is therefore, de facto, very open to any European cooperation which would allow it to enhance the international framing of emerging Chinese power and equally upgrade/strengthen its ability to promote/defend the wealth and economic potential of Siberia. In this regard, there is a promising convergence of the imperatives of security and the economic and financial interests of a Russia-Euroland strategic partnership.

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Shanghai Cooperation Organization (2010) (blue: member states; mauve: observer states;  green: dialogue partners)

 

Russia’s WTO membership, but does the WTO have a future?

Russia’s WTO membership is another area of divergence as Moscow’s candidacy is still pending, mainly because of energy prices[20] and especially the agricultural component for which the Cairns group countries want Russian state aid to be three times less than that proposed by Moscow (9 billion USD per year until 2012). Affirmative action from Euroland could help unblock the situation. However, the crisis shines a new light on the issue of WTO entry. If between now and the end of 2011, the international monetary system continues to disintegrate, opening a period of currency wars and therefore of “monetary dumping” on which the WTO is powerless, the big question for many exporting countries becomes: is WTO membership necessary? Such a situation could lead to the establishment of a new international trade organization or at least a major overhaul of the WTO making Russia’s current candidacy null and void, or even pointless.

The issue of “neighborhoods: The Ukraine, the Caucasus and the Balkans

Finally, “common neighbors” and “Balkan accession to the EU” are two sides of another subject of disagreement. Moscow sees the Caucasus as a Russian question primarily, while Brussels sees the Balkans as a European issue. Yet, in both cases, the two powers are well aware that the other also has a word to say on current and future developments as well. Because of the crisis, the predictable weakening of the presence of the third player, namely Washington, in both regions should help the Russians and Europeans to make progress because they themselves, have a real interest in seeing the problems solved, and not kept alive. Besides the question of the Ukraine is already turning from an naturally divisive issue (NATO and EU enlargement) into a common problem (how to peacefully change the Ukraine?) because the two enlargements will not take place if the country’s domestic problems remain very real.

 

A “Partnership for the modernization of Russia” in exchange for a “Partnership for the emancipation of Euroland”

To conclude, if the new (post-Georgia crisis) label of the EU-Russia partnership has become the “Partnership for the modernization of Russia”, it seems certain that Russia has already begun (especially during the Euro crisis) what LEAP/E2020 calls a “Partnership for the Emancipation of Euroland.” In the same way that the Russian party is very touchy in terms of advice over adapting its domestic governance to the twenty-first century, the European party is very sensitive over advice to adapt its foreign relations to the world after the crisis. However Russia like Euroland really are two of the major global players able to help a peaceful transition of global governance. Both also attach great importance to the cultural development of their societies, thus sharing another common value, prior to defining and implementing a common agenda on major issues of the coming decade. However, building a strategic partnership is not about listing the common problems of the day and saying it would be better to resolve them together, it is, above all, about identifying key challenges of the future and knowing that one can only solve them together. It is this gradual shift in perception that is underway, because of the global systemic crisis, for the greatest possible benefit of the Russia-Euroland partnership. One of the major stages on this strategic partnership’s path will undoubtedly be the organization of a first BRIC-Europe[21] summit so that these two major networks, these two groups at the heart of the future global architecture, openly and honestly discuss the challenges and issues which concern them.

Notes

[1] And especially by incorporating the recent work of the 4th GlobalEurope EU-Russia seminar held in Nice at the end of September 2010.

[2] Of which the scenarios and risks for the 2010-2020 decade have been forecast in the book “The World Crisis – The path to the world after: France, Europe and the world in the 2010-2020 decade ” published by Franck Biancheri through editions Anticipolis. Read the summary here.

[3] Emerging entity bringing together countries sharing the Euro, taking on increasing importance at the EU core since the beginning of the global systemic crisis, and which especially brings together all the founding countries of the European Community project.

[4] Thus allowing it to be the first “on deck”, as seen with the BRIC countries, to try and influence the organization of the world after the crisis.

[5] Euroland has allowed the founders of the European community project to regain the initiative in European activities after two decades of stagnation under American-British control, and reconnect with the community project’s original idea of liberating Europeans from the tutelage of two foreign powers – the United States and the USSR. Far from being an alternative to the EU, Euroland is in fact the mould of an EU able to act proactively on an international level, “currency oblige”.

[6] See GEAB No. 45 regarding the ” Eurozone coup d’état” of May 2010.  Recall also that most EU countries are intent on joining Euroland.

[7] As opposed to hierarchical organizations whose effectiveness is dulled as soon as the power and / or the legitimacy of the dominant country wanes.  NATO and the IMF are prime examples.

[8] Whom Moscow claims as its EU partners of preference, but who cannot play the role of strategic engines at global level.

[9] Clearly, Russia’s European partner is completely different in its nature, structure and concerns from what it was in 2005/2006, for example, at the time of first EU-Russia GlobalEurope seminars.

[10] As the table below shows, in 2008 Russia was Euroland’s second partner in terms of the size of its trade deficit (admittedly less than half of that with China, but double with that of Japan). And Euroland represents on average two-thirds of the EU’s trade with Russia.

[11] See the GEAB issues of the first half of 2010 in this regard.

[12] Remember that the attacks against the euro came primarily from the United Kingdom and the United States, whose media and “experts” were unleashed every day to try to transform the problem of Greek public finances into a ” Euro crisis”, or even the end of “Euroland”. If one believes the old adage that it’s in a crisis that one finds out who one’s friends are, it is clear that neither London nor New York were Euroland’s friends in Spring 2010.

[13] On this subject take a particular look at the book “The World Crisis, the Path to the World Afterwards

[14] The mere act of planning the maintenance of British Trident nuclear warheads by France says a lot about the military situation in the country. Source: Le Monde, 08/10/2010

[15] EU enlargements to the East are now moribund projects: Ukraine or Turkey no longer have any internal or external political dynamic to support them. As to NATO’s, they are blocked by Euroland’s key countries, like France and Germany.

[16] This BRIC network encourages, by example, the steady progress of trade in national currencies amongst the four countries (to the detriment of the US dollar).

[17] And of which GEAB had signaled the importance at the time when it was ignored by most Western media.

[18] When Beijing actively supported Euroland.

[19] As LEAP/E2020 had already mentioned over two years ago.

[20] It’s the question of the alignment of domestic and external prices.

[21] The name “Europe” is deliberately vague because our team does not know at this stage if, between now and 2014/2015, the European element will be represented by the Franco-German pairing, Euroland or the EU. On the other hand, what seems clear to us is that by speaking frankly to all partners and especially the Chinese, Europeans have every incentive to act alone, without the Americans, who have lost all credibility in Beijing’s eyes. One doesn’t negotiate effectively in the company of someone whose fate is in the hands of the other party: which is now Washington’s case in dealing with Beijing.