Russia-EU Relations - Economic

Long gone are the days of the mighty Russian military flexing its muscles and terrifying the nations of Western Europe. The collapse of communism and the rise of capitalist democracy in Russia created cracks in the economy which lay dormant for several years. In 1998 the cracks burst open in cumulating in the 1998 Russian Financial Crisis; life expectancy plummeted from 69 years for men to 56 years, the strength of the Roble collapsed 70% against the US dollar and Russia defaulted on its domestic debt.

Russia managed to recover rapidly, thanks in part to the rising oil prices at the start of the 2000's. However, the short period of the crisis demolished its economy, something which it has still not recovered from. Russia is a nation seventy times the size of the UK, but with a GDP roughly half the size of the UK's.

I wish to draw a few observations from the above table and add a bit of history here as well:

1. The Eurozone combined has a GDP about thirteen times the size of Russia.
2. Russia has a much more dynamic and faster growing economy compared to most European nations. (Note that there are exceptions to this like Germany) In particular it is worth nothing that the recent cuts mean Russia's GDP is growing about tenfold as quickly as the UK's economy.
3. In 2009 the Russian economy shrunk by 8-9%. This demonstrates that the Russian economy is not as dynamic and powerful as it appears to be.

The dominant area for trade between Russia and the EU is the oil market. A combination of rising oil prices and and waning EU energy sources (Closure of UK coal mines being an example) has put weak Russia in a very healthy trade position now. Unlike most EU nations who operate at a trade deficit, Russia has a healthy surplus, much like China,

The source below shows how wide the gap between imports and exports is benefitting Russia.

• EU good exports to Russia 2010: €86.1 billion
• EU goods imports from Russia 2010: €158.6 billion

(Source http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/countries/russia/)

Indeed, it is worth noting that despite whatever political complications may arise between the Eurozone and Russia the EU has been unwilling to act for fear of breaking the comfortable trade agreements. Examples of such times included the Georgian conflict and the poisoning of Alexander Litvinenko in 2006.

With the EU being such a diverse and multicultural state it only makes sense that various nations within the Eurozone hold different opinions of Russia. Edward Lucas, author of The New Cold War has classified them in excellent detail which I shall highlight below:

New Cold Warriors: These are nations who actively oppose Russia and will stand up to her politically. These nations economies are not strongly linked with Russia's.

Frosty Pragmatist: These nations are prepared to criticise Russia openly.

Friendly Pragmatist: These nations are less prepared to criticise Russia openly, but will make private criticisms and are not afraid to speak if pushed too far.

Strategic Partner: These nation's commercial links with the Russian Federation outweigh any links to European Union positions.

Trojan Horses: These nations may actively undermine the EU's position to assist Russia.

Please view the table below to see which category each nation falls under.

One key area which annoys EU Nations is Russia's use of the veto in the UN. I highly recommend you read the article if you wish to understand more about international relations.