The Eurasian Economic Union Is About the Economy

Economic sanctions against Russia have accelerated the integration of the union’s member states, because Belarus and Kazakhstan have seen that similar sanctions could be applied to them any moment and under any pretext.

Russian President Vladimir Putin, Kazakhstan President Nursultan Nazarbayev and Belarus President Alexander Lukashenko signed the Eurasian Economic Union Treaty that finalizes the process of establishing the EEU and will come into effect on January 2015.

It may be tempting to say that the Eurasian Economic Union (EEU) is a political project, because the changing political situation and the current conflict between Russia and the West are forcing Russia to search for a new political alternative, such as Eurasian integration. This would make the EEU a politically motivated alliance created by post-Soviet countries to show their ability to find common interests and choose a different path of development. Personally, I believe that the word “economic” in the union’s name is there for a reason.

The economy is the key factor. One of the focal elements of Vladimir Putin’s policy in the post-Soviet space is the search for an economic foundation in bilateral and multilateral relations. Boris Yeltsin focused on political oratory and used it to press for economic concessions. His partners spoke in favor of political unification but refused to discuss economic issues, which halted progress in their relations.

The best example of this is the Union State of Russia and Belarus, which was stopped in its tracks by the idea of a common monetary unit. It turned out that “common roots,” “shared history” and “shared blood” are empty words when there is no economic foundation for mutual relations. A political alliance must have an economic basis for the integration of its members to be effective. As soon as Russia understood this truth, it started reformatting its foreign relations, which displeased many of its partners.

In short, the EEU is a purely economic project that grew out of a simpler structure, the Customs Union, which has shown that all countries keep their interests close to their hearts. Its largest problem concerned petrochemical supplies to the partner nations.

The Common Economic Space had more difficult issues to deal with. How would the member countries’ banks operate? Would they accept a common currency? The Customs Union has shown that integration should be based on the economy. The CES was a higher form of cooperation.

On the other hand, Customs Union expansion has always been on the agenda, and now this will become an issue for the EEU. The economy is a major element in relations with Belarus and Kazakhstan, which both have strong economies and a common border with Russia, and use the same trade and commodity patterns. But what about Armenia, a country with a ruined economy that has no common borders with Russia, and which wants to join the Customs Union? Will its integration be economically expedient? This will be a political decision. There will always be the temptation to admit a small country for political reasons. But it makes sense to avoid this in the post-Soviet space, because it would burden the new union with partners that will not really be partners in the full sense of the word. This would revive Yeltsin’s model, when Russia created economic benefits while the partner countries pretended to support it.

But the biggest problem today is Ukraine. Russia, Belarus and Kazakhstan hoped that Ukraine would join the Customs Union and that four large post-Soviet economies would develop into a bulwark of economic integration. This has not happened, but not everything is lost yet. Ukraine’s industrial eastern regions are economically connected to Russia. The president elect, Petro Poroshenko, understands that if eastern Ukraine is deprived of the opportunity to cooperate with Russia, this would result in catastrophe and the collapse of the Ukrainian economy. I believe we may see some unexpected solutions to the issue of integration with Ukrainian regions.

Zbigniew Brzezinski, National Security Adviser to President Carter, once said that Ukraine would play a special role in the post-Soviet space. This stirred Europe, which had no clear plans for Ukraine. What will happen when Ukraine opts to join Europe? Ukrainian politicians would say that it overthrew the tyrant and turned its back on Russia, and for that, Europe should give it an economic model and money. “We are Europeans, and there are 40 million of us, so pay up,” they would say.

I spoke with many European colleagues and experts and am confident that the sole purpose of the game called “European elections” was to annoy Russia. And when Ukraine says, “I’m all yours,” Europe won't know what to do with this good fortune, for Ukraine is an economic burden that could sprain Europe’s back. The elections to the European Parliament have shown that Western Europe is tired of paying Eastern Europe’s bills. And now they may have to handle Ukraine, with its population of 40 million and a depressed economy.

The ideas advanced by Brzezinski and other political experts have had their effect: Europe believes that it could destroy Russia by taking Ukraine in. This is a silly game of enemies, but I believe that these ideas have now been laid to rest. First, Russia’s integration with China has come as a cold shower for Europe and has shown that Russia never depended on Ukraine. Second, when Ukraine starts sinking into the economic chasm, which will be soon, this will only increase Ukrainians’ and Europeans’ anger at the developing situation.

The mechanism of the Customs Union is not ideal, but it works well enough. Economic sanctions against Russia have accelerated the integration of the union’s member states, because Belarus and Kazakhstan have seen that similar sanctions could be applied to them any moment and under any pretext, for example, human rights violations. Kazakhstan, which has always been an attractive destination for foreign investment, has become aware of a political threat to its financial policy and banking system.

As for reports that Russia will transfer half of export duties on petrochemicals produced in Belarus from Russian oil to Minsk starting in 2015, I have not seen any official papers yet, but I’m sure it will be worth more than $1.5 billion. In response, Belarus could give Russian companies an opportunity to invest in or buy Belarusian assets, for example, refineries. This would offset the agreement’s negative impact, because a common economic space should be made up of open economies.

This should happen in accordance with simpler and more open plans than the current ones, with President Lukashenko first promising to privatize Belaruskali and then luring then-CEO of its Russian counterpart, Uralkali, to Minsk to arrest him. In the EEU, such tricks will be unacceptable.

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.