French President Nicolas Sarkozy, the EU president-in-office, has called for a “joint economic community” between Europe and Russia. “Because it wants peace, Europe says to Russia that it wants solidarity, that it wants to build a common future, that it wants to be its partner. Why not build a joint economic community on a continental scale that would unite Russia and Europe?” Sarkozy asked at the UN General Assembly.So is the French president calling for a European Economic Community plus Russia? Analysts say that’s not the case. “No, what we’re really talking about is keeping good business relations.
There was never more than this,” Natalya Orlova, chief economist from Russia’s Alfa Bank, told New Europe from Moscow. Chris Weafer, chief strategist at Moscow’s UralSib Bank, agreed, adding that “what they are essentially talking about is progressing the trade and partnership agreement.” The EU wants to establish specific trade protocols with Russia where it can streamline customs and streamline investments. “I don’t think we are talking about in any sense an extension of the European Union or any sort of a new trade bloc, I think what we are actually talking about is just progressing the rules of the game – trade and cross-border investment between Russian companies and EU countries. That’s what we have been talking about and that has been in the works anyways for a couple of years,” Weafer told New Europe. The original 10-year Partnership and Cooperation Agreement (PCA) was prolonged for another 12 months before it expired in December 2007. In fact, it could be prolonged every year.
The EU and Russia have been negotiating a new version, but Brussels on September 1 suspended talks with Moscow on the new trade agreement, following the events in Georgia. Russia can trade with each EU member separately without the PCA, which Europe needs more than does Russia. Now, it looks like negotiations may resume in October. Following talks with Russian Prime Minister Vladimir Putin, French counterpart Francois Fillon said earlier in Russia’s Black Sea resort Sochi that the EU will resume partnership talks with Russia as early as October if Moscow withdraws its troops from the Georgian mainland completely. On the sidelines of the Sochi talks, political and business delegates from Russia and France also inked an agreement on cooperation in the fields of environmental and climate protection as well as energy efficiency.
France is planning a so-called “Russia Year” in 2010, while Russia is preparing a “France Year” also for 2010. So it seems it is back to business as usual. “The major reaction by the European Union against Russia was to suspend the partnership talks and already we see that they will be back on track in the next couple of weeks so already the reaction of Europe is already over,” Weafer said laughing. “The whole reaction (to the events in Georgia) was very brief. Within the next couple of weeks it will be all done and dust and it will be history,” he said. “And I guess the reason is because temperatures begin to fall in Europe,” he added, laughing again. “But frankly I’m surprised how quickly they’ve moved to reverse it. I thought at least they would wait for a few more months.” But while EU-Russian relations are warming up, experts predict a tough Russian winter, with record-low temperatures.
This concerns both Brussels and Moscow. Even though new projects have started, there haven’t been any new developments on gas developments in Russia or infrastructure in the last couple of years. “There is no new gas so if there is a bad winter both in Russia and in Europe there will not be any spare gas from Russia to give to Europe,” Weafer warned. “We have been lucky both in Europe and in Russia that the last two winters that temperatures have been quite good and winters have not been harsh at all so simply on the law of averages we are due a bad one soon,” Weafer said. The stark realisation of the Ukraine-Russian gas dispute almost three years ago was that Russia does not have the significant spare volumes of gas out of its domestic market over its export market. The EU wants Russia to proceed with developing new projects like the Yamal Peninsular and Shtokman as fast as possible so that the period of risk where Europe may not have enough gas can be reduced to fewer years. The EU wants Russia to get on with developing those gas projects.
“The EU really does need Russia to move ahead as quickly as possible with these new projects and, of course, in order to ensure that the projects are pushed quickly and the Europe’s position is secure, it wants the involvement of European companies –- Total obviously in Shtokman and Shell came back and is looking to get involved in Yamal after their problems in Sakhalin,” Weafer said. Orlova also noted that, from the Russian side, “there is the intention to cooperate on the energy side just as the European Union is one of the consumers of our energy recourses.” Overall, Orlova said that the economic partnership continues because the Russian market is still one which delivers a very substantial growth rate as supposed to the European market and a number of European companies are eyeing the Russian consumer market.
From the Russia side, the companies will be less interested in M&A (Merger and Acquisitions) activities in Europe because in Russia in the coming years there will be similar opportunities to buy assets locally. “Russian companies are more likely to focus on domestic M&A market. For foreign companies it is still choosing there will be looking for Russian companies to provide them capital or maybe to acquire some business in Russia,” the Alfa Bank economist said. From the EU side, even though the Russian economy is less important than the collective EU economy, “for foreign companies it is a market which is attractive, which doesn’t require huge investments,” Orlova said.