Although some stakeholders within Russia and the EU may wish to revive economic ties, politics still trumps business.

German Chancellor Angela Merkel addresses the German parliament Bundestag. Photo: AP

A recent roundtable at the Moscow Carnegie Center on Russian-German relations demonstrated yet again that the EU’s approach to Russia in general — and the sanctions regime in particular — is unlikely to be alleviated by the Brexit vote.

The group of Russian and German pundits and representatives of the business community who participated in the event agreed that while Europe may face a lack of confidence after Brexit, the impending departure of the UK is unlikely to be a game-changer for the EU’s sanction policy or Brussels’s approach to Ukraine.

Brexit and sanctions

Brexit just means that the European Union will for the moment focus on its internal problems and slow its integration processes, said Ulrich Seubert, an advisor at McKinsey & Company, during the debate at the Carnegie Moscow Center. “It [Brexit] doesn’t change the sanction policy toward Russia,” Seubert said.  

Andrey Movchan, senior associate and director of the Economic Policy Program at the Carnegie Moscow Center, warned that Brexit poses a great deal of challenges to Europe, including to the overall credibility of the whole European integration project, but it should not be taken as a good sign for the Kremlin.

“The distrust from the population to the EU will rise, and European officials will have less immunity against mistakes, so their decisions will be tactical and more prudent,” said Movchan. “Amidst such background, few will vote for the cancellation of sanctions on Russia because of the fear of criticism.”

However, Brexit also doesn’t rule out the possibility that new maverick leaders within the European community may emerge who seek to improve relations with Russia and lift sanctions. In fact, both Russian and European economists admit that there are stakeholders within Russia and the EU that are much interested in reviving trade and economic cooperation.

Russia as a ‘European Mexico’

Movchan sees Russia as a sort of “European Mexico,” because it supplies Europe with hydrocarbons, but at the same time is very dependent on European technologies and communications. This co-dependence hasn’t been seriously affected by politics.

Likewise, Seubert and other participants of the discussion at Carnegie Moscow Center see business as the best way to reboot EU-Russia relations because it requires rational behavior.

Indeed, there are examples of business ties being used to break through political stalemates. The economic interdependence between the U.S. and China is one such example. Because Washington and Beijing are economically intertwined, it makes serious political confrontation almost impossible. Angela Stent makes note of this connection in her book “The Limits of Partnership: U.S.-Russian Relations in the 21st century."

Politics trumps economy

Business doesn’t always win out, however. Economic ties should in principle help revive relations between Russia and Germany, but German Chancellor Angela Merkel continues to take a tough rhetorical stance towards the Kremlin. In the wake of the Ukraine crisis, Merkel said that Russian President Vladimir Putin lives in a different reality.

Nadezhda Arbatova, an expert from the Center for European Integration at the Institute of World Economy and International Relations (IMEMO), said that historically politics has played a much greater role than economics in the decisions of elites in both Russia and the Soviet Union.

The Ukraine crisis, the failure to establish cooperation between the EU and the Eurasian Economic Union (EAEU) and Russia’s attempts to be seen politically equal in the West all indicate that politics, at least in Russia, takes primacy. This situation makes it extremely difficult to improve Russian-EU relations by economic means.

Also read: "What a compromise solution for Ukraine might look like"

“Russia-EU relations have already hit the lowest point,” Arbatova said during the discussion at Carnegie Moscow Center. “Never have their relations been in such bad shape.”

She doesn’t rule out that there could be selective economic collaboration on separate issues, but says that this won’t be a game changer

Ruslan Grinberg, the director of the Institute for Economics at the Russian Academy of Sciences (RAS), also is skeptical about the potential of economics to improve relations between Russia and Europe. According to him, the current political crisis between Moscow and Brussels shows how economic concerns are trumped by political posturing.

“Russia’s confrontation with the West resulted from the fact that Moscow and Brussels have stopped understanding each other and misinterpreted their mutual rhetoric, motives and their real meaning,” he told Russia Direct in a recent interview. “Before the Ukrainian crisis, the problem of interest and values was the most important in the Russia-West relations."

"While Russia focused more on Realpolitik interests, the EU paid much more attention to [democratic] values," he added. "So, there was a clash between Russia’s national interests (as the Kremlin understood them) and European values. Both sides promoted agendas that were too different, and it is still the case and the problem. How they are going to get through it remains to be seen.”

The Kremlin emphasizes politics in its message to both foreign and domestic audiences. Within the country, the authorities try to “artificially boost people’s pride, restoring the image of Russia as a great power,” Grinberg said. “Poverty is not a big deal if you have an overinflated ego for being a part of a great power.”

Also read: "Can Ukraine's economic problems bring Russia and the EU together?"

According to Grinberg, the Russian authorities spend their time developing political ideology at the expense of economic planning. “Any attempts to improve economic and managerial effectiveness of the country are futile, because there is no certain goal-setting in Russia, among its authorities and ordinary people,” Grinberg said.

In his opinion, the major problem of the Russian authorities is wishful thinking. They think that soon there will be a boost for oil prices, but he says that this is not the best way of dealing with the current challenges.

Arbatova agrees that the Kremlin is still counting too heavily on a rebound in oil prices. While Germany is thinking about the digitalization of its economy, Russia is still pinning its hopes on natural resources. This difference in perspective on the drivers of future economic success is yet another stumbling block to German and Russian cooperation