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Think big, Russia and Europe, you both need an energy community

Talks between Russia and Europe are so stymied by mutual suspicion that only a "big deal" can break the deadlock, says Timofei Bordachev. Cooperation over energy is a great opportunity to set bilateral relations on a whole new course.

Timofei Bordachev

Talks between Russia and Europe are so stymied by mutual suspicion that only a "big deal" can break the deadlock, says Timofei Bordachev. Cooperation over energy is a great opportunity to set bilateral relations on a whole new course.

History is made when nations think big. Take the European Union, for example. People say that European integration was a gradual process, based on regular technical rapprochement. In fact, it was a "big deal" when the founding countries handed over the main levers of control over coal and steel – both vital war resources – to a supranational body. Today, national security depends more on oil and gas – and Russia is rich in both. So that is where Russia and Europe must begin to build a new strategic union – complete with joint institutions, legislation, bureaucrats, even lobbyists. Otherwise their deep-seated lack of trust will compound competition between them, expose both sides to manipulation by outside forces and prevent regional security from being strengthened.

History shows that certain conditions must be met for any "big deal" to work. First, the main objective of the partnership must be to meet common goals which both parties recognise to be equally important. In the case of Russia and the EU, finding a common cause in energy will shape political will in both camps and help policy-makers to understand that unity is a rational choice. Second, Russia and Europe will only overcome the essential differences between their political, social and administrative cultures when people outside government play an active part in the process. So the "big deal" must have public support, especially among economic players. Third, both partners must be able to make a comparable material contribution to their joint venture.

At first glace, the final condition looks problematic. The twin natural resources of oil and gas make up the bulk of Russian GDP, and sovereignty over them is worth a very great deal. Russia's size and geographic location also make it one of the world's least vulnerable energy suppliers in terms of the major international security threats. Unfortunately for Europe, it cannot even begin to match Russian energy reserves. So, unlike the European Coal and Steel Community, where all six original member states could make an equal contribution, today's EU has almost nothing material to contribute to a joint EU-Russian energy community.

That's no excuse for Russian arrogance over the value of Europe as a partner, however. The EU can contribute non-material benefits to a functional union which would be very useful for Russia. First off, the EU has an effective mechanism for the collective protection of its members' interests on the global market, including the political levers to use it. Second, European companies still offer Russia an optimal choice of investment and technological possibilities. And finally, Europe can provide stable economic management systems, including structures for managing energy firms. Access to such European "resources" would compensate Russia for the "losses" incurred by renouncing its monopoly over national oil and gas supplies. And agreement would be a major boost to political and social stability from the Atlantic to Vladivostok.

But would such a trade-off satisfy either partner? Let's be frank, no amount of compensation is going to seem adequate to those Russians and Europeans who want to squeeze the most "freebies" out of each other. Sooner or later, even the most cynical partner ought to realize that freeloading cannot work in economic relations - it just creates a minefield of hidden grievances and political instability. Experience in Latin America, for example, shows that if an international partnership is too one-sided, the whole deal can be torn apart when the political regime in the weaker partner changes. So the tendency in the last few years for both Russia and the EU to play "zero-sum games" will not be effective in the long term.

However, the big problem in the short-term is that point-scoring, and continual efforts by each side to build up their relative advantages, reflects profound mutual mistrust inside both Russia and Europe. Here the problem of perceptions comes to the fore. It is widely believed – and hard to contest – that a lack of confidence is a major obstacle to stable relations between Russia and Europe. According to public opinion polls in Europe, for instance, a majority of EU citizens fear the development of truly reciprocal economic integration with Russia. And according to public opinion polls in Russia, a majority of Russians believe that Europe's only goal when investing in the country is to seize control of Russian resources.

Where do such hostile attitudes spring from? EU fears appear to reflect more than public concern about Russia's current policy stance. And Russian worries about political manipulation of foreign investment are not based on some past experience. Instead, people's perceptions mirror deep-rooted views about the alien nature of each other's history and culture. These views may be weaker or stronger, depending on the country's experience of bilateral relations. But, in each case, the perception is based on mutual phobias which can only be eradicated by addressing common problems jointly and over decades.

We must, therefore, consider whether Russia and the EU have to overcome these phobias before they try to build a "common energy home". We also need to know whether such a project requires them to harmonize both their values and legislation. An unbiased look at the history of relations in Europe might help us to find some answers.

The six founding nations of the coal and steel community were all culturally close; they were successors to Charlemagne's 8th century empire. But centuries of wars and confrontation cultivated strong feelings of apprehension and mistrust in western Europe. It has taken 50 years to overcome these emotions and even now the process is incomplete. The EU also suffers from irritating cultural differences between northern and southern countries, and strains can still be detected between former oppressors and the oppressed. There also remain tinges of arrogance in the foreign policies of a majority of European countries, including Russia, despite the tragedy of World War II. Surely we don't need to wait for another such severe blow before Russia and Europe can find a common cause to unite them.

So what challenge might both sides accept as sufficiently important to overcome their mutual mistrust? I believe that the way forward is to restructure bilateral relations within a framework of a family–business–state "triad". This will require both sides to adapt the rules of engagement between all participants. It also has implications for those wide-ranging problems which are usually attributed to globalisation. These include questions about how to achieve competitiveness on domestic and foreign markets, the legitimacy and sovereignty of the state, and the scale and type of state interference which is acceptable within the national economy.

Regrettably, attempts by the Russian and European states to meet these global challenges have so far put further obstacles in the way of closer relations. Russia has responded with increased paternalistic tendencies and state interference in the private sector, while the EU has boosted intergovernmental cooperation. By following separate paths, these state actions are hindering the search for a common "language" in the wider political and technical domains. For example, the Russian and EU states have brought in new regulations over foreign investment to calm public anxiety about massive inflows of capital from abroad. Even inside Europe, bureaucrats are busy drafting new rules that have brought about an absurd situation where a bill on the regulation of investment in Germany has almost blocked the free movement of capital within the Union.

The specific countries concerned matter less than the general principles involved. In the brave new world of global capital flows, which seems to present new dangers every day, administrative apparatuses have proved themselves unprepared for the task of regulation. Meanwhile, politicians are only too ready to resort to unorthodox solutions to protect domestic enterprises against unfair foreign competition. Thus the state is torn between the urge toward liberalisation and the domestic clamour to support national champions. In the confusion, foreign business partners are viewed either as potential predators or potential prey, and no one seems to realise that both sides are fighting the same battle but in different ways.

Globalisation has also provoked a return of national sovereignty as a political force. History shows that the power of sovereignty weakens after a painful defeat at home or abroad, as in western Europe from 1945-1957 and in Russia from 1991-2000. That has now changed and it is already obvious that sovereign decisions dictated solely by political considerations are delaying rapprochement between Russia and Europe. This phenomenon is also undermining the foundations of European integration at a time when the rest of the world considers the EU to be an example of peaceful and cooperative solutions to collective political and economic problems.

To redress these negative tendencies, any future common Russian-EU institutions would have to improve state governance of the economy, both to bring it into line with the needs of the modern world and also to ensure that the state focuses on its proper functions, i.e. to protect individuals' rights within society and to protect the country from external threats.

As I said earlier, such EU-Russian cooperation should begin with the energy sector and not just because it is essential to state interests. The uninterrupted supply of electricity, fuel and heating is of vital concern to all those involved in bilateral relations, including the people and political elites in both Russia and the EU. Everybody wants to maintain supplies at a reasonable price; it is about the only thing that every voter and every politician can agree on. Reaching a deal on energy, therefore, must be the strategic target of political and economic dialogue between the two parties – for Russians as much as Europeans.

Clearly, there are many practical difficulties to overcome. Given the scope of the challenges ahead, any objective observer would say that Russia and Europe are going to need help from a special moderator to bridge the current divide. No organisation or country is able to fulfil that role at the moment. Nor is it clear that the main potential legal instrument - the Energy Charter – can become the foundation of an energy community. Also, the reasons why the EU is having trouble creating an internal energy market must be taken into account when considering EU-Russian energy cooperation too. It is also essential to know if EU member states will delegate powers to the European Commission to represent their interests in any new energy institution.

I believe it would be more efficient if most of the work required to build a common energy market were entrusted to an agency that would be as independent as possible from national governments. A Standing Energy Commission, for example, could be established with powers to deal directly with Russian and EU energy companies. Liaison with the private sector should, in fact, be a major part of the commission's remit, since broad business involvement in the project is so essential for its long-term success.

In both Russia and the EU there is already a well-developed infrastructure for the private sector to get its views across to officialdom. In Europe, lobbying is most effective at the national level, despite the best efforts of pan-European business associations and EU agencies to create a Europe-wide tier of information and expertise. On the Russian-EU front, there are some signs that a fledgling dialogue is emerging between private and public interests. Developing this dialogue – along with the more practical exchanges of daily business life – would be much simpler if international legislation guaranteed the rights and obligations of both public and private parties. A new and transparent legal foundation would also increase mutual understanding and help to improve today's hostile public perceptions.

Naturally, both Russia and Europe must be aware that certain outside countries feel threatened by this rapprochement; some traditional allies are already trying to weaken both partners and impair their relations. One should not expect either the US or China to change their strategic positions. Both countries can be expected to continue with foreign policies that aim to consolidate their respective power, irrespective of the predictable consequences for the rest of the world.

This should not stop Russia and the EU from making history. For those seeking economic and political rapprochement, the main obstacles to a breakthrough in bilateral relations should be grasped as opportunities. Agreement on a "big deal" – energy in exchange for full-scale common institutions – could make relations between Russia and Europe stable for a long time. It will require a new joint community, functioning according to its own laws and addressing problems which are shared by all participants. It needs to be governed by its own bureaucracy and lobbied by its own private sector organisations. Over drinks with a German colleague recently, I suggested we swap ideas about how European companies could get full-scale access to Russian energy in return for Russia becoming a full EU member. He said we should have another beer and talk over the idea some more. Okay, then, let's talk − but let's not take too long.

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