Eurasian Union begins: the giant modelled on the EU is Moscow’s biggest challenge

Come and join our Eurasian Union Mr Putin would like to say to the EU, but it seems that the EU will not RSVP. Photo of Mr Vladimir Putin, President of Russia, from the EU-Russia Summit  one year ago (EC Audiovisual Services, 28/01/2014)

“Come and join our good Eurasian Union”, Mr Putin would like to say to the EU, but it seems that the EU does not RSVP. Photo of Mr Vladimir Putin, President of Russia, from the EU-Russia Summit one year ago (EC Audiovisual Services, 28/01/2014)

On the first day of 2015, when all the world was waking up ready to taste what this New Year will be like, the treaty creating the Eurasian Economic Union took effect. The new EEU has now become a reality, allowing free movement of trade, services, and capital between Armenia, Belarus, Kazakhstan and Russia.

What can be called as one of Vladimir Putin’s biggest goals saw the light last May, when Mr. Putin, Kazakh President Nursultan Nazarbayev and Belarus President Aleksander Lukashenko met in Astana, Kazakhstan to sign a treaty establishing the EEU. Armenia was then the first participating country, with Kyrgyzstan now scheduled to join the union on the first of May 2015, according to the documents signed in Moscow on December 23. Turkmenistan and Uzbekistan will also join with Tajikistan saying that they have had an invitation to join the union and were currently evaluating it.

With a population of around 180 million people, an area which is five times larger than the European Union – covering the 15 percent of the earth’s land surface – and a trade turnover currently standing at $66 billion, the EEU is gigantic. Indeed if we were to analyse the feelings in the western countries, very likely we would find out that there’s some kind of worry around, with many seeing this union as Mr. Putin‘s attempt to reconstitute the Soviet Union.

By all means the EEU might be a way for Moscow to exert more influence on the other member countries, but seeing the EEU as a Russian property could be too simplistic. Russia needs the EEU, for many reasons. The bloc’s formation comes after more than ten lucky years for Moscow, whose solid situation, though, made of oil and gas revenues changed significantly in the last few months. The collapse of world oil prices in 2014 has left Russia suddenly more vulnerable.

But it’s the effect of Western sanctions against Russia over Ukraine crises, denying Russian businesses access to Western credit markets, which represent the bigger pain for Moscow’s economy. Also in terms of isolation, an isolation that has to be eliminated somehow.

On January 2, the day after the EEU became reality, Russia’s EU ambassador Vladimir Chizhov, urged Brussels to launch talks with the newly born Eurasian Economic Union. EUobserver on Friday quoted Vladimir Chizhov as saying: “Our idea is to start official contacts between the EU and the EEU as soon as possible. […] The EU sanctions [on Russia] are not a hinder”.

Mr. Chizhov, in this brand new optimistic look, also talked about a dream of a common economic area: “I think that common sense advises us to explore the possibility of establishing a common economic space in the Eurasian region, including the focus countries of the Eastern Partnership”. He then added: “We might think of a free trade zone encompassing all of the interested parties in Eurasia”. Mr. Chizhov declarations sound not only be encouraging for a “warmer winter” between the EU and Russia, but quite surprising indeed, given that the speaker is the same Mr. Chizhov who doubted that the European Union was a reliable partner for Russia just two weeks ago. Christmas does magic, we must admit.

Further, Russia’s Deputy Foreign Minister Vasily Nebenzya shares a common view with Mr. Chizhov, as an interview with TASS, the Russian news agency, shows. “Russia sees the long-term goal of cooperation between the EEU and the EU in creating a free trade zone that is expected to serve as the basis of a common economic space from the Atlantic to the Pacific”, he told TASS. And moreover he called the institution of the EEU a “strategic initiative” to ensure development of all countries.

The EEU was formed as a long-term response to this isolation then, or even as Moscow’s “new way” to interact with the western powers. And also to compete on the same level. This, I guess, is the key here. The union aims to create a single integrated market for the free movement of goods and services between the member states.

As Mr. Timur Suleimenov, Minister of Eurasian Economic Commission for Economy and Financial Policy, explained in an interview with Rossiyskaya Gazeta newspaper, citizens of all EEU member states will be able to travel, work, study and get medical treatment as they do in their home countries. Basically as it happens in the EU for its member states. Unlike the EU, the bloc does not have a single currency, but Russia hopes the integration and pooling of lucrative resources, such as gas and oil, will one day culminate in a single currency.

What to expect and whether the EEA adventure will be successful from an economic and political perspective is still hard to see though. Many analysts seriously doubt it. The ruble’s decline in value represents the biggest question mark and it is likely to have serious consequences for the other countries in the bloc.

At the same time, Both Kazakhstan and Belarus appear worried about Russia’s dominance at the trade bloc for political reasons, especially after the Ukrainian crisis. Kazakh President Nursultan Nazarbaev, which was one of Eurasian integration’s biggest proponents, the first to express the idea of a Common Economic Space more than 20 years ago, has reportedly stressed theat the Kremlin’s growing isolation from the West over Ukraine will somehow “impact” attempts to build a successful EEU.

But the absence of a populous country like Ukraine, which was originally to join, could actually be the main point. Moscow pushed hard for Ukraine to be part of the EEU, hoping to create a larger-scale bloc, but a popular revolt last year eventually drove Ukraine’s Russia-friendly President Viktor Yanukovych from office in February.

Ukraine has since signed an agreement to strengthen ties with the EU. The developments then dragged Russia and Ukraine into tensions and the EU and the US to impose sanctions on Russia, but this might be another story.

Or just another side of the same coin, which is now changing again.

the sting Milestone

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