European Union’s economic performance in context of the Russian asymmetric sanctions

European Union’s economic performance in context of the Russian asymmetric sanctions

  • რიგა 2016
  • 25 ოქტომბერი, 2016
  • 14:26
  • ადმინისტრატორი

  Dr.oec. Jānis Priede 1. European Union as leading economic region in the world The Europe 2020 Strategy was designed as a European exit strategy from the global economic and financial crisis that started in 2008, but it risks being somewhat overtaken by recent events starting from year 2010. Before even having enacted the new strategy, the European Union (EU) already faces challenges of a further-reaching nature and different dimension. The economic and financial crisis had transformed into a sovereign debt crisis with the risk of contagion to other Eurozone members, calling into question not only the solvency of various member states but also many of the achievements that had already been taken for granted in the EU. The Europe 2020 Strategy, which received the go-ahead from the Spring European Council of 2010, is to reinforce economic policy cooperation with a view to promoting sustainable growth in the EU. It succeeds the Lisbon Strategy (2000-2010) and builds on the objectives and toolbox of the revised Lisbon Strategy of 2005 (focused on growth and jobs). Like the latter, it is driven by international competitiveness concerns and the promotion of productivity, growth and sustainability (Bongardt, 2010; European Commission, 2010; Priede & Neuert, 2015).

Europe 2020 goals were challenging when they were set without prediction the events that will follow and will make it harder if even impossible to achieve. Here we talk about the events regarding EU sanctions against the Russia and Russian asymmetric sanctions against EU in form of trade embargo and most recent UK vote on leaving the EU and uncertainty how it will leave an impact on TTIP negotiations. These and other events will definitely leave an economic impact.

The determinants of competitiveness are many and complex. Global Competitiveness Index (GCI) suggests that most competitive economies in the world are Switzerland, Singapore, United States, Germany and Netherlands. EU’s ambition to be most competitive region in the world is influenced by the fact that member countries are quite different and that’s influencing the average results. And on average EU competitiveness is lower than USA, Japan, South Korea and China (Priede & Neuert, 2015; Schwab, Sala-i-Martin, & Brende, 2015). And this means that there is a long way to go.

 2. Sanctions and counter-sanctions

Russia is the European Union's third-biggest trading partner. In 2014, trade volume between the European Union (EU) and Russia decreased, mainly due to the impact of the recession on the Russian economy, as well as the conflict in Ukraine which led to EU sanctions and Russian countermeasures. Beginning in early 2014, the EU introduced and extended a range of diplomatic and economic sanctions against the Russian Federation. Russia has retaliated with an embargo on certain EU agricultural products (Szczepanski, 2015). The EU and Russia are prolonging sanctions every year as reaction to the both sides behaviour and decisions. Russia’s trade barriers are making an impact on trade.

The Austrian Institute of Economic Research (WIFO) analysis for the EU and Switzerland considers that the export ban on products directly covered by these and Russian countersanctions will cause limited overall economic damage to economies within the EU. The researchers concluded that: 'The macroeconomic effects of the trade loss, amounting to €34 billion in value added in the short run and €92 billion in the longer run, are much more a result of a general worsening of trade relations between the EU and Russia. Nevertheless, the observed decrease in exports and tourism expenditure of approximately €44 billion due to sanctions was estimated to result in a loss of 0.9 million jobs in the short term. A longer-term view suggests that up to 2.2 million jobs (around 1% of total employment) could be lost (WiFo, 2015).

On larger economic picture there are no dramatic adjustments on the other hand it all depends on every EU member state. International trade theories explain that closest neighbours relay more geographical advantage and that’s why Baltic States and Poland has a significant share of trade with Russia.

Like in case of Latvia, food produces because of Russian sanctions are facing a challenge of new export market search since there are no predictions about how long these sanctions will last. One hand trade embargo is a challenge for all EU food producers on the other hand it is an opportunity for Russian food producers to substitute all import shortage. And as longer sanctions will be as harder it will be for EU producers to return to Russian market.

3. Perspectives

A research paper from the Vienna Institute for International Economic Studies estimates EU losses due to sanctions and conflict in Ukraine to be around €11 billion in the modest scenario of a 10% decline in exports to Russia. However, in a less likely but more extreme scenario of escalating sanctions, which would have halved EU exports, the estimated losses are €55 billion (Szczepanski, 2015).

European Union still has the largest export share in the world exports but it has a tendency to decline. This calls for a certain measures to sustain leading position in the future as well. EU constantly is facing several big challenges in order fulfil Europe2020 strategy goals that includes a challenge of existing large differences in the economic performance of the EU Member countries. EU – Russia economic relations in year 2014 was overwhelmed by political and economic asymmetric sanctions. On one hand EU28 is facing a challenge from the Russia’s economic policy towards trade restrictions, but on the other hand EU28 is exploring alternative export markets. We can observe a decrease of export value and market share to Russia, but at the same time total export value remains steady. This indicates that EU28 is diversifying risks and changing export market structure in favour to other markets like Turkey, India, Brazil, United Arab Emirates, South Korea and Saudi Arabia (Priede & Pereira, 2015).

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