2016 Already Puts Its Mark on the Economic Map of Europe

Written by | Monday, March 7th, 2016

Michael Emerson (Centre for European Policy Studies)

The Deep and Comprehensive Free Trade Area (DCFTA) between Ukraine and the European Union came to effect on 1 January 2016. At the same time, the DCFTA also newly applies on the entire territory of Moldova, including the separatist region of Transnistria. The last country with a finalized DCFTA is Georgia, which has been a member since 2014. The importance of a deep and comprehensive free trade area primarily lies in the facilitation of the progressive integration of these economies with the EU economy. The secondary aspect is the geopolitical reality of the post-Soviet space, which seeks to get rid of the Russian influence on the domestic policy and economy.

Following the conclusion of the DCFTA, Russia cancelled its free trade zone with Ukraine and also banned its agricultural imports. Russia also imposed charges on the Ukrainian exports to Kazakhstan and Belarus through the Member States of the Eurasian Economic Union. Ukraine had, however, anticipated these steps. Kiev proactively prevents possible problems and systematically reduces its energy dependence on Russia. Energy imports to Ukraine are now provided predominantly by Western suppliers, such as the Norwegian company Statoil. The DCFTA is first and foremost an important step towards Ukraine’s further economic integration with the EU.

While the forecast economic growth in the EU for 2016 is around 2 percent, the Union is still a more attractive economic partner compared to Russia and the Commonwealth of Independent States (CIS). The consumer market of the EU and the associated states has about 650 million consumers while Russia and the CIS have approximately 300 million potential consumers. Europe is experiencing economic growth that is moreover supported, among others, by the giant Chinese investment project, “the New Silk Road”. It is safe to say that the EU is currently in a relatively good economic shape.

In contrast, the Russian economy is not experiencing the best of times. Low oil prices, Western sanctions and now also the freezing of all cooperation with Turkey will likely not lead to a significant rise of the Russian economy any time soon. Kremlin is paying a high price for its foreign military and geopolitical adventures. Its distance from the EU, Turkish and Ukrainian economies could lead to unintended consequences for Russia, both on the economic front and on its domestic political scene. In this context, the Ukrainian decision to finalize the DCFTA with the EU can be seen as a completely logical move – a step in the right direction.

(The study can be downloaded here: https://www.ceps.eu/system/files/No%2022%20Changes%20in%20map%20of%20Europe.pdf)

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