17.02.2004
Europe Puzzled by Recent Developments in Russia
№1 2004 January/February
Carl Bildt

Carl Bildt was Sweden’s foreign minister from 2006 to October 2014 and Prime Minister from 1991 to 1994, when he negotiated Sweden’s EU accession.

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.