beyondukraine.euandrussiainsearchofanewrelation

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24 Beyond Ukraine. EU and Russia in Search of a New Relation A report by the Institute for Economic Forecasting of the Russian Academy of Sciences, published in June 2013, warned that a clear trend to plummeting rates of economic growth was recorded: the GDP grew by 1 per cent in the first quarter of 2013, well below the forecast of the Russian Ministry of Economic Development. It signalled further that over the past two decades production output grew mostly thanks to over-exploitation of existing enterprises rather than building new ones. As a result, “new capacities are often needed just to keep the existing production output and to prevent it falling down because of the accelerated depreciation of completely obsolete capital assets. […] In contemporary Russia conditions only high rates of production growth provide for modernization of and qualitative changes in the economy”. Needed for these are massive innovations thirsty for large-scale and widespread investments which are practically unrealistic in a slowly growing transition economy 12 . In October 2014, the Russian Finance Minister warned about the impossibility of sustaining large military modernization plans 13 . Similarly, the highly respected Russian economist, Mikhail Dmitriyev, explains that 2014 “was the first year in the 21 st century when the real incomes of Russians declined, and this trend will continue this year. January inflation was the highest since 1999” and “energy exports will continue to decline as a percentage of GDP” 14 . And he stressed how Putin’s support defines itself in negative terms: “people can still approve of Putin, but the nature of the approval has shifted from positive motivation – approval of 12 Institute for Economic Forecasting, The New Economic Policy – The Policy of Economic Growth, Moscow 2013, http://russeurope.hypotheses.org/1411. Italics in the original. 13 Reuters, Finance minister warns Russia can’t afford military spending plan, 7 October 2014, http://www.reuters.com/article/2014/10/07/us-russia-economy-spendingdefenceidUSKCN0HW1H420141007. 14 M. Dmitriyev, “Predicting the Future with Russia’s Economic Nostradamus”, The Moscow Times, 18 March 2015, http://www.themoscowtimes.com/news/ article/predicting-the-future-with-russias-economic-nostradamus/517659.html.
The EU and Russia after Crimea: Is Ukraine the Knot? 25 achievements – to negative: approval due to the perception of foreign threats”. The Russian economy stagnated in 2014 and the OECD predicts (January 2015) that in 2015 its GDP will contract by almost 5 per cent and the country will enter recession. Additionally the flight of capital ($151bn in 2014, far above 2013’s $61bn) is the result of a climate of distrust and the European sanctions. The decrease in Foreign Direct Investment (FDI) and the disruption of technology transfers should also be added to the mix. The improbable but necessary modernisation and diversification of the Russian economy will be even more difficult in a context of confrontation with the West. The economic impact of the military intervention in Ukraine also raises the question of whether Putin’s policy and actions are consistent with a clearly defined strategy. Having strong political will and firm convictions − Russia must be the hegemonic regional power and one of the leading poles in the global order − does not necessarily mean having a strategy − the adaptation of the means to achieve certain ends. Neither is it useful to confuse Putin’s tactical ability for mastering the international political moment with a strategy − undoubtedly facilitated by his executive capacity (i.e., concentration of power) when compared with the complex European decision-making process. The Kremlin’s expectations of improving the economic situation seem now to rest on a turn towards China, symbolised by the bilateral agreement signed in May 2014. No doubt the strengthening of relations with China makes strategic sense. But the moment chosen, including the rush to close lengthy negotiations that had been underway for years, was due above all to Putin’s interest in showing that he was not internationally isolated. In the best-case scenario, Russia/Gazprom will be exporting 38 billion cubic metres of gas a year to China by 2030. That is to say, about a third of what it exported to the European market in 2013 and, it is to be expected, at a notably lower price. Another of Russia’s structural weakness lies precisely in what appears to be its strength, which is the concentration of political
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