A Russian Trade Union, a love story with Ukraine

An interesting new political strategy is happening in Eastern Europe and on the north Asian plateau and it all smells too much like strategic economics again. Russia is moving its economic weight, but this time for a new strategic move of geographic proportion, an expansion into the realm of the trade/Customs union.

The EU is not only a unity of policies, with endless bilateral agreements and an entanglement of laws. Its main function at the end, is primarily to liberalise the movement of free trade within the European countries, which we closely now refer to as member states.

The reason to join a customs/trade union are simple, export growth that can lead a much better balanced current account for a country. Germany currently being the most prosperous, and even more so since the European Monetary Union was introduced, has led the way in showing how free trade is a great source for GDP.

Russia is currently focusing on expanding its customs union to the former USSR satellite states and then maybe further onto the Eurasian plate. It wants to take advantage of its natural resource position and the export dependency a lot of the former satellite states still have on it.

Ukraine was poised and ready to become a member state of the European Union, though it all smells now like a large bluff.  At the end of it all, it comes down to your largest trading partner. Ukraine does its trade with Russia a significant amount more than with the EU. Having then a bilateral agreement between the two, would significantly reduce export/import costs. Also most Ukrainians feel more Russian than European in culture, one thing resented by many of the eastern bloc is the European unity and fear of culture loss.

 

 

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Though behind these arguments lies the main reason. Russia has always dominated the energy supply of the eastern European sector, and Ukraine knows this too well. Vladimir Putin has also imposed heavy custom checks on Ukrainian imports creating losses in the billions in theory. Embargoes from chocolate to steel pipes were also imposed upon goods this year and Mr Putin goes further on this, with forwardly stating that the Customs union as a whole may impose high levies in order to protect the Union for EU goods possibly entering their market.

The Payoff for Russia is vast. Not only does it secure a competitive advantage of trade with the Ukraine and cuts off basically its trade relations with the EU. It further tightens its power over the former soviet state and overall makes it ever so more dependent on Russia.

Vladimir Putin is also winning powerful game with the EU over its diplomatic procedure. That in all the EUs democratic ways are rather pointless in competitive arguments, as even if the Ukraine in someways would prefer to be courting itself with the EU commission, it still has to get into bed with Moscow. But this is by far not the first major hit by Russian Bear: slowly but surely it is geographically taking back its land.

It is amazing the unfortunate though inevitable power that strategic reason can have in undemocratic environments, but it is a good example of how maybe technocratic procedures could eliminate these problems for the EU, as it battles several fronts. Banking unity, Soverigen debt restructuring, migrational issues and strategic economics.

Tata for now
G.E.