Asia Times: EU urges Russia to axe dollar for euro


	May 19, 2001	atimes.com

Central Asia/Russia

EU urges Russia to swap dollar for euro
By Robin Newbold

Russia could emerge as a crucial factor in the success of the fledgling European single currency, the euro, at the expense of the US dollar after leaders at this week's Russia-European Union summit agreed to study ways to boost the currency's use in trade and increase its share in Russia's official reserves.

EU leaders on Thursday made an audacious bid to lure Russia away from its reliance on the greenback, calling on Moscow to start accepting euros instead of dollars for its exports, dangling the attractive carrot of a boom in investment and trade.

Russia currently receives US dollars for its European oil and gas exports, but the EU wants to switch to euros instead. A joint communique has been signed by both sides agreeing to discuss the issue in further detail.

Some economic experts believe a significant switch from dollar contracts to the euro by Russia's big energy producers, who provide EU states with 21 percent and 41 percent respectively of their oil and gas imports, could see the euro finally become a force in world trade after its protracted struggle against the greenback.

Chairman of the European Commission, Romano Prodi, strongly pushed the euro's case at this week's meeting, saying it would help bolster trade with Russia, attract new investment and balance the nation's hard currency reserves. "It is a clear sign of commitment to closer relations between the EU and Russia," Prodi said at a Kremlin news conference attended by Russian President Vladimir Putin, Javier Solana, EU foreign policy and security commissioner, and Swedish Prime Minister Goran Persson, whose country holds the rotating chairmanship of the EU.

Putin, while avoiding direct reference to the euro issue, significantly hailed Prodi's proposal to consider the concept of a common European economic sphere. The Russian president also urged the EU to lift trade barriers imposed against some Russian exports. European delegates also mentioned progress on a proposed energy deal that would encourage investments in Russia's energy sector.

A switch from dollar to euro could well have a positive impact for the Russian economy with the prosperous EU on its doorstep. In a report commissioned by Russia's Central Bank in July 1999, the Russian Academy of Science said: "The introduction of the euro directly bears on the strategic interests of Russia and alters the conditions for its integration into the world economy. In the final analysis, the consequences are to the benefit of our country."

Olga Butorina from the Academy of Science said whereas EU states accounted for 33 percent of trade turnover in 1998 compared with 8 percent for the United States, 80 percent of foreign trade contracts - mainly for oil, gas and other commodities - were concluded in dollars.

In 1998, Russian energy giant Gazprom signed 40 percent of its contracts with the former Soviet states in European currencies. If they were switched to euros it would provide a terrific boost for the currency, Butorina added. "It would increase dramatically the demand for euros in the world," she said. "For sure, it would be an important strategic shift and the euro would start to compete with the dollar in international trade markets."

However, not everyone is convinced that Russia will take the plunge. Oleg Vyugin, a former Russian first deputy finance minister and now chief economist at Troika Dialog, said the dollar has become force of habit with Russian businessmen. "It's difficult to imagine Asia switching to the euro," he observed, believing there will only be a cautious, market-led take-up of the still young currency.

Sergei Karaganov, chairman of prominent Russian think tank the Council on Foreign and Defense Policy, also fears for the future of Russia's rapprochement with Europe. Karaganov firmly believes that Russia should be fully integrated into the EU, but said: "On the whole, Russia's political elite is uncertain where the country should belong. Its cultural and historical heritage, and the overwhelmingly European orientation of its trade [more than 40 percent of exports go to Europe] point to greater involvement with Europe. But there are strong countercurrents."

Indeed, Karaganov sees Russia being blown off course in its European ambitions and taking another direction completely. "Most of Russia's more sophisticated products - arms, nuclear reactors, aircraft - are in effect blocked from lucrative Western markets, prompting hardliners among Russia's industrial elite to preach strategic rapprochement with countries such as China and Iran," he said.

Nevetheless, some second-tier Russian firms have already led the way and embraced the euro. "Today, we pay for our raw materials in euros, about 60 percent of our turnover," said Marina Pereverzeva, general director of Almaz Press.

Some Russian steel firms have also reaped huge rewards by importing in euros and exporting in dollars, though europhiles complain the currency is only available in Russia through the ruble-dollar cross-rate, which makes it more expensive. They have called on policy-makers to introduce a direct euro-ruble rate and boost demand for the euro in Russia, although the Central Bank's stance on such a move remains unclear.

While, the currency issue remains unresolved, Putin remained adamant that relations with the EU were a priority for Russia. "Our meeting was constructive, rich in substance and extremely fruitful," he said. "The significant role that the EU is playing in the European and world policy is objectively pushing us toward closer cooperation."

EU leaders renewed a pledge to back Russia's bid to join the World Trade Organization and said they would work with their hosts to form a "unified economic space", though the definition of such a trading area, from a look at most of the proposals, is vague at best. As Karaganov said: "The EU-Russia dialogue - although welcome - is more a bureaucratic exercise than a vehicle for further integration. And unless put on a different footing by both sides, it will soon start to produce disillusionment."

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