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Europe on the edge: the weak links and the Russia link

    • Berlin
    • 17 April 2009

          The current economic crisis is subjecting the entire “EU system” to conflicting pressures. On the one hand, the search for a synergistic and coordinated approach to economic policies would undoubtedly be facilitated if its joint institutions were performing well. On the other hand, each national government has individually determined what measures to take to overcome the crisis, which means that the Commission, in particular, is being pushed to the sidelines.  The role of the European Central Bank is vital, but also extremely delicate in such a context, given the need for the Euro to be used as a stabilizing tool and for conditions that are guaranteed to stimulate the continent’s economies.

          One issue that is causing increasing concern is the consistent rise in unemployment: past experience would suggest that this tendency will continue beyond the critical phase of the crisis – along with all its possible political and social implications.  Productivity is another concern, as the signs for recovery in the medium term are not positive, whilst rising inflation in the United States, with the consequent negative effects this has on many other economies, could well prove to be the biggest problem of all.

          Taking a closer look in particular at the newest members of the EU, it is clear that their respective situations and prospects are quite different, both in regards to their demographic sizes and economic status and to the degree to which their institutions have been consolidated.  It would not, however, be appropriate at this time to overlook the impressive results achieved so far through the enlargement process in terms of deep reform and growth rates. That said, the very real risk of withdrawals should not be underestimated in the event that this crisis were to bring about serious political instability or even negative repercussions on the West’s relationship with Russia.

          Looking at the situation in Europe as a whole, the economic picture at this point remains very uncertain, as it is difficult to predict the medium term effects of the adopted stimulus packages and how the member states most badly hit by the recession will hold up.

          Relationships with Russia must be analyzed in a triangular context in which the position of the United States is fully taken into account. The efforts being made by the Obama administration are aimed at reviving cooperation on a more pragmatic basis, but there can be no doubt that Russian priorities are vastly different than those of the West.  It is expected that America’s approach will be to acknowledge Russia’s status as a global player, rather than only a regional one – even though it is temporarily weakened by the fall in energy prices and financial difficulties. This implies however that Europe will have to assume greater responsibility in all questions regarding its “near neighbors”, which like it or not, are of interest to Moscow too.  The shrinking global economy is limiting, at least in the short term, Russia’s negotiating power with the EU.  It is also true that starting with the crucial energy sector, the preponderance of bilateral discussions at the national level continues to obstruct the evolution of an established “strategic partnership” between the EU and Russia.

          In light of the first three months of the Obama administration, and the way in which Europe and Russia have reacted to what is probably the most serious phase of the global economic crisis, the prevailing view is that there has been quite constructive pragmatism behind the most important decisions made to date. That said, it is important to focus attention, not only on matters of immediate concern, however urgent and exceptional those concerns might be, but also on reassessing global economic relationships: a delicate mix of flexible, local solutions and more clear-cut and efficient rules applicable to all.

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