Eurasia: Workshop on economic integration brings new insights

“A unique opportunity to build bridges during a period of tensions between the European Union (EU), Russia, Ukraine, and other countries.” This was how Prof. Dr. Pavel Kabat, Director General and CEO of IIASA, described the third workshop of the IIASA project on the “Challenges and Opportunities of Economic Integration within a wider European and Eurasian Space” that took place on 20–21 November 2014 at IIASA.

Kabat sought to reassure participants of the positive aspects of rational scientific cooperation through these IIASA workshops in the light of the deeply emotive political events in eastern Ukraine.

“IIASA was a source of scientific cooperation during the worst days of the Cold War,” he said. “During the current crisis between the EU and Russia, IIASA is again providing a platform for an exchange of ideas that may eventually help design economic integration between the EU and the Eurasian Economic Union (EEU). We must avoid political judgments in this forum and be ready with policy support when it is needed.”

The project is being undertaken by IIASA in cooperation with the Eurasian Development Bank, Vienna Institute for International Economic Studies, and other partners. It was initiated in 2013 at the request of the Administration of the President of the Russian Federation. The kick-off workshop on project framework and policies was held in June 2013, several months before the current crisis started. 

In summer 2013 the prospects of providing research-based support to policies on economic integration between the EU, Russia, and neighboring countries seemed very promising. However, the first project roundtable in March 2014 on research methodologies took place around the time of the “Crimean crisis,” and, naturally, the challenge of identifying a proper niche for the research arose.

The second roundtable on trade policy regimes in July 2014 faced even stronger challenges, given the development of the military conflict in eastern Ukraine and related escalation of the sanctions war. Participants, however, noted that integrative solutions can often start to emerge in the middle of a crisis, for example, the idea of European integration after World War II. Despite the prevailing political atmosphere, it was thus a very appropriate time to start discussing the economic side of possible integration between the EU, Russia, and other interested countries.

Sanctions, how deeply they would bite and where they would do most damage, were at the forefront of discussions at the November 2014 workshop, attended by over 40 delegates from the public and private sectors of the EU, Russia, Ukraine, and other countries.

The first session was entirely devoted to the current and potential economic impacts of the ongoing sanctions crisis. Sanctions, delegates warned, would adversely impact Russia’s currency and prospects for foreign direct investment (FDI). This was especially so given Russia’s high dependency on energy exports and the need to diversify its economy in the medium and long term as a hedge against the falling oil price. Replacement of FDI by resources from the reserves, and internal debt, were mentioned as a possible solution on Russia’s side.

However, some economists believed that the EU would also suffer, in particular those countries, like the Baltics, which were dependent on Russian energy imports and on manufacturing exports to the Russian market. The impacts of sanctions on the EU countries will be highly heterogeneous, and their implications for the political process remain to be seen. 

Péter Balás, Deputy Director General, DG Trade, European Commission, and Head of the Support Group for Ukraine, said that the impact of sanctions were well understood. He called for a change in policies, for instance, the introduction of discussions similar to those leading to the September 2014 Minsk Protocol, where a ceasefire would be a precondition for lifting sanctions on both sides.

The view of IIASA as a neutral ground for potentially contentious discussions was echoed by Igor Finogenov, Chairman of the Management Board of the Eurasian Development Bank (EDB) headquartered in Kazakhstan, a major remit of which is to deepen and widen integration in Eurasia and mobilize international cooperation. “Our collective job during this workshop is to pursue non-politicized discussions based on factual evidence to determine what are the preconditions for future economic relationships when the political situation changes,” Finogenov said. “In that respect, we cannot afford to wait.”

Last edited: 10 December 2014