If the exchange rate of the euro goes down with respect to the American dollar, it would have a positive effect in Russia. But in general, Russia is not interested in major problems for Europe, because the European Union is our strategic partner, and it accounts for 50% of our foreign trade.
Olga Butorina, Advisor to the Rector, Head of Department European Integration, Moscow State University of International Relations (MGIMO University), shared his views on economic situation in the Eurozone with
Valdai International Discussion Club website
How will the crisis in the Eurozone influence European-Russian relations?
In 2005, the Central Bank of Russia introduced the so-called bi-currency basket, to which the exchange rate of the Russian ruble is not linked directly, but it is oriented on it, because we have an exchange rate regime known as managed float. First, the proportion was 90% to 10% – so 90% of this bi-currency basket was in American dollars, and 10% in Euros. And now the share of the euro is 45% and the share of the dollar is 55%. So it's nearly 50-50.
If the situation gets worse, how can a crisis in the Eurozone affect Russia? I think that this effect would not be very serious. If the value of this basket goes down, it means it will be easier for the Central Bank of Russia to maintain the exchange rate. Also, all our export inputs are in dollars, because we export oil and other raw materials, the prices for which are in American currency on the international markets. And we import goods from Europe, and Europe accounts for 45% of our imports, partly in dollars, but partly in Euros. And the share of the euro is growing because European countries – also non-Eurozone countries like the Czech Republic or Poland – export goods to Russia in Euros. It is convenient for them to have export incomes in Euros.
So if there is a real problem with the euro, if the exchange rate of the euro goes down with respect to the American dollar, it would have a positive effect in Russia. But in general, for sure, we are not interested in major problems for Europe, because the European Union is our strategic partner, and it accounts for 50% of our foreign trade. So we are interested in a stable economic situation in the Eurozone.
Moreover, Euros account for 43% of the official reserves of the Bank of Russia, which now total nearly half a trillion dollars. It's quite a big proportion, and for sure, we are not interested in a sharp devaluation of the euro. And I do not expect that it will happen.
How will the situation with the debt crisis in Greece and in Spain develop?
There are many speculations now that Greece should leave the Eurozone, and that Greece will be made to leave the Eurozone. The tiny obstacle is that, if you read the current treaty on the European Union, you'll see that the procedure for making a country leave the Eurozone is not mentioned there. So if a country wishes to leave, it may do so. But it cannot be kicked out of the Eurozone. And as far as I know, the political elites of Greece are not going to leave the Eurozone. And the country itself, its society, is not ready for this. Why? Because if Greece leaves the Eurozone, it is clear that the cost would be very, very high.
The country would have to print Greek drachmas again, and this is a very costly issue. Second, the exchange rate of the Greek drachma in this case would be lower than the exchange rate at which Greece entered the Eurozone. So this means that all the country’s debts, in Euros, will grow, and that instead of having 150% state debt, the country will have 300% state debt, not including commercial debts. So this means the country would lose a lot, and would have to work for many years just to pay back the debt with this exchange rate risk.
If there is the slightest whiff of a possibility that Greece will leave the Eurozone, all Greek people will definitely withdraw all their money in Euros, because they would be afraid that they would be converted to Greek drachmas at an exchange rate that is not beneficial – not the market exchange rate. And there would be a real financial crisis in the country.
How can this crisis be avoided?
The decisive role will now be played by the European commission, and most probably, by the heads of state of France and Germany. It will be their job to explain to the new Greek government that they have to follow the budget discipline. Otherwise they will have to pay much more, if the country leaves the Eurozone. And at least now, there is financial and political support for Greece. But if they leave the Eurozone – if they do not fulfill their commitments – the social losses will be much greater. And then, the country will become isolated, and the state will be a failure, from the economic point of view. They will have to export a very cheap labor force, or they will have to sell their islands, or some of their industries, something like that, to foreigners. We may imagine that some countries, including China or Russia, might be interested in buying some very valuable assets in Greece.