Научная статья на тему 'OPPORTUNITIES IN THE ECONOMIC RELATIONS OF THE RUSSIAN FEDERATION AND THE V4+GERMANY'

OPPORTUNITIES IN THE ECONOMIC RELATIONS OF THE RUSSIAN FEDERATION AND THE V4+GERMANY Текст научной статьи по специальности «Социальная и экономическая география»

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ECONOMIC RELATIONS / GERMANY / RUSSIA / VISEGRAD GROUP / UKRAINE

Аннотация научной статьи по социальной и экономической географии, автор научной работы — Kiss David

Although the European Economic Area (EEA) and the Russian Federation as an economic area are connected through many historic and cultural strands and the interregional trade does not even have any geographical barriers, the volume of trade and level of economic integration are deep below the economic optimum due to political factors. Both the West and the Russian Federation are trying to elicit favourable political behaviour from the other side through sanctioning each other’s economies while seriously damaging the economic relations both in terms of soft factors like trust and hard factors like trade volumes and prices, and with the escalation of the Ukraine crisis, it does not seem that this trend will change soon. In my research, I have therefore mostly ignored the fact of economic sanctions and poor political relations in order to shed light on the true potential of the two economies with each other.

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Текст научной работы на тему «OPPORTUNITIES IN THE ECONOMIC RELATIONS OF THE RUSSIAN FEDERATION AND THE V4+GERMANY»

ЦЕНТРАЛЬНАЯ ЕВРОПА В ЗЕРКАЛЕ ЭКОНОМИКИ ГЛАЗАМИ НОВОГО ПОКОЛЕНИЯ

UDC 327

David Kiss

Opportunities in the economic relations of the Russian Federation and the V4+Germany

Abstract. Although the European Economic Area (EEA) and the Russian Federation as an economic area are connected through many historic and cultural strands and the interregional trade does not even have any geographical barriers, the volume of trade and level of economic integration are deep below the economic optimum due to political factors. Both the West and the Russian Federation are trying to elicit favourable political behaviour from the other side through sanctioning each other's economies while seriously damaging the economic relations both in terms of soft factors like trust and hard factors like trade volumes and prices, and with the escalation of the Ukraine crisis, it does not seem that this trend will change soon. In my research, I have therefore mostly ignored the fact of economic sanctions and poor political relations in order to shed light on the true potential of the two economies with each other.

Key words: economic relations, Germany, Russia, Visegrad group, Ukraine.

© David Kiss - student at Corvinus University of Budapest, Budapest, Hungary. E-mail: issdavid21@gmail.com Статья поступила в редакцию: 30.01.2022.

Introduction

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Although the European Economic Area (EEA) and the Russian Federa-§ tion as an economic area are connected through many historic and cultural o strands and the interregional trade does not even have any geographical § barriers, the volume of trade and level of economic integration are deep g below the economic optimum due to political factors. Both the West and | the Russian Federation are trying to elicit favourable political behaviour ~ from the other side through sanctioning each other's economies while ^ seriously damaging the economic relations both in terms of soft factors o like trust and hard factors like trade volumes and prices, and with the eso calation of the Ukraine crisis, it does not seem that this trend will change soon. Among such circumstances, it may seem anachronistic to think about

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^ the possibilities of improving the economic relations, but trade can also cl contribute to the normalisation of the political relations in the longer

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™ run and if that occurs, it will be important to have a further development < strategy to stabilise the results. Besides that, looking behind the current ° crisis and into the future may nurture constructive ideas for the current situation as well.

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In my research, I have therefore mostly ignored the fact of economic

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sanctions and poor political relations in order to shed light on the true potential of the two economies with each other. Only in the first section of the paper do I address the question of how, in broad terms, could the hostile political climate that prevents further economic cooperation be alleviated — then I ignore current international politics and work on the theoretical assumption that there is no political disinterest on the part of governments in improving economic relations.

Due to the complexity and large internal differences in development of the European Economic Area, instead of looking at the whole EEA, I will focus on just one part of it: the economies of the members of the Visegrad Group (Czechia, Hungary, Poland, and Slovakia) and due to the heavy influence of German economy on these, also Germany. On the other hand, I will focus on the whole Russian Federation including its remote and relatively undeveloped regions like Chukotka and Kamchatka.

In the analysis, I first describe the external and internal structures of 2 the two (sub)economies including factor supplies, revealed comparative o advantages, competitiveness and FDI regulation. After that, based on the characteristics identified, I will make recommendations for improving economic cooperation. I mainly use 2019 in my analysis data because 2020 data have been affected by the pandemics and therefore cannot be projected into

the future, and data from the year 2021 are in many cases not yet publicly | available.1

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The origin and possible solution of bad economic relations between the West and the Russian Federation

The Cold War ended in the 1990s with the disintegration of the Soviet Un-| ion and the collapse of its economic system, offering the possibility of a tabula ~ rasa after about 4 decades of near-war relationship with the West. Russia, the ^ successor to the Soviet Union, in ruins, did try to integrate into the Western o world (it had little choice), but its efforts remained one-sided (Sarotte M. E., o 2021): despite its cooperation with NATO, Belgrade was bombed in 1999 without Russia's knowledge (Snyder C., 2017), while the West, breaking its

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^ promises, expanded NATO and the European Union to the immediate vicinity cl of St Petersburg (Nato.int) — to take two symbolic examples, the list of bro-

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™ ken promises and insults is almost endless. Knowing that the rapprochement < would be too unilateral in the future (Dubrovin D., 2019), a strengthened and ° more assertive Russia has instead begun to reestablish a new political pole against the West and abandoned its unilateral integrationist ambitions — also

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< creating reasons for Western distrust, of which the annexation of Crimea and the Russo-Georgian war of 2008 are symbolic examples.

In the past 30 years, after the positive atmosphere of the first half of the 1990s and 2000s, partly as a legacy of the Cold War and partly due to the Western rejection of Russian rapprochement, two parallel narratives (Faizullaev A., 2018) (one Western and one Russian) have once again emerged to explain the current political events for one side and the other: essentially, that Russia is a threat to peace in Europe (Beale J., 2021) and, moreover, operates an exploitative political and economic system (thus not seen as fully legitimate by the United States) (Kissinger H., 2015), and that the West cannot be trusted at all (Tass.ru) and is a direct military threat to the Russian population, state and culture. (Putin V.V., 2021)

From this contrast, events and political positions of the present follow directly. If Ukraine is willing to move closer to NATO, the West should, in its own

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My research was greatly helped by my mentor, Shishelina Lyubov Nikolaevna, Head of Department of Central and Eastern Europe studies at the Institute of Europe of the Russian Academy of Sciences (IE RAS) and by my discussions with Belov Vladislav Borisovich, Leading

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Researcher, Deputy Director for Scientific Work, Head of Department of Country Studies and < of Center for German studies of the IE RAS, with Drynochkin Alexey, Main Scientific Researcher of the IE RAS, and with Anna Chetverikova, Leading Researcher at the Section of the EU < Studies of the Institute of World Economy and International Relations of the Russian Academy of Sciences (IMEMO).

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view, support the country in this, to help defend the West against the Russians — but from a Russian national security perspective, it is inadmissible for another § neighbouring country to become a NATO member. Led by the United States, the o West (including the European Union) has imposed economic sanctions on Russia § to win the strategic conflict of interest over Ukraine — not surprisingly, given US g foreign policy over the past decade, which has sought to resolve almost all its § foreign policy conflicts with economic sanctions, from Nicaragua to Venezuela, ~ Iran, China, and of course, Russia. (Drezner D. W., 2021)

The EU economic sanctions against Russia currently include a ban o on the export and import of arms and on the export of qualified dual-use o goods; a ban on loans and credits of more than 30 days' duration to listed institutions, legal persons, entities and bodies (including some of the biggest

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^ and most important Russian banks like Sberbank, Gazprombank, VTB Bank, ï Vnesheconombank, and other organisations like United Aircraft Corporation,

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™ Rosneft, Transneft, Gazprom Neft) and other entities majority-owned by < them; the prohibition of any transactions in financial instruments issued ° by these entities; and the export of certain technologies necessary for oil exploration and production; ban on tourism and import of goods to and from

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< Crimea and Sevastopol, ban on exports of certain goods and technologies to

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these regions; no new lending to Russia by the European Investment Bank and European Bank for Reconstruction and Development. Moreover, Russia can no longer participate at G8 meetings. Economic sanctions are complemented by some diplomatic and other sanctions, such as the prohibition of the entry of sanctioned individuals into the territory of the European Union (Council Regulation (EU) No 833/2014...) These sanctions date back to early 2014, when Russia annexed Crimea.

In response to the Western sanctions, Russia has firstly refused entry to the Russian Federation to some European and other nationals in spring 2014, (РИА Новости. 2014) and soon afterwards imposed an embargo on imports of many food products from the European Union and other Western countries. (Постановление Правительства Российской Федерации.) Due to the economic sanctions and deteriorating political relations, trade between Russia and the European Union fell by 45% between 2013 and 2015 (from $398,8 billion to $212,6 billion), and then increased again, but by 2019 it had only reached 66,3% of its 2013 level ($264,4 billion) (Table 1). If we о look at Russia's trade not with the EU as a whole, but only with the Visegrad countries and Germany, we get about the same proportions: 2013: 100%; < 2015: 52,89%; 2019: 67,28%.

This makes it clear that the most viable way to improve economic relations between the European Union and Russia at the moment is to improve political relations — and it is not that simple. Ukraine is the central motive for the poor

Table 1. Export and import values between Russia and the European Union in 2013, 2014 and 2019

Export value (from Russia) in billion USD (% of 2013) Import value (to Russia) in billion USD (% of 2013) Total trade value in billion USD (% of 2013)

2013 247,00 (100%) 151,75 (100%) 398,76 (100%)

2015 134,96 (54,64%) 77,64 (51,16%) 212,61 (53,32%)

2019 168,51 (68,22%) 95,86 (63,17%) 264,38 (66,3%)

Source of data: Atlas of Economic Complexity, 2019 (Atlas of Economic complexity).

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relations currently, but it is a false notion to think that solving the Ukrainian crisis alone will lead to an improvement in relations. Mutual trust needs to be rebuilt — but addressing the situation in Ukraine is also essential. But mutual trust is not only the basis for good political relations, but it is also one of the most important soft factors for doing business — and vice versa, as intense economic relations ceteris paribus raise the level of trust between nations.

However, apart from rare historical opportunities, it is very difficult to build trust and can only happen in small steps, because at least one side needs to appear to be naive and/or weak for it. Such an opportunity was once provided by the disintegration of the Soviet Union, which, despite initial successes, remained unused. The next opportunity could come if the current negotiations fail, the conflict deepens but stops before escalating into extensive war, which could convince the two nations of the need to normalise relations. But until then, only small steps can be made — for example, making small gestures, or trying to improve economic relations under these circumstances.

Because the lifting of economic sanctions, like their imposition, will be the result of a political decision over which economic actors have no direct control and cannot otherwise on the substance alleviate the non-market barriers they have created, I will proceed in the remainder of the analysis on the hypothesis that political leaders are not opposed to improving economic relations. This hypothesis is necessary to ensure that the analysis is not diverted from its economic focus by politics, and it also allows us to explore the true potential of the two economies, which can also refresh our understanding about the nature of EU-Russia relations.

Internal and external structures of the subeconomies

In order to explore the potential of economic cooperation, we first need to understand the internal structure of the subeconomies and their integration in the world economy. I will first look at the integration of sub-economies into the world economy, and then at some of their internal characteristics: the supplies of factors of production, the most important industries for trade with the analysed countries, their competitiveness and FDI restrictiveness.

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The Visegrad Group, while nominally integrated into the European Union and thus into its common market since 2004, is still far from being economically on a par with the developed regions of Europe (Benelux, West and South Germany, Northern Italy, etc.) in 2022, and thus constitutes an internal periphery of the common market, a periphery of these well-developed regions, (Eurostat...) mostly Germany because of its geographic proximity and historical bonds. The influence of these well-developed regions on the Viseg-rad countries is shown, among other things, but not limited to, trade flows between these countries and Germany (Figure 1). However, intensive trade with Germany is not disproportionate for any of the Visegrad countries in terms of economic size compared to trade with other countries in the region. (If Poland were to trade with Slovakia, the Czech Republic, Hungary and Germany in proportion to the size of their economies, 88.04% of Poland's total trade with these countries would have to be with Germany, while this proportion is only 62.9%. Similarly, Hungary should have 80.13% of its regional trade with Germany, while it is only 56.52%, Slovakia 79.17%, while it is only 42.25%, and the Czech Republic 81.61%, while it is only 62.9%).

Germany's economic influence on the Visegrad Group can also be seen in the number of jobs created by German companies and their turnovers (Table 2). German companies employ 5-15% of all employees throughout the region,

Figure 1. Trade flows among the Visegrad countries, Germany, and the Russian Federation in 2019. All Visegrad countries have the highest trade flows with Germany, but this is only due to the German market size.

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Table 2. Jobs created by German companies in the Visegrad Group.

Number of people employed by German companies in 2018 Total number of people employed in 2018 Percentage of employment by German companies in 2018

Czechia 786 246 5 147 000 15%

Hungary 490 451 4 548 000 11%

Poland 846197 16 133 000 5%

Slovakia 340 313 2 533 000 13%

Source of data: (Eurostat, 2022).

mostly in strongly export-oriented industries, meaning that the role of business decisions made in Germany on the external economic relations of the Visegrad region should not be underestimated. Most important German companies in the region among others are the Volkswagen AG and its subsidiaries (Skoda Auto a.s., MAN, Sitech, Scania, Audi), Lidl Stiftung & Co. KG, Daimler AG and their subsidiaries. Due to the strong influence of German companies, the Visegrad economies are in fact mainly integrated into world trade through the German economy. For these reasons, we consider it important to look not only at the Visegrad countries, but also at Germany in some aspects for our economic analysis.

Russia, by contrast, is not an internal but an external periphery of the economic core of Western Europe. But while being on the periphery, the Russian economy is deeply and inevitably integrated in some relatively small but crucial areas (e. g. oil and gas) not only into the European Economic Area, but also to another one of the three economic centres of the world, to East Asia. This attributes Russia with an important natural role in the world economy not only as a raw material supplier but also as a logistics centre, two characteristics that cannot be altered even by economic sanctions or bad political relations, until the political situation in the Eurasian Steppe remains more stable and the infrastructure more developed than in the Caucasus, Iran, and Mesopotamia.

Russia is also part of a similar but much less advanced initiative to the European Union's common market, the Eurasian Economic Union. The EEU aims to ensure the free movement of goods, services, capital and labour between participating economies and to pursue coordinated and common policies on economic issues affecting specific sectors. Its member countries are Russia, Kyrgyzstan, Kazakhstan, Belarus and Armenia. (Eaeunion.org) In reality, however, the market, legal and other barriers to the free movement of goods, services, capital and labour between economies have hardly been dismantled, and we must therefore treat the participating economies much more as separate markets than the sub-economies of the European Common Market.

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Table 3. Factor supplies of the countries analysed

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Income from natural resources (million USD) (own calcuation, World Bank) Labour force (thousand employees), share in total (OECD) Gross capital formation, total, volume (billion USD), share in total (OECD) GDP per hours worked (OECD)

Czechia 1 060,49 (0,46%) 5 411,9 (3,63%) 64,964 (4,82%) 42,3

Germany 3 888,33 (1,68%) 43771,4 (29,40%) 775,882 (57,59%) 66,7

Hungary 523,28 (0,23%) 4 671,9 (3,14%) 39,078 (2,90%) 38,1

Poland 4 121,24 (1,78%) 17018,2 (11,43%) 112,838 (8,38%) 41,7

Slovakia 263,21 (0,11%) 2 741,4 (1,84%) 24,042 (1,78%) 43,9

Russia 221 055,76 (95,73%) 75287,3 (50,56%) 330,442 (24,53%) 26,7

Source of data : own calculation from data of the World Bank (income from natural resources — Total natural resources rents [% of GDP] and GDP) (World Bank...) and OECD (other categories) (OECD Statistics: Economic Outlook).

After the way they are integrated into the world economy, we can compare the profiles of the economies on the basis of their production factor supplies, competitiveness and realised comparative advantages. The following table (Table 3) shows the production factor supplies of each economy.

In the first three categories of the table (income from natural resources, labour force, gross capital formation), instead of looking at the absolute values, we need to look at the relative share of each factor for each country, so that the size of the economy and country does not affect the analysis of the performance of the economies (values in parentheses). This shows that Russia has a comparative advantage in natural resource-intensive industries, Poland, Hungary and Slovakia in labour-intensive industries and the Czech Republic and Germany in capital-intensive industries. However, it should be noted, that within the European Union there are virtually no barriers of the movement of capital between countries, and only non-market and non-legal barriers of the movement of labour, so in these factors there is no sharp boundary between these sub-economies and their comparative advantages.

These data can be compared with the realised comparative advantages, and the differences between the two can be used to formulate optimisation recommendations that could lead to greater overall welfare. These optimisations would translate into greater economic cooperation through higher levels of trade and factor flows or better optimisation of value chains.

The revealed comparative advantages of each country are analysed by HS2 product groups, and services by other five groups: information communication technology, travel and tourism, transport, insurance and finance and unspecified. After performing the analysis for each group of products and

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services, I prioritised the categories based on the aggregate import volumes for each country in 2019. The values for the first 20 categories are summarised in Table 4.

Table 4. The revealed comparative advantages of the countries analysed by HS2 product groups and other 5 service groups (information communication technology, travel and tourism, transport, insurance and finance, and unspecified) in 2019. The calculation of the revealed comparative advantage is as follows: RCA.. = (x../X.)/(xw./Xwt) where x = export; i = country; t = total; j = product; w = country group. The categories of goods and services are ranked in descending order of the cumulated imports of the countries analysed. Only the top 20 of the 101 categories are shown.

№ Code (HS2 or service) Sector Name Total import value, USD Country and value

1 84 Machinery Industrial machinery 269 122 118 944 Czechia (1,44)

2 85 Electronics Electrical machinery and equipment 253 626 742 880 Hungary (2,09)

3 87 Vehicles Vehicles 225 262 665 354 Slovakia (2,69)

4 travel Services Travel and tourism 149 685 977 088 Hungary (1,78)

5 27 Minerals Mineral fuels, oils, and waxes 140 675 552 673 Russia (5,32)

6 transport Services Transport 108 808 259 328 Poland (2,02)

7 30 Chemicals Pharmaceutical products 82 129 635 659 Germany (1,46)

8 39 Chemicals Plastics 79 607 894 288 Poland (1,23)

9 ict Services ICT 76 518 200 704 Germany (2,02)

10 90 Machinery Apparatuses (optical, medical, etc.) 65 659 474 810 Germany (1,40)

11 29 Chemicals Organic chemicals 50 165 834 444 Germany (1,30)

12 72 Metals Iron and steel 47 882 516 390 Russia (2,16)

13 73 Metals Articles of iron or steel 44 158 360 715 Czechia (1,72)

14 94 Textiles Furniture 34 866 981 152 Poland (3,45)

15 62 Textiles Apparel, not knit 32 496 830 887 Poland (1,81)

16 61 Textiles Apparel, knit 31 435 683 361 Poland (1,73)

17 financial Services Insurance and finance 30 392 731 072 Germany (2,02)

18 76 Metals Aluminium 28 241 212 787 Russia (1,49)

19 40 Chemicals Rubber 27 026 617 315 Slovakia (2,01)

20 88 Vehicles Aircraft 26 614 721 323 Germany (1,52)

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Source of data: own calculations based on data from the Atlas of Economic Complexity

(Atlas of Economic Complexity...).

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The values in parentheses indicate how many times the share of a given group of products or services in the export basket of the country with a comparative advantage is larger than the average for the group of countries. For example, the first row of the table should be interpreted as follows: the product category industrial machinery has the largest share in the export basket of the Czech Republic among the countries analysed, and this share is 1.44 times (44%) higher than the average share of the product group in the export baskets of the countries surveyed. Based on this, I consider values greater than 2 to be significant.

The significant values are therefore for electrical machinery and equipment in Hungary, vehicles in Slovakia, travel and tourism in Austria, mineral fuels, oils and waxes in Russia, transport in Austria, ICT in Germany, iron and steel in Germany, furniture in Poland, insurance and finance in Germany, and rubber in Slovakia. These are therefore the most important industry branches for each sub-economies for trade with other countries analysed.

Two other important characteristics of national economies for economic cooperation opportunities are competitiveness (Figure 2) and the FDI regulatory restrictiveness index (Figure 3). The overall competitiveness of the Visegrad

- Czech Republic

-Germany

- Hungary

Russia —•— Slovakia

Figure 2. Economic competitiveness of the countries analysed according to the Global Competitiveness Report of the World Economic Forum in 2019

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•—Czech Republic —•—Germany —«—Hungary Poland > Russia —«—SlovakRepublic 3. FDI regulatory restrictiveness indices according to OECD, 2019 in selected sectors.

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Group and Russia is about the same (worst: Hungary with 65 points, best: | Czech Republic with 71 points), while Germany leads with 82 points overall § and in all sub-categories as well except ICT adoption (and in the macroeco-o nomic stability category together with Poland, Czech Republic and Slovakia). § It can also be observed that the competitiveness of the Visegrad Group and g Russia is broadly in line in each subcategory except for ICT adoption, and | health, where Russia is the best (ICT adoption) and weakest (health) among ~ the countries analysed.

In terms of FDI restrictiveness, Russia performs significantly in the high-o est position in all the categories examined, which means that Russia is the o most restrictive economy in terms of FDI. In most of the categories examined, there are no restrictions at all within the European Union, except for transport,

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^ agriculture and forestry, and communications. The three most restrictive sec-cl tors in Russia are financial services, transport, and mining and quarrying, and

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the least restrictive sector is oil refineries and chemicals.

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Now that we have looked at the integration of each country or country ° group into the international economy, the supplies of factors of production, the most important industries for trade with the analysed countries, their com-< petitiveness and FDI restrictiveness, we can now take a look at the possibilities for optimisation, i.e., better economic cooperation, between these economies.

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Opportunities to enhance economic cooperation

Within the countries of the European Union, economic integration has already reached a very high level (despite some shortcomings, as mentioned above), therefore I will only examine the possibilities for cooperation between the analysed part of the European Union and the Russian Federation, not within European countries.

Based on the data presented (and also everyday experience), mineral fuels are by far Russia's most important trade article with Central Europe (revealed comparative advantage in 2019: 5,32, and 5th biggest import market), whereas the European trade towards Russia mainly consists of different kinds of machinery and vehicles — despite the fact that Russian machinery industry is also quite strong. The export of mineral fuels is perfectly suited to Russia's production factors, but it is worth it to take a deeper look at it. 2

Without mineral fuels, Russia's trade with Central Europe would fall by o around two-thirds, which is to be expected in the long term as the European Union moves towards its energy targets, which is to become climate-neutral by 2050 (European Commission). The largest final consumers of mineral fuels in the Visegrad countries and Germany are the transport, residential and industrial sectors (Table 5.). In the energy- and resource-intensive industry, Russia currently has an untapped advantage that could be exploited by ver-

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Table 5. Final consumption of natural gas and oil products in the Visegrad countries and Germany (cumulated) by sector in TJ, 2019.

2019 (TJ) Transport Residential Industry Non-energy use Commercial and public services Agriculture and forestry Fishing Other, non-specified

Oil products final consumption by sector 528 323 1111 668 3 626 195 226 802 1 065 219 612 135 340 3 451

Natural gas final con-sumption by sector 71 460 1475 920 1 286 796 291 129 625 545 23 790 11 2 105

Total 3 697 655 2 004 243 1 513 598 1 402 797 760 885 243 402 1 076 5 556

Source of data: International Energy Agency (IEA) (International Energy Agency).

tically integrating its industrial consumers of oil and gas within the country and exporting an increasing share of processed products to Europe, rather than exporting energy for the European industry. This includes decreasing the share of crude and increasing the share of refined oil in oil exports to Europe, which would allow Russia to exploit more the overall economic benefits of its raw materials.

This kind of transformation is also necessary for sustainable economic relations, and the development of larger oil refining capacities in Russia could also involve European capital, allowing both the Russian and the European economies to benefit from it. By increasing the value density of export oil, the volume in cubic metres could also be reduced, which would better optimise transport costs, which should not be overlooked despite the low variable costs of transport through the established pipelines. In a stable political climate, this could be possible even in the present context, as the FDI restrictiveness discussed in the previous section shows that Russia has relatively few barriers to FDI in oil refining (Figure 3). Replacing the amortising oil refining capacity in Europe (Germany has the largest refining capacity in the European Union currently) (International Energy Agency) with refining capacity in Russia would also help to smooth the transition to green energy in Europe while investing the European capital into assets that will generate revenue in the longer term, as Russia does not seem to transit to green energies in the next couple of decades.

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For iron ore and steel, Russia's second most important export sector | (revealed comparative advantage: 2,16, 12th biggest import market), the same § advice can be given: exploit domestic comparative advantage (abundant raw o materials and energy carriers) to increase domestic value added and export § products with the highest possible value density — ideally finished steel or g finished machinery. This can also be done with European (primarily German) | capital, but FDI restrictions in metals, machinery and other minerals and ~ manufacturing are significantly higher than in oil refinery. A general advice ^ to Russia on improving its economic connections is to reduce its barriers from o foreign direct investment, which is of course also linked to poor political reo lations with the West.

Russia has the means to attract energy-intensive industries inside the

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^ country by artificially raising the price of exported energy gradually (by arti-

cl ficially improving its comparative advantage), which would also mitigate the

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™ risk of decreasing energy exports in the medium term on the Russian economy. < Russia can do this better using natural gas than oil, as the EU is more depend° ent on Russia for natural gas than oil.

According to Eurostat data (Eurostat), the main countries of origin for

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< European gas imports in 2020 were Russia (43.4%), Norway (20.0%), Algeria

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(12.0%), and the United Kingdom (5.5%). If we look at how long, at most, these countries and the EU itself could theoretically make up the difference in EU gas consumption and production with their known recoverable gas reserves at the end of 2020 based on British Petroleum data (British Petrol), we get the following results: the UK for not quite 8 months, the EU for about 1 year and 6 months, Norway for nearly 5 years, Algeria for just over 7 years and 11 months, and Russia for 130 years and 3 months — under the unrealistic assumption that all gas extracted is exported to the EU. Algeria, Norway and the UK could therefore supply the EU's gas needs for a maximum of about 13 years and 7 months at constant import demand (which has been growing strictly monotonically since 2014, partly due to declining domestic production), which is decades less than the most optimistic plans to convert the EU's energy economy entirely to renewables. So Russia is needed for the European natural gas market, who can meet on its own the EU's import demand for more than 60 years if the EU continues to account for around 50-55% of Russian gas exports, as it has done in recent years. Other countries with large recoverable o gas reserves (US, Venezuela, Nigeria, Qatar, Iran, Saudi Arabia, UAE, Turkmenistan, China) are not and cannot be major exporters to Europe because of < geographical realities and their established upstream markets in other regions.

The EU's oil imports are also dominated by Russia, but only with 26.9% (followed by Iraq 9.0%, Nigeria 7.9%, Saudi Arabia 7.7%, Kazakhstan 7.3%, etc.). In this market, therefore, a rise in the price of Russian energy would be

a relatively minor initial shock, which the EU could more easily compensate | from a more fragmented market.

Trade volumes might be reduced as a result of such politics in nominal o terms, but overall economic cooperation would be enhanced through increased § FDI stocks, technology flows, and better international allocation of business g functions in companies. In addition to helping economic cooperation in the | long term, this would also support Russia's political stability. It is important, ~ nonetheless, that the low price of energy from fossil sources in Russia does ^ not result in a brake on the country's energy modernisation, as this would o put the economy at a very serious competitive disadvantage in the long term.

By contrast, the European countries analysed are competitive compared to Russia in industries that are less energy-intensive and resource-intensive

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^ and more demanding in terms of skilled labour and capital. Germany has by cl far the best factor supply in terms of capital, as does the Czech Republic by a

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™ smaller margin, while Poland, Slovakia and Hungary have better labour supply < (Table 3). Meanwhile, it should be noted that there are virtually no barriers ° to capital flows between these countries and only non-market and non-legal barriers to labour flows and that thanks to the achievements of the fourth

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< industrial revolution, capital is increasingly convertible into labour with in-

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dustrial robots, especially in markets where labour costs are high.

Hungary has a significant revealed comparative advantage in electrical machinery and equipment, Slovakia in vehicles and rubber, Poland in transport services and furniture, Germany in ICT services, and insurance and finance services in the 20 most important export markets. The Czech Republic does not have a significant revealed comparative advantage in the top 20 product and service categories but has a value of around 1.5 in two categories, namely in the most important product category, industrial machinery, and in the 13th category, articles of iron or steel (Table 4).

For better economic cooperation, Russia could take over part of the energy-intensive and resource-intensive industries from these economies, so that Europe can make better use of its high capital stock and highly skilled workforce, and focus instead on R&D, services and light industry, for example. R&D is also needed to keep the region globally competitive in the longer term and to reduce its energy disadvantage behind Russia. If politics did not prevent this, certain functions of companies (finance, accounting, administration, etc.) o and some sectors of light industry could be in return outsourced to Europe, where they could be performed more efficiently based on current data.

A better joint allocation of market potentials in this way, i.e. improved ¡^ economic cooperation between the European Union and the Russian Federation, would benefit both parties: it would improve Europe's energy security by making it less dependent on Russian energy imports, while European compa-

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nies would gain new markets and improve their security of supply and costs | for certain raw materials. Cooperation would also help the Russian economy § to reduce its external dependence on its fossil fuels, while putting the national o economy on a more sustainable footing. Russian businesses would also gain § new markets, while also gaining better access to Western technologies, and 3 advocacy opportunities in the European economic market.

Summary

In my analysis, I have first shown how politics affects economic relations o between the European Union and Russia, and that the most necessary step to o improve economic cooperation at the moment would be to lift sanctions, on which however economic actors have little influence in the current circum-

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^ stances. I then looked at the integration of the Visegrad Group and Germany cl into the world economy and concluded that the Visegrad Group forms the

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™ internal periphery of the European Common Market, and that it is mainly < linked to the world economy through Germany. Russia, on the other hand, is ° the outer periphery of the Western European economy, but is deeply integrated in certain sectors into it and into the East Asian economic centre as well, thus

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< forming a bridge between the second and third most economically advanced regions of the world. I then concluded, based on an analysis of the internal structures and potentials of the economies, that economic cooperation could be enhanced by relocating energy-intensive industries to Russia and capital-and labour-intensive industries to Europe. While this strategy has its risks, my analysis concluded that in the long run there would be more opportunities than risks from this new allocation.

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ВОЗМОЖНОСТИ ЭКОНОМИЧЕСКИХ ОТНОШЕНИЙ РОССИЙСКОЙ ФЕДЕРАЦИИ И ФОРМАТА V4+ГЕРМАНИЯ

Давид Кишш

Университет Корвинуса, Будапешт, Венгрия, e-mail: issdavid21@gmail.com

Аннотация. Хотя Европейская экономическая зона (ЕЭЗ) и Российская Федерация связаны многими историческими и культурными нитями, а межрегиональная торговля не имеет даже географических барьеров, объем торговли и уровень экономической интеграции между ними намного ниже экономического оптимальным из-за политических факторов. С одной стороны и Запад, и Российская Федерация пытаются добиться благоприятного политического поведения; с другой стороны путем введения санкций против экономики друг друга, они наносят серьезный ущерб экономическим отношениям как с точки зрения мягких факторов, таких как доверие, так и с точки зрения жестких факторов, таких как объемы торговли и цены, а также с помощью эскалации украинского кризиса. Не похоже, что эта тенденция скоро изменится. Поэтому в своем исследовании я в основном игнорировал факт экономических санкций и плохих политических отношений, чтобы пролить свет на истинный потенциал двух групп экономик.

Ключевые слова: экономические отношения, Германия, Россия, Вишеградская группа, Украина.

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