Putin, Macron meet in St Petersburg

French President Emmanuel Macron met Russia’s Vladimir Putin in St Petersburg this week, at the St Petersburg International Economic Forum (SPIEF). The two leaders emphasised the need to increase trust between the two nations and cooperate on a global platform.

France represented the largest foreign delegation at the forum, with 170 representatives from 60 French companies. German Chancellor Angela Merkel also recently visited President Putin for talks in Sochi.

Background

Modern ties between the Russian Federation and the European Union began with the end of the cold war and the collapse of the Soviet Union. The Partnership and Cooperation Agreement signed in June 1994 became the basis for the political and economic relationship between Europe and Russia. However, ties between EU and Russia swiftly deteriorated after Russia’s annexation of Crimea in March 2014. The Europe and other Western nations imposed a number of targeted sanctions that restricted Russia’s access to capital markets, food imports, and technology. These sanctions are still in place. In March 2018, the EU extended the sanctions against Russia for another six months.

According to the European External Action Service (EEAS), The EU is one of Russia's largest trading and investment partners, while Russia is the EU's fourth trade partner. In 2015 EU exports to Russia totalled €73.9 billion, while EU imports from Russia were €135.8 billion. The EU trade deficit with Russia was therefore €61.9 billion in 2015, and it is primarily the result of significant EU imports of energy products from Russia. Russia is the EU’s largest supplier of oil, gas, uranium, and coal.

Today, Russia and a number of EU nations including France and Germany also have opposing stances on a number of geopolitical issues, including the Assad regime in Syria and alleged Russian support for Rebels in eastern Ukraine. The European Union issued support for the UK’s allegations that Russia was responsible for the Skripal spy poisoning case. French President Emmanuel Macron’s party has said that Russia may be responsible for cyberattacks during the French elections. However, the EEAS notes, “Russia remains a natural partner for the EU and a strategic player combating the regional and global challenges.”

Analysis

At the recent St Petersburg International Economic Forum (SPIEF) that took place from May 24th-26th, French President Emmanuel Macron met Russian President Vladimir Putin. At the summit, the two leaders put more emphasis on their convergences than differences.  Other important guests included IMF managing director Christine Lagarde, Chinese Vice President Wang Qishan, and Japanese Prime Minister Shinzo Abe.  Read more on the forum here.

Macron reportedly said that Russia is an “inalienable” part of Europe. He noted that both France and Russia had a “special status” in world affairs as UN Security Council members. “We also have deep historical ties, as well as ties in the international policy area." Macron said. The two leaders took a common stance on issues such as President Donald Trump’s withdrawal from the Iran nuclear deal, climate change, and international trade. Macron and Putin both agreed on the need to create a stable Syria and end war in the region, as well as establish inclusive elections.

However, the Russian President also said that it may not be possible to discuss Iran’s ballistic missiles and activities in the Middle East in the current negotiations. “We cannot make preserving the Iranian nuclear deal dependent on these… parameters because if we do, it means that we too are withdrawing from the accord because the deal that exists foresees no additional conditions.” European countries including France and UK, while supporting the deal, have noted the necessity to place additional restrictions on Iran’s actions.

In terms of economics, President Macron stated the need to establish "European financial sovereignty", a term some interpreted as a reference at European companies’ reliance on the dollar. Putin noted that trade between France and Russia had grown by 25% in 2017, however he added that there were “not enough” joint Russian-French investments. “Finland’s Fortum invested €6 billion in Russia, while the whole of France invested €15 billion,” the Russian President pointed out.

The two leaders also discussed the possibility for Total, the French energy conglomerate, to become the sixth European company to participate in the Nord Stream 2 gas pipeline project. The talks concluded with Total agreeing to buy a 10% stake in a Russian Novatek’s Arctic gas project.  “I hope Russia understands France is a credible and trustworthy European partner,” Macron said.

Some experts have taken a positive outlook on Russia’s economic ties with Europe. “The Americans have basically all left and the Brits are almost gone, but continental banks, mainly Germans and French, are still really open to us,” a senior official from a Russian bank told Financial Times, adding that the cost of European debt had halved since 2014. “Relations are improving, for sure. London aside, we’re having no problems with European banks and investors.”

Counterpoint

As Putin himself pointed out, in recent years, China has overtaken a number of European countries “Both in terms of investments and trade turnover" with Russia. After the talks, Macron maintained that EU sanctions on Russia would remain until progress was made on Ukraine. Macron also reiterated that Europe is committed to its alliance with the US despite disagreements on certain issues.

While business between Russia and Europe may have improved, analysts believe that investor confidence is still low and there are a number of issues facing the Russian economy, including extensive sanctions.

Assessment

Our assessment is that the visits by German and French leaders may be a positive sign for the Kremlin, as Moscow’s ties with the west have deteriorated in recent months. With the SPIEF, Putin has shown the world that Russia is not isolated. There remain a number of geopolitical differences between Moscow and Brussels. However, we believe that Russia may be improving its economic ties with central Europe, even as it distances itself from Washington and London. As stated previously, we feel that diplomacy is a crucial tool in maintaining global stability and it is important to continue such dialogue.