Russia and Europe

By Claire Ricklefs

Russia and Europe

In a LSE talk entitled "Russia and Europe: new neighbours defining a new neighbourhood," EBRD President Lemierre points to contradicting perceptions in both the business and political spheres as a major source of growing tensions between Europe and its neighbour Russia. The event was chaired by former EBRD chief economist, Professor Willem Buiter.

In his opening remarks Mr Lemierre pointed towards a stark paradox in EU-Russian relations. “Today Russia is more Western-minded than it has ever been”, he said. But at the same time there are growing tensions. To paint a fair and honest picture of EU-Russian relations, we have to look at both the European and Russian viewpoints, Mr Lemierre said. We need to go beyond emotions and headlines to understand the real issues.

Mr Lemierre stressed that perceptions play an important part in these growing tensions. The two sides of Europe don’t read the 90s in the same way, he said. In the West, the 90s are viewed as the beginning of a new era; in Russia the 90s are perceived as years of poverty, a decrease of life expectancy and political and economic humiliation. Russians challenge the decision taken in the early 90s to move towards a liberal market economy, which was implemented in a harsh way, Mr Lemierre said. “We need to acknowledge this if we want to improve relations.”

Perceptions in the business and political spheres also differ, Mr Lemierre said. The business community generally takes a positive view on developments in Russia, but in the political sphere it’s a different debate. It’s about pipelines, relations with neighbouring countries, and the freedom of press. All this creates a complicated picture of EU-Russian relations.

Energy dependence and tension

A further source of both tension and mutual dependence is energy, Mr Lemierre said. It is the main link between Europe and Russia, with Europe importing 25 per cent of its gas from Russia. There is a general uneasiness in Europe about the dependence on Russian energy supplies. But the relationship is by no means one-sided, Mr Lemierre stressed. He speculated that Europe could move to diversify its sources of energy, through, for example, nuclear power or renewable energy and would not necessarily continue to maintain the same degree of reliance on a single source. Relations on this key concern of energy should therefore avoid antagonism and strive for mutual arrangements, he said.

For long-term stability, Mr Lemierre emphasised the need for Russia to diversify its economy. With its rich resource of oil and gas, Russia runs the risk of Dutch-disease, and is working hard to protect itself from this ‘resource curse’ where high petroleum prices weaken the rest of the economy.

Russia knows that very few countries have succeeded in building a strong economy dependent on oil and gas, he said. The main driving challenge for Russia is therefore to rebuild an economy based on industry and services. To do so it must invest in education, skill and knowledge-management. In this the EBRD can play a key-role, by bringing in investors, helping in the fight against corruption and structuring the micro economy. Diversification is a crucial challenge for both sides of Europe, he said.

Promoting entrepreneurship and the private sector

To do that, Mr Lemierre said the EBRD is moving towards the regions and promoting the rule of law was crucial. “Are we neutral?” Mr Lemierre asked prompted by a student question, “No, we don’t want to be neutral, we want to bring quality. We want to promote entrepreneurship and the private sector in Russia.” While there are not yet many entrepreneurs, but mainly managers trained in the West, we can begin to speak of a middle-class in Russia, he said. They have the same hopes and questions and express clear needs of a middle-class, including access to cheap and quality Western products, good healthcare, knowledge and training, the ability to travel and access to housing. A striving middle-class, endorsing the values of the rule of law and market economy, is vital for promoting democracy, Mr Lemierre said.

Mr Lemierre concluded that Russia will play a growing role in the global economy, citing WTO membership as a key incentive and driving element for both the Russian economy and relations with Europe. While many questions remain, a positive dialogue will create value he said. Remaining optimistic despite current tensions, he said Europe should remain honest in its relationship with Russia and hope that the election results will bring a new, positive, agenda of cooperation.