EU does not rhyme with energy
Energy has become the defining element in EU-Russian relations. It is the paramount concern on both sides, but for different reasons, and EU incoherence is notorious. The European Council has gone for a comprehensive legislative package which, unfortunately, flies in the face of what the Russians want: no ‘unbundling’. The effective separation of the networks from energy generation (in Russia) and demand (in Europe) is the aim of the EU Commission, while both Russia’s Gazprom and France’s Gaz de France and Germany’s E.ON are united in keeping things together, in their own hands of course. Whether the early warning mechanism agreed with the Russians will in future take the politics out of the pipelines remains to be seen. So far, the EU Commission has not been able, despite serious attempts by energy commissioner Pielbags, to produce a comprehensive energy concept that includes nuclear power and excludes the competition for Russian favours.
To turn dependence into interdependence is never an easy task, and it is especially difficult at a time of rising energy prices around the globe, reflecting rising demand. It is only with third country suppliers such as Algeria or the Central Asian republics that the EU has been able to seriously negotiate reciprocal agreements regarding trade, transit and investment possibilities. Currently, the EU is trying to convince the Russians that one such new framework agreement should include provisions for transparency, reciprocity, non-discrimination and a level playing field – in other words, the Brussels Eurocrats want to teach the Russian bear a few dancing lessons. What is sadly lacking is EU solidarity, especially in the energy field. All the preaching from president Barroso that a problem for one member state should be a problem for all does not change facts on the ground.
For the EU, Russian WTO accession has a high priority, as the Russians would be bound to conform to general rules. The process is only inching forward, however, with no final date in sight. WTO accession remains a pre-condition for any far-reaching free trade agreement. Once Russia has acceded, the EU would aim for deep and comprehensive economic integration through a new overall agreement. This would, if all went well, include a strong component on energy, aiming at a sustainable balance between the production side and the consumption side.
A grand bargain?
The EU, behind all the detail, the compromises and the frustrations, seems to be developing something amounting to a grand strategy. For any foreseeable future, Europeans will need Russian energy. But the Russians, too, will have a growing interest in creating a level playing field with the high technology of Western industries. They understand that they have to diversify their economy away from sole reliance on energy and weaponry and create a post-oil technology base. This is where the Europeans come in. To quote, once again, from the DG RELEX briefing for the House Lords: ‘There are many prizes which can be obtained to our mutual benefit: much closer cooperation, innovation and high technology, outer space, aviation, biotechnology, nanotechnology, increased people-to-people contacts with visa freedom as a long-term perspective, substantial increase of tourism, tens of thousands studying in each others’ universities…. Our difficulty is that we agree on the need to get from A to Z but have great difficulties in getting from A to B to C.’
The EU on its own cannot handle the Russian dossier. It would need much more cooperation from the nation states who are going to profit from any future framework agreement. It would also benefit greatly once Russia meets the conditions for acceptance into the WTO with its code of conduct. Personal networking also has an important role to play, particularly the Association of European Business (AEB). AEB has a membership of 540 companies, all of them from the EU or EFTA (formerly the European Free Trade Association and now the European Economic Space) doing business in Russia, or with Russian partners. It was established in 1995 under the name of the European Business Club. Later, it was renamed and reorganized and is by now the framework organization for EU companies in Russia, parallel to national institutions with similar objectives, such as the British Business Club. It ranks just behind the American Chamber of Commerce in terms of membership numbers and activities. The AEB tries to operate like a think tank for both the EU in Brussels and the authorities in Moscow. This is considerably more than the usual lobbying, and covers fields like energy, banking, tax, copyright and patent law. It is not precisely grassroots work but brings a lot of fundamental issues to the fore.
Better believe in Adam Smith
In the long run, however, the logic of the market is the most important force in creating a common legal and economic space between Russia and the EU Europeans. You don’t have to be a Marxist and look at the material foundations of human behaviour. Follow Adam Smith and trust in the rules of enlightened egotism. Much as the rough and tumble of the early Industrial Revolution gave way to a more equitable system in Britain and Europe, and much as robber barons in the US eventually made their peace with the law and the rest of society, there is a good chance that the new ruling class of oligarchs and siloviki will sooner or later understand that to secure their ill-gotten gains they have to be part of a rule-based system. Moreover, Western companies wanting to do business with their Russian counterparts have to make sure that the more unappetizing elements of many of Russia’s big companies are being eradicated and that the rule of law prevails. They don’t want to be robbed, burn their hands or risk their reputation at home – under, for instance, the watchful eye of the Securities and Exchange Commission of the US. There is broad convergence.
Today Russia’s markets are underregulated and overregulated at the same time, burdened by corruption and red tape in any conceivable combination. After centuries of tsars and commissars, improvement will take time, but also pressure from outside. It is the civilizing influence of advanced global capitalism that can convert robber barons into regular guys, and responsible players who will force them, sooner or later, to conform to rules made in the global market place.
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In search of a foreign policy
‘The Kremlin is not just a palace like any other, it is a complete city, and this city is the very heart of Moscow; it serves as the frontier of two parts of the world, the East and the West. The Old World and the Modern World are present there. Under the successors of Genghis Khan, Asia stamped on the earth and out of it came the Kremlin.’