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Putin for a stable EU?

June 5, 2018 | Expert Insights

In a recent interview, Russian President Vladimir Putin said that it is in Moscow’s interests to ensure stability in Europe, as EU is a major trade partner. Putin is scheduled to visit Austria this week, his first trip to a Western European country in nearly a year.

This week, Putin also signed a counter-sanctions law in response to US sanctions.

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. 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 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. Germany, France, and UK have all said that Russia may be responsible for cyberattacks.

Sanctions on Russia

Major sanctions were imposed on Russia by the west after Russian military intervention in Ukraine in 2014. This included restrictions on Russia’s access to capital markets, food imports, and technology. These sanctions are still in place.

The US has imposed a further sanctions on Russian entities for their involvement in Ukraine, Syria, and interference in the 2016 US Presidential elections. Washington claims that these sanctions would ensure that the entities benefiting from destabilizing activities face consequences. In, 2017, the President signed into law the “Countering America’s Adversaries Through Sanctions Act. Under this act, any country trading with Russia’s defense and intelligence sectors could also face sanctions.

Earlier this year, the Trump administration provided the Treasury Department with a list of approximately 210 Russian businessmen and oligarchs deemed close enough to Russian President Vladimir Putin to be targets for new sanctions. In April, the US imposed measures on at 17 senior Russian government officials, the state-owned Russian weapons trading company Rosoboronexport, and Russian Financial Corporation Bank.

Analysis

The Russian President Vladimir Putin has signed a counter-sanctions law in response to US sanctions imposed on Moscow in April. This legislation gives the President the power to respond to “hostile actions” against Russia by severing ties with unfriendly nations and banning trade with those countries.

The legislation has seen significant change since it was first proposed earlier this year. Initial legislation proposed significant restrictions on US goods and services, and also considered making complying with US sanctions a criminal offence for Russian citizens. However, after the latter proposal received criticism from business lobbies, it was dropped. The list of counter-measures was reduced. Putin noted that any retaliatory measures must not hurt Russian interests.

Even as ties with the US have remained frigid, Moscow’s links to the EU may be thawing. After the recent St. Petersburg International Economic Forum (SPIEF), some commentators claimed that Russia’s “isolation” from the world economy was decreasing. In recent weeks, Putin has met with German and French leaders Angela Merkel and Emmanuel Macron. Macron reportedly said that Russia is an “inalienable” part of Europe. “I hope Russia understands France is a credible and trustworthy European partner,” Macron said.

Now, ahead of a visit to Austria, Putin has said that stability in the EU is crucial to Russia’s interests. “It is not our aim to divide anything or anybody in Europe,” Putin told Austria’s ORF broadcaster. “On the contrary, we want to see a united and prosperous European Union, because the European Union is our biggest trade and economic partner.” Claiming that Russia keeps as much as 40% of its gold and currency reserves in the Euro, Putin added that Moscow had no interest of “dividing” the EU. “Why rock the European Union in order to suffer further losses and incur costs or miss possible benefits from cooperation with the European Union? On the contrary, we need to increase cooperation with the European Union.”

Austria was one of the few EU nations not expel Russia diplomats in the aftermath of the Skripal poisoning case. Members of Austria’s ruling coalition, including the leader of the right-wing Eurosceptic Freedom Party Heinz-Christian Strache have been vocal in their support for Russia. Strache recently called for sanctions on Russia to be lifted. Austria, which takes over the rotating EU presidency in July, has said it wants to act as a bridge between east and west.

Assessment

Our assessment is that Putin may be hoping to exploit the current strain in ties between the US and EU. As stated previously, we believe that Russia may be looking to improve its economic ties with central Europe, even as it distances itself from Washington and London. However, we feel that there remain a number of serious disagreements between Moscow and Brussels. EU nations strongly value their strategic ties with the US and would not compromise these ties to seek a rapprochement with Russia.