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The Wedding is Off! - Why Belarus and Russia Probably Won't Unite Afterall - Analysis from Austria

On September 5, the Belarusian Economy Minister Dimitri Krutoi announced that negotiations between Belarus and Russia on deeper economic integration were nearing completion. Presidents Aleksandar Lukashenko and Vladimir Putin would meet on December 8 – the 20th anniversary of the Union State Treaty – to unveil the package of measures.

The negotiations, which were often bad-tempered, have been ongoing for approximately one year. Their substance was largely unknown; and encouraged by ambiguous statements made by senior Russian officials, the media buzz was that political union in the form of a single confederation state could even be on the table.

In our bne IntelliNews comment piece (“Belarus’s post-Soviet theatre, opportunistic technical fiddling or Putin’s ace in the hole?”), we argued that full integration between Russia and Belarus was highly unlikely, concluding that only economic integration in bespoke areas should be expected. Indeed, the scope of the Union State Treaty is limited to tax legislation, budget, financial and monetary policy, thereby not extending possible integration far beyond that which has already been achieved by the Eurasian Economic Union (EEU), of which Russia and Belarus are both members.

This forecast was borne out by subsequent developments. Krutoi confirmed that the integration measures will focus on the establishment of common markets for main commodities, while allowing some sector-specific deviations. Further details on the markets in question were not given, as the measures are “roadmaps” that will be worked on through 2020. Elsewhere, the price of Russian gas supplied to Belarus will also be agreed in a separate intergovernmental agreement. 

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Given the likely efficiency gains, common markets could act as a platform for greater integration in the coming years. However, this will likely be limited to technical initiatives such as market deepening and sectoral policy coordination. Indeed, we expect that the potential for surprises – such as a political or currency union – will increasingly diminish. This is compounded by recent geopolitical and country-specific developments, which include:

  • The increasing likelihood that there will be partial steps towards an improvement in relations between Russia and Ukraine following the results of the latter’s elections. The US and, in particular, the European Union support such a rapprochement, which would be jeopardised if Russia initiated deeper (and unwanted) political and/or currency union with Belarus.
  • French President Emmanuel Macron’s increasing influence over the German government, especially Chancellor Angela Merkel. Macron recently again mooted the idea of an economic area from Vladivostok to Lisbon, the implied result of which would be greater cooperation between the EU and EEU. This would have benefits for both Belarus and Russia; but if the independence of the former were to be in question, France and Germany would likely drop the proposal.
  • Belarus has little incentive to add more eggs than necessary to the Russian basket. Its economy is currently performing better than Russia’s, while the government and domestic companies have good access to capital both in international markets and Russia itself. Furthermore, Belarus is following a similar policy path to Ukraine, prioritising macroeconomic stability in order to attract foreign investment to develop its local capital market.
  • Furthermore, the overall social stability in Belarus is, in view of the recent protests in Russia, at least superficially to be rated higher than in Russia. According to this approach, Russia has enough challenges at home for the time being.

These factors reinforce our assessment that a political unification of Russia and Belarus is highly unlikely. Nonetheless, the prospect will remain a wildcard scenario for as long as military and security circles in Russia view Belarus as strategically indispensable, as Crimea was. Energy dependence also remains a means through which Moscow may exert leverage over Belarus: its phasing out of de facto subsidies for Belarusian purchases of Russian oil was a macroeconomic shock for which compensation has still not been agreed. Yet for the most part, the noises made in the negotiations were post-Soviet theatre; a conscious mix of selective geopolitical positioning (and seeming escalation) that masked the high degree of economic rationality prevailing behind the curtains.

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