Russia seeks single currency as the plans for Eurasian Union emerge

Russian President Dmitry Medvedev unveils new global currency.

What Euro Crisis? Russia Seeks Single Currency

Prime Minister Dmitry Medvedev is calling attention to the introduction of a common currency for the Eurasian Union of former Soviet countries as a hedge against growing volatility in global financial markets.

Although he noted that creating such a currency is a long-term project — the Eurasian Union is expected to start functioning in 2015 — he said it’s time “to think ahead.”

“It’s not a matter of concern for today, but we should think about it,” Medvedev told a business forum in St. Petersburg on Friday, adding that he expects the business communities of member states to participate in the discussions.

The idea of the Eurasian Union was first voiced by then-Prime MinisterVladimir Putinin October 2011.

In an article in Izvestia, Putin said the Eurasian Union would further integrate existing customs-union members Russia, Belarus and Kazakhstan. It would be expanded later to include more former Soviet republics, perhaps Kyrgyzstan and Tajikistan.

Introducing a single currency for the member states of the Eurasian Union would ease trade and financial relations between the countries, reduce currency exchange expenses and simplify individuals’ transfer across the borders, but it’s a very long-term prospect, said Alexei Portansky, a professor in the global economy and policy department at the Higher School of Economics.

Creating a single currency will mark the final stage of forming the Eurasian Union and help strengthen the bloc, Stanislav Bogdankevich, former chairman of the National Bank of Belarus, told RIA-Novosti on Friday.

He added that determining which country’s currency becomes the basis for the bloc’s monetary system will depend on the union’s ultimate structure.

“If it’s a broader Eurasian Union of five to six states, it’s better to create a new currency,” he said.

Putin’s Eurasian Union: Just another Union?

Just another Union?

A new project for regional integration has been brought to life in the post-Soviet space at such a rapid pace that Jacques Delors and the founding fathers of the European Union would go green with envy. Since January 2010, Kazakhstan, Belarus and Russia have adopted a common customs tariff, eliminated their border controls, launched a single economic space and signed an agreement to establish a fully-fledged economic union by 1 January 2015. Yet the Eurasian Customs Union (ECU) and its envisaged development into a political and economic Eurasian Union (EAU) is met with scepticism in the West.  In the past, Russia has too often made bold announcements and set ambitious timetables for economic cooperation projects which in the end all failed due to a lack of commitment.

This could turn out to be a dangerous underestimation. The ECU is on a qualitatively different level than previous integration projects. It is explicitly modelled on the EU and has a strong institutional framework which includes a governing commission, directly binding legal agreements, and a court to enforce these. In line with WTO as well as EU norms and regulations, the ECU is designated to become a new economic power centre and counterpart to the European Union. Although only wishful thinking for the time being, the economic and political challenges the ECU/EAU could pose in the future should be taken seriously. The envisaged accession of Kyrgyzstan and Tajikistan might not scare anyone in Brussels, but the battleground lies in Europe’s neighbourhood: Ukraine, second-largest country in Europe and strategically important transit land, is the EU’s child of sorrow–and Putin’s object of desire.

For the first time, the European Union has to compete with a similar regional integration project which claims to be a better EU, without ‘unnecessary bureaucratic superstructures’. This raises questions about the viability of the EU’s strategy in the region. The EU’s Eastern Partnership programme seeks cooperation, but does not offer a membership perspective for the signatory countries (not to speak about the general enlargement fatigue in Europe). In other words, the incentives are low, while the hurdles and requirements for all forms of cooperation remain high. In fact, it was the Eastern Partnership programme which at first alarmed–and then inspired–Moscow. The EU’s power of attraction is certainly much stronger than Russia’s (not everyone voluntarily wants to come home to its former imperial power) but the ECU is capitalising on the general sentiment in Ukraine and other countries that ‘Europe has turned us down‘.

How far is the Eurasian Union a 21st-century version of the Soviet Union? The ECU is without doubt more politically than economically motivated–some scholars even argue that Russia loses out in economic terms. Dmitry Suslov, Deputy Director for Research at the Council on Foreign and Defense Policy in Moscow, also emphasises that the term ‘Union’ is of utmost significance since it symbolically harkens back to the Soviet Union. ‘Eurasia’ is also a favourite concept of many influential Russian nationalists such as Aleksandr Dugin, aiming at re-establishing Russia as imperial centre in the region. These symbolic concepts indicate that the ECU is indeed a re-integration project but based on a modern EU-style rule-based system of governance rather than a past-oriented Soviet-style model. However, the final objective remains the same, namely to prove Russia’s Great Power status and to make it the centre of ‘one of the poles in the modern world’. The Eurasian Union is surely Russia’s most ambitious political programme since the end of the Soviet Union. As Putin’s own brainchild, it is likely to become one of the top priorities of his upcoming presidency.

The Hidden Problems Of The Eurasian Union

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How Is It Supposed to Function?

The main governing bodies of the Single Economic Space (SES) will be the Supreme Eurasian Economic Council of heads and prime ministers and the Eurasian Economic Commission.  The Commission will also be the first major supranational institution in the post-Soviet space.

If any member country violates international agreements or the Commission’s decisions, the Commissions’ Board can bring an action against this state in the EurAsEC Court located in Minsk. Nevertheless, it is still unclear how widely its decisions will be implemented given that Russian state institutions are often reluctant to follow decisions of another supranational structure – the European Court on Human Rights.

The Commission staff will be shaped in proportion to the state’s share in distribution of the customs duties so it will consist of 84% Russian citizens, 10% Kazakh citizens and 6% Belarusian citizens. Russian citizens will therefore dominate the Commission. The Commission’s first chairperson will be Russian Minister of Industry Victor Khristenko.

It should be noted that member countries are not planning to speed up integration in their respective parliaments, regions, business associations, youth and civil societies, though it is often a crucial point for approval of the integration process by societies.

Real Aims or Demagogy?

The main aim of the SES is to create a common market of goods, services, capital and labour. In order to achieve it, the Commission was given 175 functions in different spheres, including industry, transport, energy, the agrarian sector as well as natural monopolies and competition. Nevertheless, the interstate agreements do not specify the exact content of these wide powers. It means that most likely they will be hotly debated in the future. It took the European Law system over 50 years to develop and mature and it is naïve to hope that 2-3 years will be enough for the Eurasian Union to adopt legislation in these important areas.

Given the importance of ‘champion enterprises’ such as MAZ and Belkali for Belarus or Gazprom for Russia, it is still unclear how the states can agree on regulation of these enterprises by supranational institutions, especially when they are governed not by economic, but political, logic. Previously the Russian authorities had an experience of imposing different decisions on gas and oil companies in order to achieve some political aims and assert themselves as the ‘energy superpower’.

Member states claim that they want to pursue the coordinated macroeconomic and currency policy and to limit the level of external public debt and inflation. However, given the weak rule of law in Belarus, Kazakhstan and Russia, it is difficult to posit that all provisions of the agreements will be complied to by member states.

Prospects for Eurasian Integration

The states plan to introduce a common defense space based on the CSTO as well as a single currency for the Eurasian Union. Alexander Lukashenka said that the Russian rouble could be used as the common currency, but from Nazarbayev’s point of view, it should be a new currency. Actually, it is almost impossible that Russia will drop its rouble and agree to emission centers outside Russia. Thus the situation with the single currency is likely to reach a deadlock very soon, as has happened many times before in the case of the Union State of Belarus and Russia.

On 18 November Victor Khristenko said in his interview with Russia Today that Tajikistan and Kyrgyzstan can also join the SES in the near future. This may sound good to Russian voters, but in practice these countries are quite poor and not important enough in the regional context to make the Union more attractive to further candidates.

Medvedev stated that the future Eurasian Union will avoid the eurozone’s problems, but it is hardly likely, given the fact that Russian economy will play an even bigger locomotive role in the new Union than Germany does in the European Union. There is a high probability Russia will have to lend to and invest large amounts of money in neighbouring economies for the maintenance of coordinated macroeconomic indicators.