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2 Sep, 2008 02:29

EU holds on to business ties

Meeting in an emergency session on Monday, European Union leaders had few options when it came to an economic response to Russia following its military actions in Georgia. Instead, they're opting for diplomatic pressure.

Harsh words aside, there was no consensus among the EU member states as to how to reprimand Russia, first for its actions in Georgia and then for recognizing South Ossetia’s and Abkhazia’s independence.

The EU’s exports to Russia tripled between 2000 and 2006 to almost $110 Billion dollars.  Europe is Russia’s biggest trading partner. But despite that, the European Union will find some form of economic action against Russia according to Andrey Suzdaltsev, Professor, Higher School of Economics

“The effect could be cumulative, stemming from a number of measures. But one thing is sure. The West would not forgive Russia for taking over the control of the alternative energy routes from the Caspian.”

A major trading partner, Russia supplies a quarter of Europe’s gas.  But Russia is not about to use EU’s energy dependence to its advantage, according to Prime Minister Vladimir Putin.

“We don’t intend to restrict anything or anyone.  We will adhere strictly to our contractual obligations, but we will also expand and diversify with the goal of exporting value added products like hydrocarbons.”

And according to Central Bank’s deputy head Gennady Melikyan, sanctions make no economic sense, first and foremost for the EU member states themselves:

“I think European banks would never abandon their subsidiaries in Russia for one simple reason: They make hefty profits here. The banking business in Russia is much more profitable than it is the West. Foreign banks grow their capital by roughly 20 percent a year in Russia, much higher than in Europe.”

The numbers speak for themselves: Last year Russia attracted over $52 Billion – four times the amount it pulled in three years ago. While it still lags behind China in absolute terms, Russia is at the head of the BRIC pack when Foreign Direct Investment is measured on a per-capita basis.