Weak Russian Economy Not in Europe’s Interest

The West can be forgiven for feeling a little smug about Russia’s current economic woes. But celebrating a weak Russian economy would be foolish – especially for Europe – for two primary reasons: economic ties with Russia and political instability.

There is no denying that Russia is experiencing a currency crisis. The rouble continues to drop to new record lows against the dollar, with the Russian Central Bank unable so far to reverse this trend. There are two immediate reasons for that — low price of oil, Russia’s biggest export, and Western sanctions imposed over Ukraine.

To some in the West Russia’s economic problems may seem like vindication and an early Christmas gift. But Russia won’t be the only one that suffers.

Russia has close economic ties with the UK and the rest of the EU. European member-states account for about 50 per cent of the total Russian exports and imports. Over the past decade EU-Russia turnover in goods has tripled to 336.5 billion euros by the year 2012. The volume of Russia’s goods exports to the European Union increased 3.5-fold from 64.5 billion euros in 2002 to 213.3 billion in 2012.

In addition, The European Union is the largest investor in the Russian economy. European investments can be found almost in all economic sectors, with wholesale and retail trade, manufacturing and extractive industries dominating the list.

Siemens, ABB, BP, and many other European companies succeeded while operating in Russia in the last two decades. Yet private European companies are not the only actors active on the Russian investment market. The European Bank for Reconstruction and Development (EBRD) deals with more than 700 public and private projects in Russia.

EU Recovery Stumbling

A weakened Russian economy is likely to have negative consequences for the EU and its businesses. Already, the sanctions war has led to a significant drop in exports for Germany and an uncertain business climate throughout Europe. The EU remains at risk of deflation and stagnation. An already feeble and faltering recovery is stumbling. Output across the euro area was flat in the second quarter. A weakened Russia will put a further strain on the European businesses and investors operating in Russia, thus hurting the overall economy of the EU.

From a political perspective, Russia’s faltering economy will not benefit Europe either. Many Russians already have strong suspicions that Russia’s economic woes are the result of a targeted Western plan to undermine and weaken Russia.

Persistent rumours of a deal between the United States and Saudi Arabia to lower the price of oil — and it would not be the first time — are adding further fuel to these suspicions. Moreover, latest reports that President Obama will sign legislation imposing new economic sanctions on Russia will almost certainly exacerbate the feelings of anger many in Russia feel towards the West.

It is worth noting that White House officials have acknowledged there are no guarantees that Russia’s economic woes and another round of sanctions would compel President Putin to change his policy towards Ukraine.

Precarious Global Environment

Ultimately, sustained belief that the West is bent on destroying Russia through economic means is likely to result in a long-term freeze of ties between the two sides. While this might not lead to a new Cold War, it will certainly further destabilise an already precarious global political environment. Conflicts and disagreements will be harder to solve diplomatically, areas of cooperation on mutually beneficial projects will shrink, and a full blown conflict between Russia and the West will remain a possibility.

It would be a folly on Europe’s part to assume that an economically weak Russia is worthy of a celebration. The EU would be well advised to come to the realisation that its own future is closely linked to that of Russia. If the latter continues to head towards an economic crisis, the EU is almost certain to take a hit as well.

Coupled with the fact that political uncertainly will add to a precarious business and investment climate on the continent, a weak Russia certainly looks like one Europe would rather avoid. For this reason, the EU should consider lifting its toughest sanctions and begin a process of mending its ties with Russia.

Alexander Clackson is the founder of Global Political Insight

This article was first published in Sputnik UK 

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Categories: Europe

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