China ignores EU, offers to help Russia

BRUSSELS - China has joined India in helping the Russian economy, but closer to home Belarus and Kazakhstan are hedging their bets on future relations.

Chinese foreign minister Wang Yi said in China Daily, a state mouthpiece, on Monday (22 December): “Russia has the capability and the wisdom to overcome the existing hardship in the economic situation. If the Russian side needs, we will provide necessary assistance within our capacity”.

China Daily noted that Russia has “hundreds of billions of [US] dollars” in its foreign reserve fund and is far from collapse.

It added that China is ready to offer loans and investments in infrastructure projects, with a new Russia-China gas pipeline, a deep-water port in Crimea, and railway schemes in Russia’s Far East under discussion.

The Chinese statement comes after India, earlier this month, bought 12 nuclear reactors from Russian firm Rosatom and launched joint production of military helicopters.

Going further back, China and India, as well as Brazil and South Africa, showed solidarity by abstaining in a UN vote on the non-recognition of Russia’s annexation of Crimea.

The actions of the non-aligned powers are a diplomatic defeat for the EU and US, which imposed economic sanctions on Russia over its war on Ukraine.

“There’s always diplomatic outreach to third countries … explaining what we’re doing, the logic. Part of the outreach is to push for a sustainable political solution to the crisis and, in this respect, to adopt measures that would support such a solution”, the EU foreign service's spokeswoman, Maja Kocijancic, told EUobserver on Monday.

The main cause of Russia’s financial problems is the slump in oil prices.

But EU sanctions on banks and energy firms are making matters worse by blocking blacklisted companies from buying debt on international markets.

For his part, former Russian finance minister Alexei Kudrin told press in Moscow also on Monday: “Today, I can say that we have entered or are entering a real, full-fledged economic crisis”.

He spoke after Russia announced the National Bank Trust, one of its largest lenders, needs a half-a-billion-dollar bailout.

Russia also imposed curbs on wheat exports, which have surged due to the record-low value of the rouble, prompting hikes in Russian bread prices.

The financial crisis is having a strategic impact in Europe.

The rouble crash prompted Russia to cancel the South Stream gas pipeline project.

It also poses questions on the viability of the Eurasian Union: Russia's plan to launch, on 1 January, an EU-type bloc with future joint institutions including Armenia, Belarus, Kazakhstan, and Kyrgyzstan.

Russia’s invasion of Ukraine had already unnerved Belarus and Kazakhstan.

“The Ukraine conflict has broader implications in the region. Countries like Kazakhstan fear, that when the time is right, Russia might also undermine their territorial integrity. So, to be on the safe side, they are trying to build better relations with the West rather than letting themselves be swallowed [in the Eurasian project]”, an EU diplomat said.

The two states have also shown disloyalty.

They profited from the EU-Russia sanctions war by illegally re-exporting EU food products banned by Russia to their giant neighbour.

Lukashenko this weekend ordered Belarus-Russia trade to be denominated in dollars instead of roubles.

Nazarabyev, on the eve of a Eurasian Union summit in Moscow on Tuesday, also went to Kiev on Monday and signed an agreement on military-industrial co-operation. He spoke of an "organised civil war" in east Ukraine, alluding to Russian intervention, and of "violations of international law”.

Christmas headache

EU institutions have all-but packed up for the Christmas break.

But the European Commission on Monday noted that the EU, which has extensive trade with Russia despite the Ukraine rift, could, like Belarus, suffer knock-on effects from the rouble problem.

“It remains difficult at this stage to assess the spill-over effect of the Russian economic slowdown to the EU economy”, a spokeswoman, Annika Breidthardt, said.

She added the sanctions “were calibrated to have both a significant impact on the Russian economy and a limited impact on the EU economy”.

EU foreign ministers are to hold a review of Russia sanctions at their next meeting on 19 January.

Diplomats say it's too early to predict if the rouble crisis will serve doves, who say a Russian economic collapse would it make it more dangerous, or hawks, who say long-term economic pain will stop Russian aggression.

Some states - such as Austria, Hungary, France, and Italy - are saying they want to rebuild Russia ties.

But Germany at last week’s EU summit said sanctions can be rolled back only if Russia gives up conquered territories in Ukraine.

Eurasian what?

Ministers will in January also hold their first debate on future EU-Eurasian Union relations.

Trade ties are to be complicated by the fact Belarus and Kazakhstan are not World Trade Organisation (WTO) members, while Russia is but doesn’t follow WTO rules.

“Some [EU] countries are saying we need to engage with it [the Eurasian Union] because it formally comes into being on 1 January. But others are saying we have to solve the Ukraine crisis first, then decide what to do with this new organisation”, the EU diplomat said.