Business Spectator

4th November, 2011

Stratfor.com- 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 November 3 to November 4 for the G20 summit, during which he will hold a sideline meeting with French President Nicolas Sarkozy. Medvedev will then visit Germany on November 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 modernisation and privatisation 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.