RD Interview: Ruslan Grinberg, director of the Institute for Economics at the Russian Academy of Sciences, discusses the possibility that a financial crisis in Ukraine could become a source of cooperation for Russia and the West.

Ukrainian President Petro Poroshenko, second left, arrives at the EU Council building in Brussels to meet with EU officials on June 27, 2016. Photo: AP

This week’s European Union summit focused not only on the UK leaving the EU (Brexit), but also on the possibility of lifting the sanctions imposed on Russia over its policies in Ukraine. Amidst this discussion, Russia Direct spoke with Ruslan Grinberg, the director of the Institute for Economics at the Russian Academy of Sciences (RAS), about the chances Brussels will find a way to move its relations with Moscow forward.

Ruslan GrinbergGrinberg is one of the authors of a recent joint report by Lomonosov Moscow State University’s Centers for World Economy and Post-Soviet Studies (MGU) and the Institute of Economics at RAS. The report deals with the implications of a possible large-scale default by Ukraine on both Russia and the EU, and the possibility that Moscow and Brussels could join together to provide Ukraine with financial aid.

According to the report, an economic crisis in Ukraine might “create threats for both the long-term development prospects of Ukraine’s economy and the economic interests of its traditional investment and trade partners, including the Eurasian Economic Union (EEU) and the European Union (EU).” 

Although the direct impact on Russia and the EU from a Ukrainian default would likely be limited in the short term, in the long run, the indirect implications could be very serious. For example, the crisis could increase the number of economic refugees in both Russia and the EU, which could result in increased social unrest.

“The crisis hotbed in the center of Europe that Ukraine became had and will have negative implications on the development of both the European and Russian economies as well as European integration in general,” the report reads.

Such negative consequences should encourage Russia and the EU to create a sort of donor coalition to help Ukraine economically. However, Russia is likely to agree to participate in such a coalition only provided that the EU offers additional “incentives”, including the cancellation of sanctions and the guarantee that Kiev will pay its entire debt to Moscow.    

“Not only could the cooperation between the EU and Russia in restoring Ukraine’s economy give a necessary positive incentive to the economic development of all involved stakeholders, but it also could contribute to turning Ukraine from the field of competition into the field of cooperation,” the report concludes.

In this interview, Grinberg further discusses the theses of the report and gives his opinion as to the likelihood that any cooperation between Russia and the EU over Ukraine can occur.

Russia Direct: What are the odds of Russia and the EU teaming up to provide Ukraine with donor aid, as suggested by the report?

Ruslan Grinberg: The alienation of Ukrainian and Russian elites complicates the situation, and it will take a long period of time. Today – first and foremost – we have to alleviate the tensions between Moscow and Kiev and make Ukraine, if not a brother nation, at least an acceptable partner. Moscow, Kiev and Brussels have to reach at least minimum consensus.

After all, we have had a very close economic collaboration and we have to resume it somehow. Ukraine was our close and friendly neighbor and now it is not the case. But for any country, it is important to have a friendly neighbor to live in stability and peace. So, resuming normal political and cultural ties is top priority.

Worrying about the Ukrainian default and its impact is secondary, because if Ukraine announces its default, we won’t be able to change the situation. That’s why we should think about the ways we can help Ukraine in such a difficult moment, despite the fact that our economy is also not in the best shape. But the Ukrainian economy is in tatters today and we should help. It is a matter of our responsibility. But the U.S., Europe should share this responsibility as well.

If Russia contributes to improving the situation in Ukraine, it will improve its image and accelerate the process of lifting sanctions. Such joint financial aid provided by Russia and the EU should be a matter of the new Minsk agreements, which we could call Minsk-3. It should be the continuation of the Minsk-2 process. I mean that the Donbas should unite with Ukraine again and Ukraine in this case should have a neutral status, which means it won’t seek NATO and EU membership. However, alas, it is going to be very hard, if possible.

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

RD: The report mentions the possibility of Russia and the EU teaming up to provide joint humanitarian aid to Ukraine. Why should the EU and Russia be interested in this?

R.G.: If Russia and the EU signed such an agreement, the sanctions could be lifted or at least alleviated. It would be in the interests of both Brussels and Russia. The EU, after all, is also seeking to scrap sanctions, because they affect their interests. The sanctions regime, which includes sanctions and countersanctions, just means that conditions for one side are very bad and they are getting even much worse for the other side.

RD: But the sanctions have been prolonged several times despite the fact that the EU is suffering from them. And there seem no signs that these sanctions will be lifted.

R.G.: Yes, for Europe, the sanctions are a matter of principle. And they will stick to this principle – to punish those who violate international law. It is just a way to address the problem in a non-violent way.           

RD: If so, these principles are much more powerful than any economic prosperity. And this is the problem: There is the situation of the clash between principles and economic rationality. It minimizes the possibility of Russia-EU cooperation in providing Ukraine with donor aid. How is it possible to deal with this standoff?

R.G.: You know, 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. Before the Ukrainian crisis, the problem of interest and values was the most important in the Russia-West relations, as indicated by our talks with our Western counterparts.

While Russia focused more on Realpolitik interests, the EU paid much more attention to [democratic] values. 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.