Recently Vlad Ivanenko in an article “Russian Global Position After 2008” (Russia in Global Affairs, No. 4/2007) argued in favor of cooperation between Russian and European firms in third countries such as Ukraine. On the one hand, this idea flies in the face of the prevailing consensus in the Western literature that the EU and Russia are destined for confrontation with respect to the neighboring countries. On the other hand, his proposal springs from the fact that economic relations between the EU and Russia are in considerably better shape than political ones. This points to the possibility of using accumulated experience in the economic realm to stimulate developments on the political level. How realistic is this possibility?

It has become fashionable to speak of a “crisis” in relations between the EU and Russia. However, this language obscures the fact that developments in the political and economic spheres have been proceeding in quite different ways.

In the political sphere there have been a number of (near-)fiascoes in the past year or so, which have been most evident at a series of high-profile political events. President Putin set the tone for the new, more difficult phase of relations in his speech at the Security Conference in Munich in February 2007. While Putin criticized the U.S., NATO and the OSCE, he also expressed a willingness to cooperate in such fields as disarmament and non-proliferation, thus indicating Russia’s concern with traditional issues of security. However, these cooperative aspects were largely overlooked by many of his listeners, and primarily the confrontative remarks remained in the minds of Western observers.

The EU-Russia summit in Samara in May 2007 was characterized by harsh dialog which carried over into the public sphere and by the inability of the two sides to agree on a final document. While the tone at the most recent summit in Mafra in October 2007 was less abrasive, little substantial progress was made. This is in part due to the fact that the EU has entered a “holding pattern” while waiting for the outcome of the Russian parliamentary and presidential elections. Furthermore, the EU has been preoccupied with internal matters, in particular with achieving preliminary agreement on a new treaty in October 2007, just one week prior to the EU-Russia summit.

Furthermore, there have been bilateral problems between Russian and certain EU member states (tensions with Poland, Estonia and Great Britain are the egregious examples), which have carried over into the field of EU-Russia relations.

Finally, larger issues of international politics such as the future of Kosovo, missile defense, the CFE treaty and the potential for nuclear weapons in Iran have increased the tension between Russia and the EU.

Thus in the political sphere relations between Russia and the EU are stagnant and even deteriorating.

In the economic sphere, however, the picture is considerably more encouraging. Over the past years President Putin has been consistent in his rhetorical references to the need to integrate the Russian economy into the global one. While the process of Russia’s entrance into the World Trade Organization has encountered many hurdles and is only progressing slowly, it is advancing. The data clearly indicate that the EU is a crucial partner for Russia in terms of both exports and imports, while the EU relies on Russia as a major energy supplier. Foreign direct investment to Russia has skyrocketed over the past three years, although one of the reasons for the record increase in 2007 appears to be the return of Russian capital from certain European countries. Still, even this phenomenon is an indication of the importance of European financial institutions for the Russian business community.

There is a clear difference in the difficulties experienced and the potential benefits to be gained for large enterprises on the one hand and small- and medium-sized firms, on the other. Larger companies, especially those in the energy sector, face significant existing or potential hurdles to access. There have been several cases of foreign investors in Russia being forced to abandon their participation in major energy-related projects on less than convincing grounds. At the time of writing, the Western business community was eagerly awaiting the passage of a Russian law regulating the participation of foreign partners in strategic branches of the Russian economy. Russian investors in the energy market in the EU were also facing uncertainty in the form of the European Commission’s suggestion to require an “unbundling” of energy firms to separate production from transport and distribution, as well as certain limitations to foreign investment imposed on the national level.

Small and medium-sized firms, especially those outside of strategic sectors, are confronted with fewer obstacles to access, but suffer from a variety of other problems. The main complaints from European companies active in Russia concern poor infrastructure, massive corruption, an overly developed bureaucracy and inadequate legal mechanisms. Despite these difficulties, however, the consensus among foreign investors seems to be that conditions have improved over the past years in terms of stability and predictability of the Russian business climate. Furthermore, Russian industries are becoming ever more integrated into Western European markets, although not as quickly or thoroughly as some Russian firms would like. As the example of Germany shows, trade with Russia has increased quickly, although a climate of mistrust on the ground has prevented Russian investors from becoming as active as they would prefer, and Russian businesses often have to struggle to be considered on a par with German enterprises.

Despite current and potential future concerns, the state of economic relations between Russia and the EU is quite vibrant and the types and levels of interaction are increasing, although this certainly applies to some EU countries more than others.

Can the economic sphere serve as a catalyst for its political counterpart?

There are several reasons to believe that this question can be answered in the affirmative.

First, there is a long and stable tradition of (Western) European economic cooperation with Russia and the USSR, despite the ideological differences of the Soviet era. The continuity of this tradition indicates that it is unlikely to be interrupted even if political differences increase. This means that there is little for economic actors to lose in any attempt to help “jump-start” relations in the political sphere.

Second, since the political and economic spheres are interconnected, there should be opportunities to influence the political side of the relationship through common issues, relevant actors which straddle both spheres, or processes in which both political and economic realms are involved.

Third, it is easier and more common to set clear, quantitatively defined standards in the economic than in the political sphere. Experience already gained in discussing, setting and adhering to standards in the economic sphere can potentially be transferred to the political realm.

At the beginning, it is necessary to think small. While there are frequent complaints from analysts that neither Russia nor the EU has a broader vision of how the relationship between the two should develop, any such vision will need to be converted into a series of small steps.

Hiski Haukkala, a researcher at the Finnish Institute of International Affairs, has recently presented a fascinating argument in this journal (“The Tomorrow Is Now”, No. 4/2007) that Russia and the EU need to start cooperating much more intensively in order to be able to develop into a joint force which will be able to play a significant global role despite the probable rise of China and the continuing importance of the U.S. on the world stage.

However, even if one accepts such a vision of the future and agrees with the need for increased cooperation, there is a need for a game plan to get there. The enactment of a series of steps in the economic realm to rejuvenate developments on the political level could be a part of such a game plan.

First, well-established areas of economic cooperation should be selected to ensure a strong basis and continuity of relationships. These are also areas in which confidence-building is most likely to have occurred.

Second, skilled individuals from these areas could be sought – those who occupy key positions and have the will to go beyond their immediate roles and push for improvements on the political level, inter alia because of their awareness that better political cooperation will bring benefits in the economic sphere as well. Economic actors are likely to have more experience dealing with both EU and Russian contexts than political ones, thus giving them an advantage when taking on tasks of moderation and coordination.

Third, areas where common standards would be desirable and where both EU and Russian economic actors could exert pressure on their various governments to cooperate on devising and adhering to such standards should be pinpointed. These could be areas where the interests of political and economic actors potentially coincide, such as fighting corruption or establishing fair and efficient mechanisms of legal recourse.

Certainly, economic actors have quite different priorities from political ones, as the profit motive overshadows other concerns. Furthermore, corruption in the economic realm could sabotage the attempted results, such as the introduction of common standards involving transparency of transactions, which may run contrary to the interests of some actors. The approach can be interpreted as an attempt to refocus EU-Russia relations solely on the economic sphere, rather than as using it to catalyze developments on the political level. Indeed, without some steering by political actors, this refocusing presents a genuine danger to the political side of the relationship.

While one cannot expect that economic actors will refrain from defending their own interests in the political realm, it is reasonable to expect that political actors will seek to retain the initiative, as it is not in their interest to become permanently marginalized. Furthermore, the process should be guided so as to utilize mechanisms of cooperation from the economic sphere, rather than adopting its agenda.

It is possible, if not necessarily likely, that the new constellation of the political elite in Russia will take a more cooperative line toward the EU and the West in general. Political actors on both sides should be open to this possibility rather than ruling it out from the start. However, if this is not the case, then using relations in the economic realm as a catalyst to improve political cooperation should be considered. This should not imply, however, that economic actors dictate policy in their exclusive interests.

The idea is to import cooperation mechanisms, which have been successful in the economic or business sphere, into the political realm. It is obvious that politics is not economics, and that some of these mechanisms will be inappropriate. However, it is the politicians’ prerogative to pick and choose, or to adapt the mechanisms to political needs.