PERSPECTIVE: EU-Russia relations - the usual suspects

By bne IntelliNews July 14, 2011

Nicholas Watson in Rome -

Of Russia's new EU friends, the Germans are the oldest: former chancellor Gerhard Schroeder threw himself into building ties with Vladimir Putin and for his troubles landed a plum job running the Nord Stream gas pipeline project. Italian Prime Minister Silvio Berlusconi has also long cosied up to Moscow - his kids holiday with Putin's daughters in Sardinia and the two alpha males like to hang out. France was later into the game, but before she got her new job as head of the International Monetary Fund, Christine Lagarde was a constant visitor to Moscow, attending almost all of the high-profile investment conferences over the last two years and overseeing France's rise up the Russian investment league to second spot after Germany.

In fact, the relationship between the EU and Russia has grown and deepened to such a degree it's now considered among most European capitals to be one of the most important - and that's set to continue whatever the outcome of the Russian presidential election in 2012. But energy and defence are the twin issues that continually cast a shadow over those relations.

Take the July 6 conference, "Relations between the EU and Russia after 2012," organised by the Italian Senate. Amid the fading glory of the 16th century rooms in the building of the Senato della Repubblica, speaker after speaker stepped up to heap praise on Putin's Russia and to express the hope the upcoming Duma and presidential elections would represent another step in the country's march toward becoming a liberal democracy.

"The democratic revolution started by Vladimir Putin brought the Russian people to participate in the economic and political modernisation of the Russian system," Senator Laura Bianconi told the assembled politicians, academics and press. "This system will not rely only on oil and gas, but on a modernisation programme which will connect the people to the other European countries."

Or here's Senator Rossana Boldi, who's also chair of the Political Commission of the EU: "Russia is one of the most important partners of the EU... It's inescapable that we need to find and develop new types of relationships."

Or Bernard Kouchner, former foreign minister of France: "Everyone forgets how swiftly Russia has developed - it was an empire and had communism until only a short time ago... There is a will that impels relations between Europe and Russia, a true feeling of brotherhood in personal links."

"However," he adds, "there are specific political problems which don't make it possible for this understanding to always take shape."

And what might those specific problems be? Energy for one - and another dispute over gas looks ready to flare up.

A smell of gas

Alexey Meshkov, Russian ambassador to Italy, hinted as much when he said that Russia must be given more time to prepare itself for the EU's "Third Internal Energy Market Package", which member states are busy adopting into legislation and which is designed to, among other things, make the trading of energy across borders easier. During this period, "any restrictions in our [energy] investment should not be allowed," Meshkov blustered.

What he was alluding to was the vote by the Lithuanian parliament on June 30 to adopt legislation that, in line with this third energy market package, forces the "unbundling," or separation, of the gas supply business from the gas transportation business, if both are concentrated in the same hands. And indeed they are, with Gazprom the supplier of gas to Lietuvos Dujos as well as being a 37% shareholder in that Lithuanian utility (E.On Ruhrgas owns 39%, the Lithuanian state with 18% and minority shareholders the remainder).

What this means is that when the new law takes full effect in 2013, Gazprom will be stripped of its gas pipeline ownership rights, which it paid for when the Lithuanian government privatised the country's gas network in two steps during 2002 and 2004. Gazprom is, perhaps understandably, a bit miffed, and on the day of the Lithuanian parliament's vote, Gazprom CEO Alexey Miller warned that, "this will not go unnoticed." Lithuania has asked the European Commission to investigate Gazprom's apparent abuse of its monopoly position in the country.

If previous experience is anything to go by, price discrimination and supply disruptions from the Russian side will follow, sending EU-Russian energy relations back to the dark days of 2009, when yet another dispute between Moscow and Kyiv caused gas supplies to Europe, which transit Ukraine, to be cut off. For this reason, Petar Dimitrov, a former minister of the economy and energy for Bulgaria, whose country is almost totally dependent on Russian gas and so suffered mightily during the last gas dispute, urged at the conference the EU to formulate a common energy policy and do away with bilateral talks with Moscow in favour of an EU-Russia approach, so that economically disruptive energy disputes will become a thing of the past. "In energy policy it's not acceptable for some member states to have different positions to others, it won't be a united Europe," he said.

Where Europe is more united is over defence, which largely falls under the Nato umbrella. Tensions between Nato and Putin's Russia have simmered since the US in 2002 unveiled plans for a missile defence shield in Central Europe, consisting of 10 missile interceptors in Poland and a radar facility in the Czech Republic. These tensions burst into the open in 2007 when the then-president Putin lambasted the West for reneging on promises made following the collapse of the Soviet Union, specifically that Nato would not put troops on Russia's borders.

Alexander Babakov, vice chairman of the State Duma, told bne on the sidelines of the Rome conference that better defence ties between Russia and Europe were impossible without some permanent solution to the missile defence shield, which has evolved under President Barack Obama's watch to a more flexible arrangement of siting SM-3 ground-based interceptors in Poland by 2015 and in Romania by 2018. However, Michael Ancram (Lord Lothian), a former minister and chairman of the UK Conservative Party, sees an opportunity to improve ties if Nato is prepared to take a long hard look at itself, which he says many current and former members of the UK armed forces are now urging.

Ancram says Nato was conceived as a defence organisation, but through time mission creep has led to what he calls "aggressive" actions in Bosnia-Herzegovina, Kosovo and now Libya that conflict with Article 5, which states, "an armed attack against one or more of them in Europe or North America shall be considered an attack against them all." While Ancram says Bosnia and Kosovo could just about conceivably be justified on the grounds that they are in Europe, Libya is a step too far. "What I'm absolutely certain is that we're involving Nato in a way that Nato was not designed for," he said.

So what is Nato going to be? he asks. A defence organisation or the military arm of the UN? "If the members are willing to reconsider the purpose of Nato - and it is now in a situation where questions have to be asked about its purpose - I see a real opportunity to recast it in a way that is not going to create that sense of permanent tension with Russia," Ancram says.

Kouchner noted at the Rome conference that, "We have made some progress, but we need to work together to make more progress." Solving the twin issues of defence and energy - now that would be real progress.

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