Eurasian Integration Yearbook 2012

The Economics of the Post-Sovietand Eurasian IntegrationWe have grounds to believe that even in the event of dramatic developmentsin the world, prices of raw materials won’t go down in such a radical fashionand the lending activity of the global financial sector won’t stop as it happenedafter the collapse of Lehman Brothers. A comparison of the current situationin the world and the CIS countries with the situation which had place beforethe crisis of 2008 suggests that the changes that happened in the last threeyears did not impact unambiguously the scale of possible negative events andthe resistance to them on the part of the countries in the region. The essentialdifferences include the absence of overheating in both the global economy andthe economies of the region. Another important factor, which seems to be themost important now, is that the possibilities to support economic growth inthe eurozone, with monetary and fiscal policies (monetary policy in particular),have not been exhausted to date.Therefore, the following realistic scenarios exist which demonstrate theeffects of negative developments in the world on the CIS in the nearestyears:1. Debt crisis in the eurozone. The consequences of a default by one or twoperipheral eurozone countries (Greece and possibly Portugal) will dependon the measures taken in this situation by European authorities, but we havegrounds to believe that these consequences will be moderate. A significantportion of debts of these countries has been de facto already written off bytheir creditors. In addition, financial institutions that are holders of thesedebts had sufficient time to form adequate reserves in case of default.For these reasons we have grounds to hope that in a moderately negativescenario, financial markets will continue to function normally and thecorporate sector of the CIS economies won’t face a sudden discontinuationof access to external funding. Nevertheless, economic damage in this casewill be considerable: Europe will be in deep and lengthy recession, whichwill probably last throughout 2012 and a part of 2013. Prices of all rawmaterials can be expected to decrease to a certain extent. We can expectthat Brent oil prices in this scenario will fall to approximately $90 per barreland remain at this level for a year (the level of prices determined by thebudgetary situation in Saudi Arabia and marginal oil production costs). Theeffect this crisis will have on the CIS countries will be significant but notcatastrophic: growth rates in the region will remain positive.2. Financial crisis in China. We can suppose with some certainty that Chineseauthorities will manage to avoid the crisis development of the problematicsituation in the country’s financial sector. We deem the possibility ofa financial crisis in China as an additional negative factor in case othernegative scenarios develop, primarily the scenario of a large-scale crisisin the eurozone which is described above. China is the world’s leadingconsumer of energy resources, and a slowdown in its economy will result126 EDB Eurasian Integration Yearbook 2012