The year 2004 is likely to become a watershed year in terms of the increased development of what is referred to as Wider Europe – a community of countries united by their close geographical proximity, shared history and cultural values. To understand what our common future will be like, it is necessary to answer two critical questions:  First, in what way will European integration develop? Second, where is Russia heading? 

I will begin with the latter question since the sentiments on the issue of Russia in Western political circles are now somewhat different from what they were only a couple of months ago. Moscow should not be deluded by the polite words of official statements being released by the governments of the Western countries. The degree of genuine concern for Russia’s future is profound in the West. The Europeans are committed to developing a deeper, more enduring and mutually beneficial relationship between the Russian Federation and the European Union. But we must understand that this critical task looks more challenging and more difficult now than it did in the recent past.

The day after the State Duma elections in Russia, Bruce George, President of the OSCE Parliamentary Assembly, was reported as stating in Moscow that “the main impression of the overall electoral process in Russia is one of regression in the democratization process.” Following months of international debate, similar assessments have been made in regard to the arrest of Mikhail Khodorkovsky, head of the YUKOS Company. Many in the West are questioning whether there has been a change in the direction of the development of Russia, and what consequences this change would have for its relations with the outside world.

Time of change

The year 2004 will mark the transition to a markedly new European policy as ten new members officially enter the European Union on May 1. Then, on June 10-13 there will be elections to the new European Parliament for all 25 member states, as well as the nomination of a new European Commission that will govern Europe for the rest of this decade. The new European Commission will have to take the great responsibility of concluding the new Constitutional Treaty which the December 2003 EU summit failed to accomplish.

In addition, negotiations will begin on a new multi-year financial framework for the Union. Toward the end of the year, the European Council will make the critical decision on whether to open membership negotiations with Turkey.

These events will transpire as the European Council assesses the progression of the ongoing negotiations with Romania and Bulgaria, and discusses Croatia’s already submitted application to the Union. Furthermore, Macedonia’s application to the Union will probably have been received by this time as well.

This year I would expect the political energies of the European Union to be focused primarily on these transitions and transformations. But at the same time, the issue of EU relations with the countries of Wider Europe – including the Russian Federation – will continue to attract attention. Following this great enlargement, it will be critical to properly assess the new situation.

The year 2004 will also be a year of transition in other important respects. In Russia, it is only after the presidential election in March that it will be possible to form a better opinion of the policies the Kremlin is likely to pursue in the coming years. On the other side of the Atlantic, there will be an almost constant presidential campaign from the first primaries in January until the actual elections in November.

Together or apart?

There have been certain signals coming from Russia that the basis of the relationship between Russia and the European Union – the Cooperation and Partnership Agreement – stands at risk of being endangered. The events of the last few weeks of 2003 have demonstrated the risk of a crisis and political confrontation in different vulnerable regions bordering on both Russia and the European Union. We must thus concentrate on avoiding these problems. At the same time, we must focus on the potential for structural improvements in our relationship, which could be achieved in the approaching period of transition, transformation – and uncertainty.

During this period – which, hopefully, will not be too long – the European Union and the Russian Federation must seek more coherent answers to some fundamental questions: Is the European Union truly ready to become a strategic actor of consequence in this Wider Europe, in the Greater Middle East, in Africa and in other areas of obvious interest? Is Russia prepared to continue in its efforts to pursue reform policies that will commit it to cooperation and integration with the rest of Europe? Will Russia work to establish the rule of the law, together with a political system that is more democratic and less managed? Will it remain committed to an open and competitive economic system?

If the European Union and Russia provide affirmative answers to these questions, then we will be entering a new era that has tremendous potential for cooperation and integration. Ultimately, this will benefit both the stability of our common continent and the economic and social wellbeing of all its citizens.

If both of these goals fail to materialize, the future prospects are likely to be bleak. We might even see tensions bordering on actual conflict in different parts of Wider Europe.

The common European Security Strategy, adopted by the December 2003 meeting of the heads of state and government, has paved the way for the European Union to become a more active, more coherent and more capable actor in addressing the different security issues that we are all facing.

In particular, the European Security Strategy highlights the threats posed by terrorism, the spread of weapons of mass destruction, as well as all the problems arising from fragile, failing or already failed states.

The European Union has created, and seeks to extend, a zone of stability, the rule of the law, good governance and democracy on and around the continent. First and foremost, it is necessary to integrate the member states of the Union itself (a task that is becoming increasingly demanding as the Union expands). But we will also see more focus given to issues of good governance, stability and the rule of the law in Wider Europe beyond its immediate boundaries.

It is obviously in the interest of the European Union that it develops a solid partnership with the Russian Federation, as well as seeks an active role for the United States whenever it is appropriate. But such a partnership – desirable as it is – will only be possible if there is a sufficient degree of commonality of interests and values. Furthermore, this partnership will only be possible if there is a mutual recognition of the fact that it is only by acting together that we can find solid solutions.

In this respect, there have been mistakes on both sides.

In early 1999, the Western countries believed that they could achieve a political solution in Kosovo without the full participation of Russia. These attempts eventually failed and we went to war. Since then, we have not been able to find a peaceful solution to this issue.

Moscow committed the same mistake recently, believing that a political settlement could be engineered by Russia alone over Moldova, without the involvement of other key international actors. This policy collapsed, and a crisis situation has developed in Moldova which risks becoming a burden on both the region and on the relationship between Russia and Europe.

In Georgia, we should all be well aware of the risks. There are groups in Georgia clearly looking to the United States and Europe for support, while, at the same time, there are groups clearly looking to Russia for support. If there is no constructive dialog between the key international actors, the only result can be the fracturing of the country with long-term and serious consequences.

The European Union and Russia must have the same interest in the stability of these areas which constitute their common “near abroad.” It should be in our common interest to avoid the type of mistakes I have mentioned and fully respect the independent choices these countries make. It is vital that we develop a closer partnership on these issues.

However, there is an obvious risk of things developing in the opposite direction. When Russia found itself isolated at the recent ministerial meeting of the OSCE in Maastricht on the important issues of Moldova and Georgia, this created profound question marks for the future. It is important that these issues are solved in a constructive way and without delay.

The need for a common interest extends to other areas as well. The majority of heroin that finds its way to the streets of Moscow originates from conflict-ridden Afghanistan; more than three-quarters of the heroin on the streets of Europe also originates from that country. If we fail to bring stability to that nation in the years to come, this will affect not only the vulnerable countries of Central Asia, but our own societies as well.

Both Russia and the European Union border on the area often referred to as the Greater Middle East. While in the past it was a common expression to say that the Balkans started in the suburbs of Vienna, today we can say that the Middle East today starts in the suburbs of Paris, London or Moscow where there are large Muslim communities.  Our interest in the resolution of the conflicts within this region is thus profound.

That the European Union and Russia have succeeded in working together constructively within the so-called Quartet is a strong testimony to this commitment. And in the post-Saddam world, we both have a profound interest in Iraq evolving into a country where its territorial integrity is respected, the rule of law and representative government are established, and the sources of rivalry, tension or terrorism are removed. In all of these respects, our interests today are essentially the same as those of the United States.

Therefore, I see the possibility of developing a strategic partnership between the European Union and Russia on all of these issues as a benefit for all of us. With the European Union becoming step by step a more active, coherent and capable actor, this partnership should have profound potential.

Moving away from a petroeconomy

At the beginning of the last century, Russia was one of the fastest-growing economies in the world. The industrial revolution began to radically transform the country. St. Petersburg and Moscow turned into bustling metropolitan centers. From Sweden, we witnessed artists and entrepreneurs moving eastward to the rising nation of Russia.

Had this development continued, Russia today might have been among the world’s top economic powers. Instead, it lingers at the bottom of the list of those countries which went through the industrial revolution a century ago.

Without being fully part of Europe and the world, Russia will never be able to rise out of the poverty and despair following its seven tragic decades of tyranny and isolation. And without Russia overcoming this horrible legacy, our common efforts to gain stability will be less effective. All of Europe has a profound interest in a Russia that is strong and stable and confident in its future.

At the recent EU-Russia Summit in Rome, an attempt was made to identify the so called four common policy spaces for the future.

The first is the concept of a Common Economic Space, which has been discussed for two years, but without much progress. The second is the common economic space of freedom, security and justice; there is also much to be done within this sphere as well (the important issue of visa requirements belongs in this category). The third is the common space of external security, which I have just mentioned above. And the fourth deals with a common space of research, education and culture, where some notable progress has been achieved, particularly in the space sector. The potential in this area is obviously much greater.

To this list of four common spaces identified at the summit in Rome I would add a fifth one – a common space of shared commitment to the development of democracy, respect for the rule of law and human rights.

From a European point of view, it is somewhat bizarre that China is a member of the World Trade Organization, but Russia is not. Without WTO membership there are bound to be limits on the amount of economic integration that can occur between the European Union and Russia. At the same time the Russian economy will be at the mercy of the laws of the jungle in the international marketplace.

The goal has been set for concluding the negotiations between Russia and the World Trade Organization before the end of 2004. For Russia’s part, it must do away with its protectionist interests that hinder its integration with the rest of the world. Furthermore, a workable formula must be found on the issue of market-conform pricing of natural gas (Russia must also recognize that recent events might have made the mood in the U.S. Congress somewhat more difficult to handle on this issue)

The concept of a common economic space has never been properly defined, and has thus remained a formula without much operational meaning. I believe the main reason for this is the policy muddle that has kept Russia outside of the WTO for too long. Without this membership, it is hardly possible to discuss the steps necessary for a true free trade area, together with other logical moves in that direction.

Part of the policy muddle that has restricted progress in this area is the uncertainty surrounding the economic relationships between the CIS countries. Although numerous ambitious schemes have been launched, there has been no obvious structural progress on these issues. The net result of the different schemes within the CIS has been the delay in progress toward accession to the WTO, not to mention restrictions on the potential for development of a common economic space with the European Union.

Although over the last decade Russia has moved away from its over-dependence on the export of oil and gas, it remains essentially a resource-exporting economy. Much of the improvement in the economic performance in the last few years was the result of the success made by new Russian oil companies in straightening out the decaying Soviet oil industry and in increasing production, primarily due to high oil prices.

However, the next necessary phase will be far more demanding, not least in terms of capital. Increasingly, Russia will require vast investment in oil exploration, as well as the exploitation of new, remote and expensive fields.

In the gas industry – a much more important sector in the long term – the developments are lagging behind from where they should be. We have seen some reforms, but the essence of the old structure is still in place. Here as well, it will be necessary to significantly increase investment in order to open up new fields. Also, large investment will have to be made into the infrastructure in order to export the available gas to the hungry markets of Western Europe, China and Japan.

In the last few months there have been voices in Russia calling for these natural assets to remain under some sort of state and national control, perhaps even state ownership. This is certainly an option. However, it should be recognized that it is in all probability an option that will limit the room for the expansion of these important industries in the years ahead. Without capital and technology arriving from other countries, the rate of expansion will definitely be lower than it would have been otherwise.

The critical question is whether it is possible to move beyond a petroeconomy and develop into a broadly based and competitive modern economy. If Russia chooses this course, we are likely to see a truly large potential for integration and cooperation opening across all of Europe. Otherwise, we will see the economic development of Russia restricted to its increasing reliance on exports of its abundant natural resources, primarily oil and gas, but ultimately unable to generate domestic and foreign investment necessary for the genuine modernization and broadening of its economic base.

In December 2003, the EU-Russia Industrialist Round Table was held in Moscow. The members of this conference painted a rather gloomy, but I believe correct, picture of the overall situation in Russia.

The Round Table concluded that “notwithstanding evident success in the economic growth and some institutional reforms, the systematic risks of investing into the Russian economy remain high. The major structural, legal and institutional reforms are not completed or effectively implemented… Despite improvements in sovereign rating due to high oil and gas revenues, Russia remains at the very bottom of the international investment ratings and the total volume of foreign direct investment is abysmally small compared to the scale of the Russian economy and its potential.”

According to the Round Table participants, over the last several decades Russia “essentially did not replenish its productive capital assets and is now facing a structural crisis and technological catastrophes in many areas. The modernization of the Russian industry and the reconstruction of its vast infrastructure will require enormous investment which cannot be fully made from domestic sources. The investment climate and related issues of institutional and structural reform remain the key to the high and sustainable rates of long-term economic growth in Russia.”

It is only by addressing these issues that Russia can move from a petroeconomy to gradually becoming a modern economy that can fully be part of the economic integration and cooperation in Europe. The benefits should be enormous both for Russia and for the rest of Europe.

Foundation for democracy

There is a close link between the economic and political system of any country. And while a petroeconomy can certainly be combined with a semi-authoritarian political system, the development of a broadly based, modern and competitive economy hardly can.

We have seen authoritarian and semi-authoritarian regimes in different parts of the world. They develop up to a certain level, but then the need for the firm rule of law, a transparent and open political system and a vibrant society, functioning beyond the spheres of the state and the domineering economic structures, creates the need for a fully-fledged democratic system.

Thus, the choice for Russia between a petroeconomy and a modern, broadly based economy is not only a choice of long-term economic potential, but a choice of integrating and cooperating with the rest of Europe. Furthermore, over time this is a choice concerning the appropriate political regime.

I belong to the generation that was brought up during the decades of the Cold War, the Berlin Wall and the communist system extended by the power of Soviet arms deep into the heart of Europe. But I also belong to the generation that was fortunate enough to see the historical miracle of a peaceful dissolution of this empire, the liberation of Russia, and the demise of the confrontations of the past.

The task of our generation is to build a new system of security, cooperation and democracy that would encompass as much of the continent as possible. Gradually, we are moving to a European Union as a federation of nation states that will eventually include all of Europe to the west of Russia and Ukraine, stretching from the Arctic Ocean to the Mediterranean. This is by no means an easy, smooth or uncomplicated process. Nothing like this has ever been done in history. And we are now half way toward fulfilling the agenda that history laid upon our doorstep following the dramatic changes of 1989 and 1991.

The transformation of Russia from a decaying rustbelt covering 11 time zones to a modern European democracy, bordering on China and the Greater Middle East, will obviously take time. This is crucial for the construction of a new Europe, as well as for maintaining and reinforcing the relationship across the Atlantic with the United States.

Whether Russia will one day decide to seek membership into our federation of nation states is an open question to be decided by Russia itself. My belief is that a country the size of Russia will find it difficult to accept sharing sovereignty across a wide range of issues; this is the essence of what we are trying to do. But that decision is yours to make – not ours.

There are question marks around the world concerning the direction of where Russia is heading. There is some confusion in Russia and elsewhere concerning all of the complicated workings of the European Union and its transformation. And we are all affected by the new security challenges and threats identified by the new European Security Strategy.

Presently, the task at hand is to prevent the deterioration of the somewhat strained relationship between Russia and the European Union. This will be particularly important during the months of transformation and transition that are ahead of us.

If Russia demonstrates its firm will, I’m sure that the European Union will be eager to respond. But there are choices to be made on both sides in order to make this possible.