A huge new economic union will begin tomorrow. You might not have heard about it, though, because its biggest member — Russia — has been a little preoccupied with its own economy recently.
The Eurasian Economic Union (EEA), which succeeds the Eurasian Economic Community and customs union, begins on Jan. 1, 2015. It’s made up of Russia, Belarus, and Kazakhstan.
The bloc will be an EU-like single market, with its own commission, court and development bank. Russian President Vladimir Putin even wants it to have a parliament. But there’s absolutely no reason at all to think the union is going to be successful.
In May, when the leaders were agreeing to the EEA, we were treated to the comedic image of just three presidents sitting around an enormous table which could seat five times as many, agreeing to the EEA. Ukraine refused to join, unsurprisingly.
Kyrgyzstan and Armenia will be added to the union this year, too. That still leaves the bloc extremely unbalanced. Russia’s population is more than four times as large as the other countries combined, and it will make up the vast majority of the EEU’s GDP.
Russia’s economic woes barely need repeating. With oil prices falling, the ruble dropped to record lows dozens of times in recent months, falling to 80 against the dollar in one spectacularly turbulent day. It’s down by more than 40% this year.
Things were actually looking pretty ugly even before a large part of the ruble’s collapse. Western sanctions have hit Moscow and the country’s own finance minister expects a 4% drop in GDP in 2015.
Can the other nations in the EEA help out? The short answer is no.
Kazakhstan isn’t immune to Russia’s crisis. Its currency is now 50% more expensive in rubles than in the first half of the year. That makes it more difficult for Kazakh firms to export to Russia, though the Moscow Times suggests it may get a bit of a boost from investors who are concerned about Russian sanctions, but still want a presence in the region.
The Kazakh economy is doing well in a lot of ways. That might be why long-term autocrat Nursultan Nazarbayev doesn’t want to tie himself too closely to Moscow. He actually invented the contemporary idea of a Eurasian union, and even he doesn’t seem convinced any more, insisting that the country could leave if it wanted, according to the FT.
What’s more, according to Foreign Policy magazine, studies actually suggest that membership of the Eurasian Customs Union has so far weakened Kazakhstan’s economy. It’s too late to back out now, but it’s no surprise that Astana isn’t rushing into anything more serious.
The economy of Belarus isn’t looking so hot. On 21 December Alexander Lukashenko, who like Nazarbayev has ruled the country for decades, sacked the prime minister and central bank chief. Belarus is extremely dependent on Moscow and exposed perhaps more than any other nation to the collapse of the ruble. As in Russia, there have been queues to exchange currency, and massive interest rate hikes.
Aside from the immediate crisis, it doesn’t look like Lukashenko will be presiding over a dynamic economic any time soon. An apparent obsession with farming led to a plan for the country to return to a sort of serfdom earlier this year.
So of the five countries joining the union in 2015, by far the largest is likely to have a shrinking economy. The World Bank notes that about a third of Kyrgyzstan’s GDP is made up of remittances sent back by migrant workers, a large number of whom work in Russia. So a recession in Russia could push Kyrgyzstan into the same position. If that happens to Belarus too, a majority of the EEA’s members would be in recession in its starting year.
The EEA says it’s open to new members, but it doesn’t look like there’s going to be a rush of countries trying to sign up.