The Baltic as an Interface Between the EU and Russia by René Nyberg, May 8, 2000

René Nyberg, Ambassador Head of Division for Eastern Affairs Ministry for Foreign Affairs of Finland St Antony’s College Oxford, 8 May 2000

1. Success Stories and Fault Lines
2. Hegemonic Demon
3. Reconciliation
4. Benign Nordic Influence
5. Euroignorance and Geoeconomics
6. Gas
7. Kaliningrad
8. St. Petersburg

1. Success Stories and Fault Lines

Trade is booming across the Baltic Sea. (…) It is the biggest, most complicated, and most promising piece of the new Europe." These ringing words of The Economist two years ago, are just as apposite today. The Baltic Sea and Northeastern Europe fringing it is where we can discern the geographical finalité of the European Union. Today Russia borders one member state of the Union – Finland. In the foreseeable future the Union will gain four new members bordering Russia. These are Poland, Lithuania, Latvia and Estonia. Some day, hopefully, it will even gain a fifth new member sharing a border with Russia, i.e. Norway.

Even after the contraction of the space ruled by Moscow, north-west is the direction where the Russian heartland is closest to the outside world. Paradoxically the loss of the outer and inner Soviet empires have made Russia a much more European state than the Soviet Union ever was. The European Union, and indeed Euroland, is only 1,200 km away from Moscow, a mere 200 km from St. Petersburg, "The Northern Capital" as St. Pete is again being affectionately called. Not since the days of Peter has Russia been as purely Russian in the ethnic sense as she is today. Around eighty per cent of the population of the Russian Federation claim to be Russian.

The post-Soviet space, as the territory of the former Soviet Union is called in Russian parlance, can show very few success stories. The Baltic States, Estonia, Latvia and Lithuania, are the ones that come to mind, consolidated and firmly set on a path of European integration. But Russia herself is another success story not always recognised as such by the Russians themselves, or the West for that matter. Compared with the rest of the CIS states against any criteria, Russia is a country of reforms and economic opportunity that attracts immigrants. Today, all of Russia’s borders constitute growing fault lines for different reasons. Only on its border with the EU and its future member states is the gap growing to the disadvantage of Russia.

Despite a history of invasions from there, west is today the only benign direction for Moscow. West is also the direction of Russian exports that have during the past ten years -- without exception – secured Russia a hefty annual trade surplus. The Russia of today is much more dependent on foreign trade than the Soviet Union ever was. According to a recent report of the Russian Council for Foreign and Defence Policy, SVOP, economic relations with the outside world affect the lives of one third of the Russian population. Sixty per cent of Russian GDP is generated by foreign trade. This is an exceptionally high figure for such a large country. Forty per cent of her trade goes to the EU, and the share will rise to fifty per cent after the enlargement of the Union. Sixty per cent of all investments in Russia come from Europe. Russian gas will never heat – or cool – American homes. US trade with Russia is not larger than that of Finland.

The centre of Russian economic gravity lies clearly in the west. Russia has come to know the "Rotterdam syndrome", being dependent on ports outside her sovereign control. The Baltic ports, non-Russian and Russian alike, are essential gateways for exports and imports. Attempts to resist interdependence, this most European of phenomena, echo Soviet autarky thinking.

Claims of Russian success could easily be dismissed by, for example, a Ukrainian observer, who could point out that the real difference between the two largest countries in the post-Soviet sphere lies in hydrocarbons and minerals, exports of which foot all of Russia’s bills, including the one for the war in Chechnya. This is a correct observation, to a point. But the same observation also captures the challenge to which Ukraine must respond. Both countries face economic and social ruin without a large-scale reconstruction of their whole society, from infrastructure to the social sphere. The essence of the chasm at the western border of Russia and Ukraine alike is the risk of being cut off from the dynamism of the enlarging EU and having to face self-inflicted isolation behind a growing normative divide.

The need for investments is understood by the Russian leadership. Unfortunately, as so often in Russia, even the creation of a climate conducive to investments is approached with a quick fix. The SVOP report speaks about the need to introduce privileges for foreign investors including the creation of special organs, ministries, state committees, etc.. SVOP demands the creation of the means to protect the investments even by the use of force. There is no reason to doubt the sincerity of these recommendations, but they do reveal a stunning lack of comprehension of the core problem – the absence of the rule of law. Privileges for foreign investors introduced by decree can just as easily be rescinded by decree.

The Russian market offers enormous opportunities. But trade with Russia is today not essential even for a next-door neighbour like Finland. Only four per cent of Finnish exports go to Russia. This is less than our exports to the three Baltic States taken together. The corresponding figure for Poland is five per cent. In the case of the UK we are talking of only 0.5 per cent. Even for Germany trade with Russia is less than two per cent of total exports. As things stand today Russia has only one export item which is vital for Europe – gas. But increasing output of gas will require huge investment, something I will discuss presently.

Russia remains the challenge for the enlarging Union. The ongoing debate in Russia covers a wide range of alternatives, but after the inauguration of Vladimir Putin, it is clear that Russia will not opt for isolationism or try to turn her eyes towards the East in search of a Eurasian option that does not exist. As SVOP points out, a multipolar world is unattainable for Russia, herself a weak pole . In other words, Russia has made her choice. That choice is trade and co-operation with the European Union and the West in general. It is a rational choice as it reflects the reality of the Russian economy.

2. Hegemonic Demon

Most of the references to Russia as a new Weimar Republic seem mistaken. In a recent speech, the German Foreign Minister Joschka Fischer discussed the Weimar period and the "hegemonic demon" of German politics in a way which also gives an observer of Russia food for thought. According to Joschka Fischer, Germany’s "ability for peace" (Friedensfähigkeit) in Europe is still today being assessed on the basis of her relationships with her largest neighbours, France and Poland.

Russia is agonising about her lost glory. It is painful to admit that the Soviet Union lost the very peace it had achieved at such an enormous cost. -- The SVOP denies that Russia lost the Cold War, instead she lost the post-Cold War peace.

Russian society is torn between its own rhetoric and the stark reality of the land. Henry Kissinger recently wondered whether Russia would try to resurrect the Russian Empire or search for security within her existing borders . This is reminiscent of the historic advice that a poet gave the Swedish nation in 1811. After the loss of one third of the Swedish realm, i.e. Finland to Russia in 1809, Sweden was dangerously weakened and faced a risk of partition by Denmark and Russia. The poet counselled the nation to "reconquer Finland within Sweden’s [new] borders".

As the German diplomat and historian Jürgen von Alten notes in his perceptive book Weltgeschichte der Ostsee (World history of the Baltic Sea), Finnish history has in many ways caught up with Swedish history. Sweden almost bled white in her conflicts with Russia. By forsaking Finland in 1812, when he met Alexander I on lost Finnish soil in Turku, Jean Baptiste Bernadotte, the former maréchal de France and future King Charles XIV John of Sweden, ushered in an unprecedented period of stability and peace for Sweden and the Autonomous Grand Duchy of Finland alike. The union of Finland with Russia was basically a happy marriage before it was destroyed by attempts to curtail Finnish autonomy and russify the nation.

It is often painful to come to grips with one’s past. Vergangenheitsbewältigung or rather the lack of it explains many problems - and not only in Russia. I am thinking of Austria, which has yet again been caught up by her own history. But without facing its own history a nation cannot face the future. The only surviving original of the secret additional protocol to the Molotov-Ribbentropp Pact of August 1939 did after all, despite repeated Soviet denials of its very existence, surface from the General Secretary’s archive. I have seen it with my own eyes exhibited in Moscow with Stalin’s signature written large in blue ink on a German military map.

3. Reconciliation

European post war history is a history of reconciliation. And its success is based on this very reconciliation. According to Joschka Fischer, the eastward enlargement of the EU, Osterweiterung, is an essential part of German reunification. Enlargement would not only constitute an act of historic justice and increase the stability of Germany, but it would in the negative case be a blow to the whole idea of European integration.

The future of European integration will also be affected by the ability of Russia to reconcile herself with her own past and with the past she shares with her neighbours.

Katyn remains the key to Russian-Polish relations. That the Fenno-Russian drama eventually led to reconciliation was never preordained nor was it guaranteed. Even Gorbachev could never bring himself to admit that Russia had attacked. It was left to Yeltsin in 1992 to lay a wreath at the National War Memorial in Helsinki and pronounce the little words -- I am sorry --, words taken to heart by the Finnish nation.

It is from the vantage point of a reconciled neighbour of Russia that Finland watches with apprehension the recurring tensions in Baltic-Russian relations. Some of the rhetoric is evidently tactical in order to divert attention from real problems. Some of it addresses issues that are in the process of being settled under the relentless pressure created – not by Russian intervention – but rather by European integration.

The cause of friction between the Baltic States and Russia is political and historical despite its legalistic veneer and moralistic undertones. It is the wrong done to the Estonian, Latvian and Lithuanian nations through their forced incorporation into the Soviet Union in the summer of 1940.

To add insult to injury the person who was ordered to recommend to the Supreme Soviet that it accept the application of the Estonian puppet government to join the "family of Soviet peoples" was no other than Otto Vilgelmovich Kuusinen. He had failed to carry out Stalin’s previous order to preside over the "Popular Government of Finland" created after the Soviet attack in November 1939. Kuusinen was an ethnic Finn – a Quisling before Quisling -- who survived Stalin and died in 1964 as a member of Khrushchev’s presidium-cum-politburo and was buried in the Kremlin wall.

The basic cause of rancour is not the fate of the Russophone population of Latvia and Estonia, who are economically far better off than most Russians living in Russia or any other Russians in the diaspora in the post-Soviet sphere. It is Russia’s difficulty in admitting yet another Winter War or Katyn despite the fact that Yeltsin and the Russian intelligentsia did so in the early days of democratic Russia. That is something that also many Balts, unfortunately, seem to have forgotten. Reconciliation is a two-way street.

4. Benign Nordic Influence

Finland and Sweden share a deeply ingrained tradition of caution in their relations with Russia. Historically this is reminiscent of the Prussian experience lost after Bismarck. A reference could also be made to Atatürk. This basic disposition has, at times, forced the neighbours to arrange themselves with Russia, but today this tradition is at a premium in dealing with the Baltic Sea region, which has become the interface between the EU and Russia.

The Russian path to integration with Europe and the world is thorny and will be long. Unlike the Central European countries, Russia has so far not been able to profit from the closeness of her dynamic neighbours. Nokia has eight factories in China, none in Russia. Mathematicians are recruited from all over the world, India, China, Israel and Hungary, but strangely enough not very often from Russia. Electronic component firms wanting to establish themselves in St.Petersburg, in order to profit from the considerable scientific muscle of the city, are frustrated by red tape. The city of Viborg, the largest city in the Leningrad oblast and Finland’s second city before the war, has been degraded into a bazaar of cheap petrol and liquor, prostitution and pirate recordings. This very same fault line can be observed at the Estonian-Russian border, on the River Narva, across which the two fortresses built in the 16th Century by King Erik XIV of Sweden and Czar Ivan III still face each other.

The Russian Government does not deny the benign influence of Finland and the other Nordic countries and especially that of the EU on the Baltic States. Nevertheless Russia is locked in unproductive polemics with both Latvia and Estonia. The relationship with Lithuania is better, although the Duma has to this very day failed to ratify the border treaty that the two countries have signed. In the case of Estonia an initialled border treaty is waiting to be signed. Despite the demarcation of the border with Latvia, Russia has not even agreed to initial the treaty. In the course of the negotiations Russia repeatedly pocketed concessions and asked for more.

5. Euroignorance and Geoeconomics

For the first time, a genuine interest in the European Union can be seen in Russia. By far the most important outcome to date of the EU’s Common Strategy on Russia, was the decision by the Russian Government to respond with a Russian strategy for co-operation with the EU. This document was presented by then Prime Minister Putin at the EU-Russia Summit in Helsinki last October.

Despite efforts to reassess Russia’s place in the world the political elite is still plagued by what could be called "euroignorance" and by an insufficient understanding of the whole process of integration. The Role of Russia in European integration has never been really discussed in Moscow. Do we in the EU have a clearer picture? The Partnership and Co-operation Agreement which forms the legal basis of EU-Russia relations sets a free-trade agreement as one of the main goals. This is a tall order for both parties, comparable to the eastward enlargement of the Union.

The northward enlargement of the European Union through the accession of Finland and Sweden gave the Union a new look. The 1997 Finnish initiative on a Northern Dimension for the policies of the Union was an attempt to describe the changed situation of the expanding Union as a neighbour of Russia – an attempt to view the upcoming eastward enlargement from a Northern European standpoint.

It is by no means easy to influence the development of Russian political thinking. A vestige of the past is the continued prevalence of a view of the EU as a kind of free- trade organisation operating in the shadow of NATO. Another is to recognise only the political character of the Union without understanding the dynamics of the deepening integration – the Single Market, the EMU, etc..

Only very gradually and very hesitantly is Moscow coming to acknowledge the fact that the expanding EU is thoroughly and profoundly changing Europe. The deeply entrenched perception of NATO as the enemy colours every analysis. Geopolitics, or, to use von Alten’s words, "unproductive geopolitical thinking" still takes precedence over geoeconomics.

Recently one of President Putin´s top economic advisor Vladimir Mau floated the idea that Russia should strive to fulfil the Maastricht and Copenhagen criteria, not in order to join the Union but in order to be able to integrate with European structures.

The following six events that have influenced Russia’s perception of Europe and the world are instructive:

· Finland’s membership of the European union made Russia a geographical neighbour of the EU. At the same time, Finland extricated itself from the Russian sphere of influence to which it had been consigned under the Molotov-Ribbentrop Pact;

· The 1997 invitation to Estonia, as the first ex-republic of the Soviet Union, to enter into negotiations on accession to the EU was registered with keen interest in Moscow;

· The introduction of the euro in 1999, and especially the decision of the Germans to give up the Deutschmark, had a profound impact and rocked the very foundations of the traditional geopolitical approach;
· The shock of Kosovo is still being felt and is once again complicating determination of the true weight of the European Union;

· The introduction of a European security and defence policy shows yet again that progressive European integration is in fact a moving target and does not fit neatly into traditional categories of thought;

· And, finally China’s steps towards membership of the WTO clearly demonstrate to Moscow how much more progress China has made in the area of economic reform.

6. Gas

Let me now turn to the energy sector and especially gas, where we can today observe a new development of great economic significance for the Union. I will close with the hottest issue on the agenda – Kaliningrad and say a word about St. Petersburg.

The common agenda of the EU and Russia includes a number of vital issues like the environment – operational safety of nuclear reactors, nuclear waste, pollution of the Baltic – and in the field of energy – the Baltic Energy Ring and the North European Gas Pipeline.

Russia needs investments in every walk of life. The main sources of export revenue – gas and oil – are no exception. The problem was dramatically brought to the attention of the Russian people in a recent public clash between two CEOs and oligarchs, Anatoly Chubais of Unified Energy System (EES) and Rem Vyakhirev of Gazprom. The clash was ultimately mediated in front of a TV audience by President-elect Putin. Chubais’ claim that Gazprom has neglected to invest in upstream production squares with the facts. In order to fulfil both its export commitments and satisfy its inland clients like EES, Gazprom has to invest in existing production fields, open up new fields and build new pipelines. All of this cannot possibly be done at the same time.

Western Siberia will remain for years to come the largest source of Russian gas. The strategic choice of Gazprom seems, however, to be to open up a new production site in the Barents Sea. The decision to defer the opening of production sites on the Yamal peninsula and instead go for off-shore production in the Barents Sea also has implications for future pipeline routes. Instead of developing gas production only in Western Siberia and hence building a second so-called Yamal pipeline through Belarus and Poland, Gazprom and the Russian Government are seriously looking at an alternative. Developing Shtokmanovskoye in the Barents Sea on the basis of a production-sharing agreement would require a second pipeline.

The North European Gas Pipeline, as the project is called, would be 1,000 km shorter than a second Yamal pipeline. The pipeline would not be burdened by transit fees or theft and would link directly with the European gas network.

The reasons are both economic and political. Shtokmanovskoye lies further to the north but does not otherwise require different technology or know-how than present off-shore production in the North Sea. It is definitely a more hospitable environment than the permafrost of Yamal. As an off-shore site it is also be better suited for production sharing than Western Siberian fields would be.

On 21 April the Duma approved legislation providing for production in Shtokmanovskoye to be shared. The envisaged consortium would consist of two Russian companies, Gazprom and Rosshelf, each with a 25 per cent stake, and four Western companies, Conoco, Fortum, Norsk Hydro and Total Fina, each with a 12.5 per cent share.

In a message to the Baltic Sea States Summit in Kolding Denmark on12-13 April 2000, President-elect Putin confirmed that Russia "…is open to co-operation and implementation of major investment projects, primarily in the fields of energy and infrastructure development. The construction of the North European Gas Pipeline and the Baltic Pipeline system, as well as shaping the Baltic Energy Ring, can provide a stable energy base for the whole of Europe, not only our region."

On the basis of the feasibility studies conducted, it is evident that laying a pipeline on the bottom of the Baltic Sea is practicable from the technical, environmental, legal and economic points of view. The most likely landfall on the southern shore of the Baltic Sea seems to be the German city of Greifswald close to the Polish border, where the infrastructure of the largest decommissioned East German Nuclear Power Plant Lubmin offers a possibility to construct a gas-fired station.

There can be no doubt that energy offers the most important field of co-operation between the Union and Russia. The production-sharing agreement for Shtokmanovskoye is a telling example. Legislation approved by the Duma requires that the share of Russian technology and services in the investment projects should be seventy per cent. With other words the opening of a large production field in the Barents Sea would mean boom and salvation for the entire shipbuilding and engineering sector in the Russian Northwest. These are the vistas that have convinced the Russian political and economic elite of the merits of the Northern Dimension.

7. Kaliningrad

During the meeting of the EU Troika with Russia last June, Russia floated a proposal to discuss the consequences of EU enlargement for Kaliningrad in the context of the Partnership and Co-operation Agreement. This was quite a sensation and certainly took the Union by surprise. It was followed in September by Russia’s very positively formulated response to the EU initiative on the Northern Dimension. Then Prime Minister Putin characterised Kaliningrad as a pilot when he presented Russia’s Strategy for the EU in Helsinki in October.

A lot of the credit goes to Lithuania. I am convinced that it was the astute and well-considered approach of the Lithuanian Government that convinced Moscow to revise its policy towards Kaliningrad. In a series of round-table discussions from 1997 onward the subject of Kaliningrad was broached from the standpoint of both Moscow and Kaliningrad. The economic crisis of August 1998 and the approaching enlargement of the Union ultimately persuaded Russia not only to discuss Kaliningrad with the EU, but also to agree to a joint Lithuanian-Russian proposal for projects for Kaliningrad in the context of the Northern Dimension. With this the EU’s first and most important basic condition was met: that the problems of Kaliningrad be put on the table in Brussels only at Moscow’s initiative.

Kaliningrad is in many respects the flashpoint of the Baltic Sea region and at the same time a microcosm of the problems of Russian society. If Kaliningrad is a pilot, it is also a test; a Russian exclave to become an EU enclave. With Kaliningrad finally on the EU-Russia agenda several red herrings are being chased by Russian and Western aficionados alike. The upcoming gubernatorial elections in October are already being felt in Kaliningrad. The most difficult and probably the most likely issue to create tension is the question of transit to and from Russia. This is no minor problem as it directly affects the Union’s future external border regime.

Despite demands for special arrangements by the Russian authorities and well- meaning Western academic advice, there can be no derogation from the Schengen acquis. Notwithstanding the differences, the Fenno-Russian border remains the only relevant comparison to the future common border of the Union with Russia in Kaliningrad. The integrity of the external border and the security of the Union cannot be vouched for with arrangements emanating from Soviet and post-Soviet practises where passports and visas are replaced by identification documents and special permits (propuska).

As a future member of the Union Estonia has already decided to stop the so-called visa-free small border traffic between Narva and Ivangorod and in the South-west (Petseri/Pechora). She now requires passports, but is ready to issue multiple entry visas without a fee for locals.

As the guardian of the only EU-Russia border, Finland claims that the existing border regime has proven its worth. It is both flexible and secure. It will be adapted to Schengen when Finland and the other members of the Nordic Passport Union start to implement Schengen rules in March 2001. It should come as no surprise that Finland will demand that all acceding countries sharing a common border with Russia adopt a border regime on a par with her own.

8. St. Petersburg

Kaliningrad might be the immediate test, but St Petersburg is the key to a European future for Russia. Most western ideas and innovations that have entered Russia during the last 300 years have done so through St Petersburg. The end of communist rule saw a lot of energy set free in the city, but hèlas so far it has mostly in the form of a steady brain drain to Moscow. It is stunning to realise how large the St Pete expat community is among the ruling elite of the country. President Putin has surrounded himself with people he knew and worked together with in Leningrad/St Petersburg.

St Petersburg still suffers from eighty years of neglect and ostracism and a recently required reputation for rampant crime. Instead of turning its attention to the wide open world, both near and far, the city has too long been fixated on Moscow.

St. Petersburg has no future as the major arms maker it used to be during Soviet times. The city has yet to define its new role in Russia and in the Baltic Sea area. Under market conditions sustainable growth can only be achieved on the basis of real strengths.

St. Petersburg is still the largest metropolis in the Baltic sea area. The city is a gateway to the enlarging EU. It has the only major Russian port in the Baltic and a highly skilled labour force. Its scientific and cultural assets are considerable. St. Petersburg, Russia´s Northern Capital, has advantages which Russia cannot disregard in her evolving relationship with the European Union.