Eurasian Project in the Era of Global Interregnum – Megatrends and Risks

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Written by Dmitry Yevstafiev; Originally appeared at Eurasia.expert, tranlsated by AlexD exclusively for SouthFront

Any political, and even more so, geo-economic process is historical. It develops in specific conditions and, as these conditions change so it must adapt itself. In such a situation, all integration projects are now in such a situation – there are profound changes in world politics and the economy. Those that cannot change will be pushed out to the side. Those who can recognise the essence of change in time will have a chance to take the lead. The countries of the Eurasian Economic Union (EEU) are facing such a dilemma today. Professor Dmitry Yevstafiev of the National Research University, Higher School of Economics, Key trends rebuilding modern politics and economies in Eurasia.

Eurasian Project in New Conditions

The EEU project began to be formed in significantly different political and economic conditions than it exists today. At the time, it was focused at achieving obvious goals:

Promoting the integration of the key industrial sectors of the post-Soviet countries into the world economy with minimal loss of industrial potential created in Soviet times and maintaining a free trade regime.

Other goals, such as establishing a common social standard, relative financial transparency and maintaining a preferential migration regime for the EEU member states were subordinated to the main priority. The creators of the EEU did not imagine their countries outside the globalisation process in the form in which it existed in the first half of the “zeros” [Translator’s note: first decade of the 21^st century], and expected that this process would remain at its core. Reality has proven to be much more complex.

Today it is necessary to develop an understanding of the key adaptation directions of the institutions and systems created within the EEU and the Commonwealth of Independent States (CIS) (and the “integration ideology” itself), taking into account new global trends. And only after this attempt to rebuild the EEU and other integration associations, improving their efficiency.

De-Industrialisation is Cancelled

The key factor determining the modern world is the transition of the world economy and, consequently, politics. The main point, which needs to be made now, is developing approaches to improving the efficiency of integration institutions as follows.

The impending historical and economic ear will be the ear of a new industriality, that is, multi-level and multi-directional. The world as a whole is entering an era of industrialisation at different speeds.

If we manage to avoid a global force majeure (global economic crisis or financial default), we will soon see the processes of commodity industrialisation in Africa, catching up with industrial modernisation in the Middle East and, probably, in a number of East Asian countries. Attempts will be made to realise the potential of the third industrial modernisation (China, perhaps some Eastern European countries). Not to mention the isolated manifestations of the fourth industrial revolution in China and possibly in India. The latter is waiting an almost inevitable powerful wave of social modernisation, which will give impetus to the development of specific industries.

Against this backdrop, the formation of a long-term asymmetry in the economic development of key regions becomes a natural process.

Political Mega-Trends

The following circumstances should be noted in other significant trends in the development of the world economy:

The growing importance of military-security risks. Military-security risks are now much more important for economic policy and investment processes than 10-15 years ago.

This is not yet due to force majeure changes. If they start to happen, the situation will get even more difficult. For example, economic growth in recent years has relied primarily on positive trends in China and, to a much lesser extent, South-East Asia. They will be broken if the geopolitical and geo-economic dangers surrounding the Korean Peninsula erupt. After that, the issue of global economic growth will acquire quite a different meaning, affecting practically all countries of Eurasia. To an even greater extent, the negative impact on the development of the Russian economy can have an increase in tension in the Baltic region, which will put an end to Russia’s key hydrocarbon project, and indeed will undermine Russia’s key presence in the foreign market.

The collapse of regional and interregional economic blocks and alliances created over the decades. Such blocks and unions, the most famous of which were the Transatlantic Trade and Investment Partnership (TTIP), Trans-Pacific Partnership (TPP), the North-American Free Trade Agreement (NAFTA), the ASEAN were not just a means of approval of free trade. They were an instrument of absolute transparency of investment activities and the ability to organise the seizure of trade “rent” through financial and marketing mechanisms at any point.

Slowdown of social globalisation. The issue of narrowing the consumption gap and social standards between the conditionally “developed” and “developing” countries was a key ideological condition for universal support for globalisation as a non-alternative development model. Now this thesis is gradually replaced with the concept of “socially advanced enclaves “ (“world cities”), which significantly reduces the “area” of growth of social welfare in the world.

The processes of the “catching-up social development” have slowed even within the European Union, where the division between the conditionally “social dynamic” (German, Northern Europe, the Benelux, Czech Republic, Slovakia), the “socially stagnant” (most of Eastern Europe, Spain, Italy) and the “socially degrading” (Greece, Portugal, the Baltic States, Bulgaria and Romania) states is increasingly evident. This is one of the most striking signs of the slowdown in globalisation.

Toughening of global financial and investment activity regime. The US policy on globalisation of the American fiscal legislation and its use for the seizure of a significant part of financial resources for their own needs in one form or another will continue. The importance of purely administrative forms of regulation will most likely increase.

Fragmentation of economic macro-regions. There is a separation from the global economy, including from the previously formed economic macro-regions, groups of countries, usually united around political, logistics or investment projects that begin to operate under laws that are somewhat modified compared to the global economy, in fact violating the principle of universality of globalisation. It is not only that integration into regional and inter-regional economic trends becomes more important than the participation in global processes. The fact is that the structure of economic “regions” is changing significantly.

The manifestation of this trend is the formation by China of the Belt system of prosperity, the “Great Silk Road”, which virtually breaks all previously discussed and created integration projects and fundamentally changes the structure of the two macro-regions (Eurasia and the Middle East) and several economic regions.

Another striking manifestation of this trend can be the reformation of the EU into a “Europe of different speeds” with the allocation of several sub-regions with different economic models, but united by common political objectives and ideology (“values”). That is, united not on an economic but ideological basis.

Negative expectations in the global financial market. The world economic elite has developed an understanding of, at least the pre-crisis state, the model of financial and investment capitalism with which we have connected the global economy in the last three decades.

The majority of serious players on the world economic arena admit that the world is on the doorstep of major changes, linked primarily with the changing financial and investment components of the global economy.

Attempts to “overbuild” the global financial system through new, innovative financial instruments, crypto-currencies and lending using the mechanism of syndicating “blockchain” finances, only confirm the pre-crisis state of global finances.

A deep financial crisis can start at any moment, provoked even by a relatively minor negative event, on the same scale as previous similar events. These expectations do not always reflect the current global macro-economic reality.

In general, there is a poorly controlled process in the world economy waiting for the “Black Swan” event. This makes almost all long-term non-speculative investments de facto risky. This significantly changes the requirements for profitability and guarantees (both insurance and reservations) of such investments.

When discussing the strategy of the Eurasian project, it is important to take into consideration these trends, which form a fundamentally new context in contrast to what developed in the “zero years”.

Dmitri Evstafiev, professor NRU “Higher School of Economics”

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