MOSCOW BLOG: Russia and Europe –friends again?

MOSCOW BLOG: Russia and Europe –friends again?
Following US President Joe Biden's Geneva summit with Russian President Vladimir Putin, now German Chancellor Angela Merkel and French President Emmanuel Macron want a EU-Russia summit too
By Ben Aris in Berlin June 23, 2021


Tired of the endless bickering and headaches that the Kremlin has caused in Europe’s backyard and increasingly further afield, Germany and France have called for an EU summit with Russia to settle their differences and get back to work.  

Both German Chancellor Angela Merkel and French President Emmanuel Macron have been making overtures to Russia in the last few years to try to reverse the decaying relations that hit rock bottom following the annexation of the Crimea in 2014 and the start of the current sanctions regime.  

The two titans of European politics have garnered flak for being soft on Russia, but now they want to capitalise on the lull following the one-on-one summit in Geneva on June 16 between Russian President Vladimir Putin and US President Joe Biden, who is also looking to de-escalate tensions and form a new “stable,” if not actually friendly, relationship with the Kremlin.  

Biden is believed to be more focused on his domestic agenda and meeting the rise of China, which he sees as a true global rival. In this context Russia’s troublemaking is a distraction he could do without, but Russia’s ability to make trouble has grown to a point where it cannot be ignored.  

Merkel and Macron appear to be part of a broader strategy worked out by the Western leaders as Biden stopped off in the UK for a G7 summit and then in Brussels for a Nato summit, where the “Russia problem” was very likely discussed, on his way to Geneva. Biden clearly wanted to arrive in Geneva with a united West behind him to propose practical measures to remake a more “rule based” relationship with Russia. The EU-Russia summit seems to be part of a wider co-ordinated plan amongst Western leaders.  

Very few details of what was actually talked about at Geneva were released by Russia, which was clearly pleased by the talks that Putin described as “constructive.” Putin went on television in the days afterwards to praise Biden and dismiss press criticism that the US president was a doddery old man, saying: “You have to be on your toes, as nothing gets past him.”  

The call for a EU-Russia summit comes just as reports come in of a Russian warship firing shots across the bows of the UK Royal Navy’s HMS Defender off the shores of Crimea, which the Russian Defence Ministry said had violated Russian territorial waters. The Royal Navy denied that any shots were fired.  

Summit to talk about   

Merkel and Macron are suggesting a new EU strategy of closer engagement with Russia to build on progress made by Biden.  

Diplomats said Angela Merkel surprised EU diplomats by proposing an EU summit with Russia during a meeting in Brussels on June 23, the Financial Times reported citing sources in the Belgian capital. The proposal has the backing of Macron.  

Merkel has been in consultation Macron and Italian PM Mario Draghi in recent days, who were in Berlin for talks ahead of her announcement, as well as other EU leaders. US Secretary of State Antony Blinken has also been in Berlin for talks with the government this week. And Merkel talked with Putin by phone in the same week, who debriefed her on his talks with Biden and waxed on the theme of unity in Europe against common foes, as it is currently the 80th anniversary of the Nazi invasion of the Soviet Union.  

From all the EU leaders, Merkel is probably closest to Putin, as the two meet regularly. Moreover, German has ten times as many of its companies working in Russia and is Russia’s biggest European trade partner, so she also has both major commercial interests and some real leverage over the Russians. As bne IntelliNews recently reported, Russia is almost entirely reliant on imports of machine tools from Europe – predominantly German tools – which are crucial to Russia’s modernisation plans.

At the same time, Merkel is due to stand down as Chancellor this autumn and would like to see her role as moderator between Russia and the EU broadened into a more formal mechanism whereby the EU can speak with a single voice. For its part, the Kremlin has played on divisions within the EU to increasingly deal with member states on a bilateral basis rather than talk with Brussels, which undermines the EU's ability counter Russia’s various gambits

The call for an EU-Russia summit is a major concession, as EU summits with Putin have been suspended since Russia annexed Crimea in 2014.

The proposal will not go down well with many of the EU members. While Russia has solid friends in the EU such as Italy, Austria and Serbia, it also has implacable enemies such as Poland and the Baltic states.

EU was already to talk  

While the Geneva summit may have been the catalyst for the new initiative to make up with Russia, the EU had already started this year with an offer to rebuild relations on more pragmatic grounds.  

European Union's top diplomat Josep Borrell travelled to Moscow in February and offered an open hand, stressing that the EU was interested in “pragmatic” relations with Russia and suggested that the two sides tone down the tensions. Pointedly the EU refrained from commenting on the arrest of anti-corruption activist and opposition politician Alexei Navalny until Borrell was in Moscow and while there Borrell pointedly refused to visit Navalny or meet with his representatives.  

However, that meeting when disastrously wrong. Russian Foreign Minister Sergei Lavrov completely upstaged Borrell with a very aggressive “new rules of the game” speech that said Moscow would not brook the EU dual business and sanctions policy with Russia, and had three European diplomats made persona non grata while sitting at the table with Borrell. Later Lavrov followed up with a threat to break off diplomatic relations with Europe if it didn't respect Russia’s wishes.  

Borrell was deeply humiliated by the whole episode and hit back with his own tough talk, but the whole show was aimed specifically at the White House and the new Biden administration which was in the process of deciding on its Russia policy. By dragging Borrell over the coals in the most public fashion possible, the Kremlin were demonstrating to the White House what it could do if the new US president didn't choose to wind down the US’ aggressive stance towards Russia. And it seems to have worked.

The new Franco-German draft proposal for new relations with Russia is far more conciliatory than previous proposals, the FT reports, and reiterates the EU’s willingness for “a selective engagement” with Russia on areas of common interest. It encourages the European Commission and the EU’s diplomatic service to develop “concrete proposals and leverages” to this end.  

Russia is back  

The deal is a tacit admission that Russia is back.  

In the decade after the collapse of the Soviet Union Russia was flat on its back both economically and militarily. But since Putin’s famous Munich Security Conference speech in 2007 Russia has begun preparing itself to confront the West, starting with a military modernisation programme that ate up all the prosperity generated in the boom years of the noughties, and most recently with the creation of the fiscal fortress that has made Russia impervious to sanctions. The West’s ability to force Russia to do anything by using sanctions has been effectively checked.  

Militarily Russia has also become a force to be reckoned with. The incident today off the shores of Crimea highlights Russia is back as a naval power after being almost entire absent for two decades.  

Moreover, Russia is increasingly injecting itself into trouble spots around the world. It became the major player in the Syrian civil war. It is also a key player in Libya and Iranian disputes, and has also become active in Africa, not to mention being one of the few countries in the world on speaking terms with North Korea. The international community has increasingly come to realise that Russia has a big role to play in ending all these conflicts.  

On top of these military threats there are the issues of climate change, the war on terrorism and more mundane topics like global money laundering, the Arctic, dealing with coronavirus (COVID-19) pandemic, and space where Russia’s co-operation is needed.  

A new deal is also an admission that Russia is becoming an increasingly important market in Europe that the rest of Europe doesn't want to cut itself off from.  

Europe already has an extremely conflicted relationship with Russia where it loudly protests against the corruption, election hacking and military backing of Donbas rebels, but quietly accepts billions of dollars of Russian money flowing west as trade, real estate deals, bank deposits and any number of other lucrative investments.  

The hypocrisy of the West’s position was highlighted this week by the harshest ever sanctions imposed on Belarus by an EU incensed by the forced landing of a Ryanair flight and arrest of top opposition blogger Roman Protasevich on May 23.  

Among these strictures were sanctions on 78 individuals that are close to the regime of Belarusian President Alexander Lukashenko. However, one name that was glaringly missing from both the UK and US list was that of Mikhail Gutseriev, a Russian tycoon that is personal friends with Lukashenko and has major investments into Belarus’s oil, chemical and real estate sectors among other things. Gutseriev should have been the first person to be sanctioned, but he also has major investments in the US and UK and managed to have his name missed out somehow.  

More generally, many European countries have major business interests in Eastern Europe.  

While the Royal Navy is flying the flag off the Crimea coast, British arms makers have just concluded a deal to sell Ukraine two British Sandown-class minesweeping ships that will be transferred to the Ukrainian Naval Forces in the coming months as part of a wider, GBP1.25bn ($1.75bn) UK-Ukraine agreement to upgrade Ukraine’s navy. The memorandum on the deal was signed two days ago aboard HMS Defender – the same ship the Russians are said to have shot at – that was docked in Odesa, Ukraine.

Under the larger agreement, The UK will help Ukraine build two naval bases, one in the Sea of Azov and one in the Black Sea. In August, a production agreement is to be signed to build the first two of eight new missile patrol boats. In a five-year deal, Britain is committed to restoring Soviet-era shipyards in Ukraine for the manufacture of the six other patrol boats. Separately, the US is providing Ukraine with five Island-class patrol boats.

Germany is also heavily invested in Russia and many of its major companies, most notably Siemens, are making billions of dollars a year from work there; almost all Russia’s high speed trains and its gas turbines are made by Siemens.  

The Russian-German Chamber of Commerce announced on June 23 that almost half of the 3,971 German companies that work in Russia plan to invest several billions of euros in the next 12 months, up from the 30% that said they planned to invest last year. And that investment has kept growing after German companies invested a record €3bn in 2019.  

The survey also found that the majority of German companies that work in Russia (92%) support the cancellation of anti-Russian sanctions, 5% support prolongation of sanctions, and only 3% favour toughening the sanctions. Merkel has been under constant and long-term pressure from her business lobby to make peace with Russia, as it is simply too profitable a market to ignore.  

Nowhere is the conflict between business and politics more evident than in Merkel’s resolute decision to see the Nord Stream 2 gas pipeline completed. Germany has been the key player in trying to bring Russia’s aggression in Ukraine’s Donbas to an end, but it has also agreed to the construction of the pipeline – now completed – that allows Russian gas transits to avoid Ukraine entirely that will cost the cash-strapped government in Kiev some $3bn in lost transit fees.  

The US has less skin in the game when it comes to business with Russia. As bne IntelliNews reported, the US is the biggest foreign direct investor into Russia but this is done on a corporate level and via third countries without government support, so official US FDI features low on the official list of sources of funds. However, US investors are very big players in Russia’s bond and stock market, which has been a major factor in preventing the US Treasury Department (USTD) imposing harsh financial sanctions on Russia, as all its major banks and insurance companies are heavily exposed to the profitable Russian securities.  

And Russia’s importance to the global economy is growing. It is already a major player on the world’s energy and metal markets. More recently it has become the world’s biggest grain exporter, another strategic product.  

And now that its economy is maturing it is producing world-class companies in non-resource sectors that are flourishing on the foundation of its massive domestic consumer market. Today Russia’s leading e-commerce company Wildberries announced it was launching a new cross-border service that would allow producers in Belarus, Kazakhstan and China to sell directly to Russians. Wildberries is the first of the big Russian tech companies to make global expansion a key part of its strategy and it is already in 13 countries, including EU members Germany, France, Italy and Spain.  

Likewise, the consumer electronic firms M.Video and Eldorado merged two years ago to become the biggest consumer electronic firm in all of Europe. German white goods retail MediaMarkt was already well established on the Russia market having built up a big business over many years, but faced with the combined power of M.Video-Eldorado it called it a day and left, giving M.Video-Eldorado all its stores in exchange for a 15% stake in the newly merged company.