Tuesday, 1 June 2010

Financial Crisis Offers a Common Voice to Russia, EU

President Dmitry Medvedev and European Union leaders might not reach any significant policy breakthroughs at their 25th summit, which kicked off Monday night in Rostov-on-Don with an informal dinner in a Cossack riverbank restaurant.

But they can show the world that they cooperate on a grand scale when it comes to defining the causes of the financial crisis and the formula to get out of it.

The Kremlin and EU positions on this issue largely coincide — giving them a potential common voice at the next summit of the world's 20 leading economies on June 26 in Toronto.

The Kremlin said in a statement that both sides would discuss a framework agreement on Tuesday morning that would ensure "steady, sustained and balanced economic growth, the reform of international financial organizations and the refinement of mechanisms for regulating global financial markets."

Yet it was unclear Monday how much of the talks between Medvedev, European Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso would focus on financial regulation.

Yaroslav Lissovolik, chief economist at Deutsche Bank in Moscow, said both Europeans and Russians are likely to come out in favor of more stringent financial regulation as the economy recovers.

"Disagreement is unlikely on this because banking sectors on both sides share a great deal of integration and interaction," he told The Moscow Times.

The Kremlin has in the past championed more regulation and reform of international financial institutions. Medvedev has called for the G20 to speed up its work on reaching globally binding financial market regulations, while his top economic aide,Arkady Dvorkovich, has said developing countries should be given more say over organizations like the International Monetary Fund.

That stance has been met with some skepticism in the United States. Washington has advocated a softer approach to regulation, favoring transparency and disclosure requirements over clampdowns on speculators and taxes.

Vasily Astrov, an analyst with the Vienna Institute for International Economic Studies, said the issue of financial regulation naturally pitched Europeans and Russians against the Americans because they agreed that lax financial regulation in the United States and the resulting U.S. housing bubble caused the global economic woes.

Since regulation had already been relatively tight in Russia and in most EU countries, both Brussels and Moscow can speak "with nearly one voice" on this issue in Toronto, Astrov said in e-mailed comments.

But Martin Gilman, a former senior representative for the International Monetary Fund in Russia, said Moscow was probably just trying to show sympathy with European concerns on this issue.

"It costs Russia little other than words, and apparently the moral support is appreciated, such is the rattled confidence among European officials," said Gilman, a professor at the Higher School of Economics.

Real common ground is limited because Russia has little interest in a restrictive regime for capital flows, Gilman said.

Medvedev last week boasted during a meeting with U.S. fund managers that Russia was a haven for foreign financial firms that suffer from too much regulation at home.

Indeed, Moscow offers regulatory advantages like an absence of transaction taxes, also known as capital controls, Lissovolik said. "Russia is the only BRIC country without capital controls," he said, referring to the group of emerging economies that includes Brazil, Russia, China and India.

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