1) Less time for foreign policy    

When your house is burning, this is a bad time to be chatting or engaging neighbours. When political leaders and administrations are engaged full time in managing the economy – saving the Euro, reducing public spending or stemming the tide of unemployment, foreign policy is pushed even more to the bottom of the list of priorities. Leaders simply have less time and desire to understand or strategise about how to react to foreign policy events – be it Putin’s return to the presidency, the latest turn in the political mess of Egypt, Tunisia or Ukraine. And foreign policy issues which sometimes need not just competent diplomatic management, but also high-level political drivers, is relegated to working level – where many issues cannot be solved. Foreign policy matters are then seen like issues that need to be put aside, postponed, thrown under the carpet and get out of the way until more urgent problems are solved.

2) Fewer money 

Foreign policy is costly. Some money need to be spent on military resources and other – on assistance. Both of these types of spending buy the EU various degrees of influence, power and diplomatic weight.

The amount of EU spending for foreign policy is the result of a trade off between moral commitments (to help those in need of humanitarian assistance, post-colonial guilt), self-interest (stabilise countries, use political influence to promote economic interests, give aid to reduce emigration) and politicians’ accountability to voters. With a growing pie – politicians and decision-makers could get a decent balance between these various imperatives. But with a shrinking pie, a more egoistic narrow-mindedly voter oriented behaviour is likely to come to the forefront. This will restrain EU member states’ desire to spend money internationally. The increasing number of those affected by unemployment or salary cuts might suddenly become much less altruistic internationally and put increasing pressures on elites to spend money at home. At the end of the day foreign aid recipients don’t vote and a generously funded foreign policy is likely to be increasingly seen as something of a luxury.

All this is a huge problem for all great foreign policy powers, but especially for the EU, which in the absence of hard power has relied so much on economic power, conditionality and financial aid as its main foreign policy tools. On this the EU is like an investor with a shockingly undiversified portfolio of investments, to use Nick Witney’s parallel.

The EU takes a lot of pride in the fact that it is the biggest donor in the world. But even before the acute phase of the euro-crisis the political relevance of EU aid in the emerging world was undermined by alternative sources of funding for many of the emerging countries –from China,Russia, or their own burgeoning economies. Now the EU not only has to compete for political influence with other aid donors which is debilitating in itself, but might also face the need to reduce foreign policy funding. This is EU’s foreign policy double dip: the loss of relative influence compared to the other powers (due to their rise), supplemented now with loss of foreign policy resources not just in relative, but also absolute terms.

A side-effect of this problem also relates to market-access related conditionality. For decades the EU used access to the EU market as a carrot which is exchanged for all kinds of concessions – economic or political (such as the human rights conditionality in EU association agreements). But now, this tools might also become problematic on two accounts. First, the ‘carrot’ of EU’s stagnating market might become less attractive in relative terms (again not least by comparison with faster growing alternative markets). And second, the ‘carrot’ might be put out of sight for some external partners as a result of potential protectionist backlashes inside the EU.

While other powers, such as the US or Russia are also affected by the crisis, in financial dire straits they are still left with raw military power or assertive high-quality diplomacy. The EU has little hard power, fewer money, a half-baked External Action Service and a disparaged collection of divided national foreign ministries. This is roughly like the (probably Chinese) saying that ‘in a famine a fat man looses weight, and a thin man dies’.

3) The euro-crisis of soft power

The third serious effect of the euro-crisis is on EU soft power, which is supposedly based on EU attractiveness as a prosperous, well-functioning model. I have argued before that ‘soft power’ has an element of free-riding to it. For the last twenty years the EU’s main foreign policy occupation has been teaching other how to live and making them want what the EU wants. This foreign policy model was reaching its limits already before the crisis as it was hitting the limits of cultural fascination with Europe which was much more valid in Central Europe in the 90s and the Balkans, than it is in the Middle East or much of the post-Soviet space (see ECFR report on the Limits of Enlargement-lite). But now this foreign policy model is evaporating. Few, if any foreign policy partners of the EU are likely to aspire to be like Europe. The fastest growing economies in Europe in 2010 were Turkey, Belarus and Moldova. Hardly a good advertisement for EU’s economic model.

Again, the draining of ‘soft power’ is costlier for the EU than for other powers like the US, whose ‘soft power’ also had to suffer as a result of the crisis, but whose ‘power portfolio’ is better hedged. The US at least retains hard power, whereas the EU had no hard power, and its ‘soft power’ might be entering into a coma.

The Eastern Partnership is an attempt to resuscitate the European neighbourhood policy and focus EU’s political attention on the East. But now the economic crisis is stealing the show. Concentrated on itself, with the growing danger of protectionism inside the EU, and growing negative attitudes to “foreign” workers, many aspects of the European integration process, let alone the EU neighbourhood policy will come under strain.

Free trade and visa facilitation with the neighbours might be the first to suffer. Visa-free talks will be delayed, and the temptation to accelerate the building of “fortress Europe” even higher. Many EU member states and neighbours are increasingly protectionist. A near-collapsing Ukraine has recently raised import tarriffs by an average of 13%, which puts under huge strain EU-Ukraine talks on a Deep Free Trade Area. When EU member states themselves are entering dire straits, it will also be increasingly  difficult to commit more EU funding for the neighbours. The Eastern Partnership was marketed inside the EU as being “budget-neutral”, implying that it would not require additional money. Many bilateral assistance programs of (especially new) EU member states directed at the Eastern neighbours will be cut. Many of the Eastern Partnership’s champions among the new EU member states are hardest hit by the crisis. They are likely to become more introvert and might lose bargaining power inside the EU.

But the EU neighbourhood policy and the Eastern Partnership are not likely to collapse. The perspective of deep free trade between the EU and its neighbours was a mid-term one. For most EU’s neighbours, it was not likely to materialise in the next 3-4 years anyway (negotiations last for years, and the EU has only started them with Ukraine). Such talks might be delayed by the crisis, but would not killed.

The economic crisis might also change the neighbourhood in ways that can actually strengthen EU’s influence. For the last years, EU assistance to its neighbours was considered “candies” as Moldova’s president Voronin recently put it. And more often than not EU’s neighbours did not need the support of institutions such as the International Monetary Fund. They had huge economic growth (often into 10%), huge inflows of remittances and a cash-rich Russia was providing them with investments and assistance when necessary. Not anymore. Growth might turn into recession, while Russia is learning again how to count money.

As the neighbours are heading for rough times, EU funding suddenly becomes more important in the neighbourhood than it was in times of economic growth. EU funding to the neighbourhood (under ENPI) remains stable, and even marginally increases with the Eastern Partnership. Suddenly, EU’s voting rights in the IMF also become significant. The EU supported IMF bailouts for Ukraine and Belarus. Thus the EU can channel its influence through other channels as well. Bad times will increase the scope for EU conditionality in the neighbourhood, and give the EU an opportunity to actually accelerate its neighbourhood project. In other words, in times of crisis the EU might be able to buy more influence for the same money.

With time the terminology more or less settled. The new EU member states (Estonia, Latvia, Lithuania, Poland, Slovakia, Hungary, the Czech republic, Slovenia, Romania and Bulgaria) have roughly found their group name as Central Europe. The countries of the former Yugoslavia emerged as the “Western Balkans” (excluding Romania, Bulgaria and Slovenia which were South East European, but not Western Balkans). Moldova, Ukraine and Belarus were slowly becoming “Eastern Europe” (despite temporary linguistic curiosities such as WNIS – the Western newly independent states). So by 2008 – the former socialist countries had more or less established brand names. And then the global economic crisis hit.

"Eastern Europe" (Copyright UNC.edu)

For the last weeks especially, the media has been full of articles (just a few examples: rferl, the telegraph) about collapsing “Eastern Europe”. Whether these articles refer to Austrian and Italian banks heavily exposed in the region, IMF bail-outs (for Belarus, Ukraine, Hungary and Latvia), or simply political instability – the term “Eastern Europe” is back in the branding race. The term now includes Latvia and Ukraine, Hungary and Belarus, Estonia and Serbia. The new meaning of “Eastern Europe” applies to EU and non-EU, democratic and undemocratic (Belarus), reformed and semi-reformed, economically collapsing (Latvia, Ukraine) and still muddling through (Poland, Moldova) states. The new Eastern Europe refers pretty much to any state between Russia and the countries of the Euro-zone (which includes now Slovenia and Slovakia).

“Central European” states are not that happy about this re-branding. And they are right. The difference between Ukraine and Slovenia, Moldova and Estonia are staggering. But on the positive side is the fact that “Eastern Europe” re-emerged as a term precisely because the crisis in Ukraine is as likely to affect the rest of Europe as the crisis in Latvia or Hungary. In this sense, “Eastern Europe” is a good term for a more integrated Europe, that reaches beyond the EU. The term Eastern Europe does raise the spectre of a new symbolic division of Europe, but even more so it highlights  how integrated and interdependent united Europe has become.

Ukraine might be about to collapse economically. It is unable to meet the conditions of the International Monetary Fund to qualify for a USD 16 billion bail-out. Because it will face presidential elections in a year from now – a divided government in Ukraine is not able to meet the IMF’s condition on cutting (to zero) the budget deficit. Ukraine’s political mess was sustainable in times of economic growth, but not during the global economic crisis.

A failed economy is not yet a failed state. But the big question is what will Russia do. So far Russia treats the economic crisis as an opportunity to advance a reconsolidation of its sphere of influence in the post-Soviet space. Kyrgyzstan received economic assistance for expelling the US air base in Manas and proceed with deeper integration with Russia. On a recent visit to Moldova, Russian foreign minister Sergey Lavrov offered solidarity in case of financial difficulties. “Money, not promises” was his message in a disguised reference to the EU and international financial institutions that either don’t respect promises, or take years to deliver on them. In Ukraine, Russia stepped in with an offer of a USD 5 billion bailout. Russia’s conditions are not clear, but the price will most probably be political – a push for Ukraine to drop its NATO integration aspirations, or maybe an implicit deal on maintaining the Russian Black Sea fleet in Crimea beyond its current 2017 deadline. Voices in Russia also call for an imposed neutrality on Ukraine ( without a withdrawal of the Russian Black Sea fleet from Crimea).

In 1939 Edward Hallet Carr wrote a book called the Twenty Years Crisis referring to the interwar period of 1919-1939. He was wrong on many accounts. But he described how it took twenty years for the “end of history” optimism of 1919 to degenerate into a new World War. Ukraine (and all other post-Soviet states) is now in its 18th year of independence. The next two years will probably be decisive whether there will be a return to a bi-polar Europe or not. Certainly, perpetual political and economic crises in countries like Ukraine, Moldova or Georgia have been a modus vivendi for the last two decades, which made them more fragile, but  also (paradoxically) more resilient in the face of the current economic crisis. But still, an economically and politically collapsed Ukraine will raise the spectre of the end of post-Cold War Europe. Such a negative scenario is far from certain, but looks less unlikley than a few months ago.

Both Russia and the EU will have fewer resources – money and political attention – to be too preoccupied with their neighbours. Their neighbourhood policies will be increasingly under strain. Russia certainly has fewer resources for the kind of expensive, uneconomical, strategic investments in has been doing in the neighbourhood for years.

However, the Russian neighbourhood policy is there to stay. Russia’s interest in maintaining a sphere of influence survived the much deeper crisis of the 90s, and will certainly survive the current one. Russia’s project for the neighbourhood was not an opportunistic and temporary endeavour fueled by high oil prices. It stemmed from a deeply engrained Russian view of itself as a pole of influence in a multipolar world. The current economic crisis will not change that. Especially because the Russian neighbourhood policy is not all about money. Many of its elements – like military presence, manipulation of secessionist conflict, church and media influence, security assistance, strong diplomatic presence – have been instruments of power in the 90s, and will remain so. The global economic crisis changes the rules and the instruments of the game, but not the game itself.