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Commentary | 21 June 2016

Why Russia, like the rest of the world, should pray for Remain

Brexit Economy Russia Euro-Atlantic Security

It is quite rare for the world to be as united as it is on the question of Brexit. It is almost universally agreed in capitals around the world that the UK and the EU are better off together. President Obama used a visit to the UK to throw his weight behind the Remain camp. China’s President Xi Jinping used his UK state visit last October to endorse a “prosperous Europe and a united EU”. Even business leaders in India, a Commonwealth country with which the Leave campaign claims the UK will have closer ties post-Brexit, aren’t that keen. As the polls tighten, the world is bracing itself for the negative impacts of a Brexit, with one notable exception in the Russian President Vladimir Putin. Russia, according to Europe’s comment pages, perhaps stands to gain most should the United Kingdom declare itself out of the European project.

In March, the UK’s Foreign Secretary Philip Hammond used a speech to argue that “the only country, if the truth is told, that would like us to leave the EU is Russia.” Mr Hammond was echoing his Labour Shadow Hilary Benn – as well as a chorus of others – who said in February that “[President Putin] would see Brexit as a sign of our weakness and of the weakness of European solidarity…” Across the EU and the Atlantic politiciansmilitary leaders and commentators have all employed President Putin in their arguments against Brexit. Most notably perhaps was veteran Russian political activist Gary Kasparov, who made an impassioned plea to Britain not to give the perfect gift to President Putin.

Russian support for Euroscepticism, on which there is increasing evidence, does have some clear short-term benefits for the Kremlin. Eurosceptic Dutch voters earlier this month for example undermined EU efforts to support Ukraine in its drive for autonomy from Russian interference. If the UK were to leave the EU, there would also be short term benefits for Moscow. First, it would weaken and distract the UK, a country with which Russia has had poor relations since the mid-2000s and which is a significant player in NATO, an organisation due to hold a summit not long after the UK’s referendum. Second, the withdrawal of a strong voice on EU efforts to counter Russia, both in terms of sanctions and in terms of energy policy, would play into Moscow’s hands.

What’s missing however from this debate is that while President Putin’ may well rub his hands at the short term geopolitical benefits of a Brexit, he is wrong if he thinks that a Brexit wouldn’t harm Russia’s long-term interests.

The most glaring reason why the Kremlin should not hope for a Brexit is the potential negative financial repercussions for Russia, both in the short and long-term. The EU despite ongoing tensions is Russia’s largest trading partner, with just under half of all its exports going to the bloc. The EU accounts for up to 75% of foreign direct investment into Russia. Despite sanctions and falling oil prices, in 2015 the EU imported €135.7 billion in goods from Russia while exporting €73.9 billion. As outlined by Russian analyst Andrey Sushentsov, 41.5% of Russia’s foreign currency reserves are denominated in Euros. This paints just a small part of the bigger picture. Russia’s economy is – whether President Putin likes it or not – intertwined with that of the EU. In the increasingly possible event of a vote for Brexit on June 23rd, the Euro will likely suffer, which will see the value of Russia’s foreign currency reserves fall. Trade with the EU, Russia’s largest partner, will be impacted in two negative ways. First, the impact of a Brexit shock will likely see the EU’s combined economy shrink, reducing the demand for Russian exports. Secondly, and more importantly, an EU without the UK will be less liberal, less committed to free trade, and more protectionist. This will not help Russia’s economy, nor the rest of the world’s for that matter.

Russia has no easy alternatives to reliance on the EU. As argued in a commentary in January, Russia’s hopes that Asia can alleviate its reliance on the EU are hitherto far from being fulfilled. Trade with China, despite lofty rhetoric on both sides, actually fell by 34.4% in 2015. Economic concerns in China, as well as slower growth in other emerging markets make any moves away from the EU even more difficult. What this underlines is that Russia’s reliance on the EU will continue for the foreseeable future, making the pain of a Brexit longer lasting.

Russia benefits from prosperity in Europe. Growth across the EU’s 28 Member States increases the demand for Russia’s resources. The EU’s wealth has and can continue to be invested in Russia. A strong EU can play host to Russia’s international businesses. Most critically for the Kremlin, a strong EU and the economic stability and prosperity it can provide to the rest of Greater Europe is the best way to provide the necessary conditions for Russia to make the economic reforms it has long needed. In this respect, while President Putin may want to divide and destroy the EU, this course of action is an act of serious self-sabotage.

Ultimately, while the Kremlin’s geopolitical aims are indeed served by a divided Europe, a Brexit remains a significant risk for the Russian population’s economic interests. It is perhaps not surprising that President Putin does not have Russia’s economic interests at heart, but that does not change the fact that Russia in the long-term, like the rest of the world, is far better served by a strong and united Europe with Britain at its heart.

 

The opinions articulated above represent the views of the author(s), and do not necessarily reflect the position of the European Leadership Network or any of its members. The ELN’s aim is to encourage debates that will help develop Europe’s capacity to address the pressing foreign, defence, and security policy challenges of our time.