Changing trade patterns, unchanging European and global governance. Bruegel Working Paper 2014/02, February 2014

The world economy is going through its biggest transformation in a relatively short space time. There have been many explanations for this phenomenon but the unprecedented scale and pace of this change and, most crucially, its implications, still seems little understood. In turn, there has been little preparation for, or adjustment to, this changing world, though if the change continues at this pace, the effectiveness of many global institutions in their current form will be threatened. We highlight the dramatic degree of the shifts taking place in world GDP and trade and include fresh projections of what world trade patterns might look like in 2020, should the trends observed over the past decade to continue. We also show the resulting shift in trade relationships for many key countries. European member states tend to have quite different trading partners’ profiles, and this heterogeneity is quite likely to become more pronounced with time. This, in turn, suggests a significant challenge for the effective functioning of the euro area and weakens the original rationale of its creation. If our projections to 2020 are broadly right, then many established frameworks for the running of the world economy and its governance are not going to be fit for purpose, and will need to change. The global monetary system itself, and global organisations such as the IMF, G7, and G20 are going to have to adapt considerably if they want to remain legitimate representatives of the world order. The alternative is their relegation to irrelevance.

Monetary policy and risk taking. Bruegel Working Paper 2010/00, February 2010

We assess, through VAR evidence, the effects of monetary policy on banks’ risk exposure and find the presence of a risk-taking channel. A model combining fragile banks prone to risk mis-incentives and credit constrained firms, whose collateral fluctuations generate a balance sheet channel, is used to rationalize the evidence. A monetary expansion increases bank leverage. With two consequences: on the one side this exacerbates risk exposure; on the other, the risk spiral depresses output, therefore dampening the conventional amplification effect of the financial accelerator. Keywords: monetary policy, bank behavior, leverage, financial accelerator.

Taking its place in Europe – Iceland’s long road to its EU application. Jean Monnet Occasional Paper 03/2013

Iceland applied for EU membership in 2009. Before that it had sought to alleviate pressures on her to fully integrate with Europe firstly by pursuing limited integration through membership of the European Free Trade Association (EFTA) and later by joining the European Economic Area (EEA). This paper traces the steps taken by this peripheral European country from its struggle of independence from Denmark, through World War II, American occupation, the founding of a republic, NATO membership and the Cod Wars with Britain. The paper analyses the various phases of the debate on the ties to the European institutions leading to EEA and Schengen membership, the “miraculous economic success“ which ended in the epic crash of 2008 which precipitated a much contested EU application.

A feigned liberalisation: Russia is restricting Gazprom's monopoly on exports. OSW Commentary No. 121, 26.11.2013

An act restricting Gazprom’s monopoly in Russian gas exports came into effect on 1 December 2013. Previously Gazprom had had a legal guarantee to its monopoly position. The changes are an effect of consultations between various ministries that had been conducted for many months and were affected by lobbying from Novatek and Rosneft (Gazprom’s competitors on the domestic gas market); they need not, though, be seen as system changes. The ‘liberalisation’ they appear to bring in is feigned. Proof of this are found for example in both the limited material scope of the new law (it concerns only exports of liquefied natural gas, LNG) and the small number of the beneficiaries of the new regulations (the new solutions will be beneficial for Novatek and Rosneft). Contrary to initial announcements, the right to export LNG has not been restricted to South-Eastern Asian markets, which means that Russian liquefied natural gas is also likely to be sold to Europe in the coming years. Although these changes have been motivated above all by the individual interests of Gazprom’s competitors, they are also to a certain extent a response to the processes taking place on regional gas markets. They may, therefore, turn out to be beneficial for the state (increasing Russia’s share on the global LNG market and attracting foreign investors to gas extraction projects being implemented in Russia). The new regulations are probably the first step down the long road to breaking Gazprom’s monopoly in gas exports via the pipeline system.

The Pro-Western Turn in Russia's Foreign Policy: Causes, Consequences and Prospects. OSW Point of View, September 2002

From Europe and Poland's point of view, one of the most important recent developments in international politics was the re-orientation of Russia's foreign policy. This paper aims to answer three important questions relating to this issue: 4. When and why did the "pro-Western turn" in the Russian Federation's policy take place? 5. Has it been profitable for Russia? 6. What goals will the Russian policy pursue in the future? An analysis of the last two years in Russia's foreign policy leads to the several conclusions, including those: 5. Clearly, the Russian leaders realise that in the longer term, Russia - in its desire for more influence in the world - will not be able to survive as an independent pole of power in international politics and it will have to join forces with the West (most likely, the European Union). 6. September 11 was not the cause of Russia's pro-Western turn, but rather a catalyst that put the process which started when Vladimir Putin took his office in sharp focus. 7. In the nearest future, this new direction of Russia's foreign policy seems not be challenged by internal opposition in Russia. 8. The "pro-Western turn" proved to be beneficial for Russia, although: d. Russia has not become a strategic ally of the US e. There has been no breakthrough in the relations between Russia and the European Union, and Moscow has not gained any real influence on NATO's important decisions. f. Russia has not become a major decision-maker of international politics. 5. Russia's closing to the West is in Poland's and Europe's interest.

Under the veneer of decentralisation. Ukraine's modernisation efforts stall due to lack of local government reform. OSW Commentary No. 102, 2013-02-12

President Viktor Yanukovych and his Party of Regions have been repeating the pledge to decentralise power in Ukraine and to give local government a greater decision-making role ever since the party appeared on the Ukrainian political scene. The implementation of this reform is crucial both for the economic recovery of Ukraine’s regions and the overall modernisation efforts of the Ukrainian state. At present relations between central government and the regions are regulated by Soviet-era legislation that fails to address the modern-day challenges facing Ukraine. The political elite in the country, including the opposition, appear to have reached consensus on the importance of the decentralisation reform. The first attempts to implement changes in this area were made in the late 1990s, followed by a comprehensive reform programme developed between 2007 and 2009 by Yulia Tymoshenko’s government. In 2012, the Constitutional Assembly under the President of Ukraine appointed a team of experts who drafted a document detailing the reform of local government and the territorial organisation of power1. The document envisages the implementation of what effectively are two major reforms: (1) an administrative-territorial reform, which would help consolidate the fragmented administrative structure, creating larger and more economically self-sufficient administrative units, and (2) local government reform, focusing on creating clearly defined powers for local authorities with a view to securing government funding for specific tasks delegated from central government. Nonetheless, despite these measures, and in spite of the rhetoric coming from President Yanukovych and other members of the Party of Regions, it seems unlikely that the reform will be implemented in the foreseeable future. A series of concrete political decisions taken by the president over the past three years indicate that Yanukovych has not abandoned his plan to build a highly centralised political system. This in turn limits the capacity to govern of local authorities and further restricts the sources of funding for Ukraine’s regions. This apparent resistance to change stems from the fact that by implementing the proposed reforms, the president and his political allies would be forced to relinquish much of their control over the political processes taking place in the country and would have to free up the distribution of budgetary resources between Kyiv and the regions. The implementation of the reform within the specified timeframe (i.e. by 2015) is also unlikely due to the upcoming presidential election and the deteriorating economic situation in Ukraine. Without a comprehensive reform of local government, however, Ukraine will be unable to undertake effective modernisation measures, which are key for the socio-economic development of the country’s regions.

Lukashenka has to choose: reforms or concessions to Russia. OSW Commentary No. 42, 2010-10-27

The most serious crisis in the history of Russian-Belarusian relations has been taking place over the past few months. In 2007 Russia started the process of depriving Belarus of subsidies in the form of supplies of fuels at low prices, which have for more than a decade guaranteed the stability of the Belarusian economic model, and is continuing this process now at an accelerated rate. At the same time, the Russian media started attacks on Alyaksandr Lukashenka from the middle of this year. This toughening up of Russia’s measures indicates that the Kremlin is determined to implement its goals regarding Belarus, including first of all taking over its strategic economic assets, which would result in a significant weakening of Lukashenka’s position. The Belarusian government has been consistently avoiding meeting Russian demands, while at the same time insisting on the reinstatement of preferential conditions of co-operation. If the Belarusian leader continues resisting Russian demands, the crisis in Russian- -Belarusian relations will be aggravated, and a conflict over energy issues around the turn of 2011 cannot be ruled out. The reduction in preferences offered by Russia in the energy sector has significantly impaired the condition of the Belarusian economy, and may lead to its breakdown in a year or two. As his country comes under increasing pressure from Russia, Alyaksandr Lukashenka will soon have to make a strategic choice between yielding to the Kremlin’s demands and embarking upon an at least partial restructuring of the economy.

"Creeping" civil war in the North Caucasus. OSW Commentary No. 50, 2011-03-15

Over the last year, the situation in Russia’s North Caucasus has become further destabilised. Attacks and armed clashes happen daily, and destabilisation is spreading to an increasingly large area. The extent of violence in the region is so great that it can already be stated that a de facto civil war is taking place, the warring parties being the Islamic armed underground movement which operates under the banner of the so-called Emirate of the North Caucasus, and the secular governments of the individual republics, who are supported by local and federal branches of the Russian Federation’s Interior Ministry and Federal Security Service. Moscow has no idea how to successfully tackle the Caucasus rebellion. Force has proved to be costly and unproductive, while the attempts made since early 2010 to integrate the region with the rest of Russia by implementing development programmes have not brought the desired results, because of widespread corruption and faint interest from businessmen who are afraid to invest in such an unsafe region. A growing problem for Moscow, particularly for the prestige of the state, is attacks by militants on areas near Sochi, where the 2014 Winter Olympics is to take place. It must be assumed that over the next 3 years before the Olympics, Moscow’s priority in the region will be to ensure the safety of Olympic preparations, and then the games themselves. It cannot be ruled out that the North Caucasus Federal District with its ‘troubled republics’ will be surrounded by a kind of cordon sanitaire (Sochi is situated in the neighbouring Southern Federal District). This could in turn strengthen these republics’ isolation, maintain the state of permanent instability, and postpone the prospects of solving the region’s acute economic and social problems.

The "Pro-Western Turn" in Russia's Foreign Policy: Causes, Consequences and Prospects. OSW Point of View (unspecified), September 2002

From Europe and Poland's point of view, one of the most important recent developments in international politics was the re-orientation of Russia's foreign policy. This paper aims to answer three important questions relating to this issue: 1. When and why did the "pro-Western turn" in the Russian Federation's policy take place? 2. Has it been profitable for Russia? 3. What goals will the Russian policy pursue in the future? An analysis of the last two years in Russia's foreign policy leads to the several conclusions, including those: a. Clearly, the Russian leaders realise that in the longer term, Russia - in its desire for more influence in the world - will not be able to survive as an independent pole of power in international politics and it will have to join forces with the West (most likely, the European Union). b. September 11 was not the cause of Russia's pro-Western turn, but rather a catalyst that put the process which started when Vladimir Putin took his office in sharp focus. 7. In the nearest future, this new direction of Russia's foreign policy seems not be challenged by internal opposition in Russia. c. The "pro-Western turn" proved to be beneficial for Russia, although: d. Russia has not become a strategic ally of the US e. There has been no breakthrough in the relations between Russia and the European Union, and Moscow has not gained any real influence on NATO's important decisions. f. Russia has not become a major decision-maker of international politics. g. Russia's closing to the West is in Poland's and Europe's interest.

A summary of the politico-economic changes taking place during Vladimir Putin's first term in office; Chechnya and Russia: The significance of the Chechen problem for contemporary Russia. OSW Study 11/2003

Putin's first term in office: The most significant achievement of Vladimir Putin's team over the three years of his term of office is the realisation of legislative changes, which may constitute a base for further - more detailed - political and economic reforms. This is, to a certain degree, a return to the economic tasks set out by a team of reformists in the early 1990s, which were impossible to realise at the time due to conflicts between the Kremlin and legislative powers. Chechnya and Russia: The purpose of this analysis is to examine the significance of the Chechen issue for contemporary Russia. Part I discusses the history of the conflict from 1991 to date and the impact of developments in the republic on Russia as a whole. Part II is an attempt to indicate the areas of Russian reality that are most deeply affected by the Chechen problem.