Russian President Dmitri Medvedev has scheduled several trips to Europe over the next month. This comes as Moscow has been watching the European financial crisis closely — in part out of concern that the situation could harm the Russian economy, but mostly because the Kremlin intends to use the crisis as a chance to gain political leverage in Europe. Moscow's plan is to make Russia look economically stable, buy European assets while they are cheap, invite European countries into Russia and possibly offer financial backing for the eurozone's bailout mechanism.
Russian President Dmitri Medvedev is embarking on several trips to Europe over the next month in order to shape Russia's position on the Continent, which is undergoing a sharp redefinition during Europe's ongoing financial crisis. Medvedev will visit France from Nov. 3 to Nov. 4 for the G-20 summit, during which he will hold a sideline meeting with French President Nicolas Sarkozy. Medvedev will then visit Germany on Nov. 8 to officially launch the Nord Stream natural gas pipeline and meet with German Chancellor Angela Merkel. He plans to visit Italy and Greece later in November. Though these meetings have other purposes, they will take Medvedev to the two European heavyweight countries making the decisions about the Continent's financial crisis and the two European states feeling the effects of the crisis acutely. Such visits would not occur while these countries are mainly focused on the crisis unless Russia is also focused on the issue.
Russia's Interest in the European Crisis
Moscow has been watching the crisis in Europe intently, partly for internal reasons. The Kremlin has been worried about any ripple effect the monumental crisis next door could have on Russia. Moscow already is revising its growth forecasts this year, taking into account an expected slowdown caused by shifts in Europe. High oil prices have allowed Russia to keep large amounts of cash flowing into its coffers, which will ameliorate an economic blow caused by Europe. The Kremlin also is revising its modernization and privatization plans, which require tens of billions of dollars of investment from the Europeans in the next few years — much of which likely will be slashed. Moscow is also concerned that the Russian public's perception of the European crisis will create a lack of confidence in Russia; Russian Prime Minister Vladimir Putin has assured his constituents that his return to the presidency in 2012 is intended to help lead a stronger Russia. Although the Kremlin has been watching for effects from the European crisis to move through Russia, the crisis also has given Moscow an opportunity to take advantage of a weak and chaotic Europe.
Russia's Europe Strategy
For the past few years, the Kremlin has made several moves meant to keep the Europeans from acting as a unified entity against Russian interests. Referred to as the "chaos campaign," these initiatives have fractured the Europeans' view of Russia — Central European countries and the heavyweight countries in Western Europe have differing opinions on whether or not Russia poses a threat. These disagreements already have affected institutions like NATO, and Russia is now trying to create a similar effect by using the financial crisis as its platform. Russia's strategy has four steps, some of which are connected and overlap. Moscow traditionally has found this kind of complex and confusing scheme to be effective. The first part of Moscow's plan is to portray Russia as a beacon of stability amid Europe's weakness. This is more of a perception campaign than anything else. Moscow wants to show Europe that during this crisis, Russia is a strong economic power. Though Russia actually is not very economically sound, it is still powerful and stable and has a lot of cash on hand. For some Europeans, such as the Germans, this will come as welcome news, as Russia will be considered a possible partner to help solve the crisis. For other Europeans, particularly the Central Europeans, this will be worrying. The Central Europeans consider the European Union's unity to be one of the strongest limiters to a resurgent Russia, and if this unity is muddled or broken then Russia poses an even greater threat. The second part of Russia's plan is to purchase assets in Europe while they are cheap. Moscow already has started buying up firms throughout Europe that have been suffering during the crisis. The Kremlin is focused mainly on banks and energy firms, followed by strategic assets like ports and airports. Though most of the deals are still in the consideration and negotiation stages, the Kremlin is thinking in the long term about these assets' uses. It also is not looking at assets that would give Russia the greatest financial return; it is considering those that would give Russia important leverage in Europe, particularly in Central Europe. (click here to enlarge image) Russia is interested in buying stakes in some very strategic banks in Austria, Hungary, Poland, Turkey and the Netherlands. The banks in Central Europe are significant because bank lending in the region accounts for more than 90 percent of credit. Since most Central Europeans already depend on banks for the bulk of their lending, Russia and Russian capital will be able to influence the distribution of this lending. After the fall of the Soviet Union, there were not really any healthy banks in the region, so the Western Europeans bought them up. Now that those banks are failing, Russia wants to take control. Russia was looking for ways to increase its leverage over Europe's energy sector even before the economic crisis deepened. In 2009, Moscow was dealt a blow when Europe passed the Third Energy Package, which forbids energy companies from holding both the production and transportation assets of an energy supply chain. However, Russia ignored the energy directive since it is not subject to EU law per se, striking deals in Germany to increase its control over power plants. Now, in light of the crisis, Russia wants to purchase a slew of energy assets across Europe — oil terminals, utilities providers, retailers, and large oil and natural gas firms. Russia knows this is illegal under the Third Energy Package, but by purchasing these assets, Russia is keeping many of these firms from closing down, thus preventing an even larger crisis. In the long run, this could help Russia defeat the EU directive and influence which direction the Europeans look for energy security. The third part of Russia's plan is to invite European firms seeking a growing market into Russia. Kremlin planning committees are still formulating this part of the plan, but the idea is for European firms in transportation, telecommunication, energy and possibly even the military-industrial sector to work in Russia's active and expanding market. Of course, this will require the Kremlin to spend billions of dollars to support this market, but this would be factored in to the overall cost of forming ties with strategic European firms. For example, Nokia — Finland's largest company — has fallen well behind its competitors Apple and Samsung. Russia is in negotiations for Nokia to take over the majority of Russia's telecommunications sector, which will give Nokia a monopoly over a massive new market and will help Russia, which lags behind in this sector. Russia's invitations to European firms are part of Moscow's already-launched modernization plan, but now the goal is to make these large European firms — which do not have ways to expand in Europe — dependent on gaining access to the Russian market. The last part of Russia's plan is potentially to offer financial backing for Europe's evolving bailout mechanisms — in short, to give cash. Under the current European plan to counter the crisis, the Germans have prohibited new German government guarantees and have resolved to strongly oppose any further European Central Bank support for distressed sovereign debt. As Germany and the European Central Bank are the two most feasible sources of potential funding for the European Financial Stability Facility (EFSF) — the eurozone's bailout mechanism — Europe is now attempting to solicit financing from governments outside of Europe. The two largest parties outside of Europe that might purchase bonds through the EFSF are China and Russia. The EFSF's manager, Klaus Regling, already has visited China with little success. He is now looking to other states for help. The Russians have said they have not been asked for cash yet and have only pledged $10 billion via the International Monetary Fund to help the Europeans. However, STRATFOR sources have said the Europeans made deals with Russia well before Germany's funding restrictions were decided upon. Now that the Russians have seen the Germans' plan, they could be waiting to see if this plan will hold before they start giving the Europeans money. Also, it has been made public that the Chinese are waiting on the Russian read of the European plan; China and Russia will hold a meeting on the matter during the G-20 summit. When the Russians proceed with this part of their plan, they will have plenty of resources to spend because of years of high oil prices. Officially, Russia has $580 billion in currency reserves, and STRATFOR sources in Moscow have said another $600 billion is stashed away in various rainy-day funds. This means Russia can make a difference in Europe without squeezing its own economy. China, which had been one of the largest EFSF purchasers, is scrutinizing the current proposal's lack of full sovereign guarantees, but the Russians are approaching the issue from a different angle. Moscow intends to use cash to gain political leverage in Europe and is therefore less sensitive to financial losses than other investors might be. Overall, Russia wants to have as many different strategies as possible working at the same time in Europe in order to gain significant leverage there during the financial crisis, all while not facing too many accusations of direct interference. Once the crisis cools in Europe, it will become clearer exactly what the Russians managed to do while the Europeans were too distracted to notice.