The EU-Russia Strategic Competition Over Moldova Intensifies5 min read
In the process of formulating its budget for 2021-27 in July, the EU took a major step towards further integration in the form of a €750 million recovery fund alongside an adoption of the Multiannual Financial Framework (MFF). This initiative is designed to push economic reform across the EU and intensify what the European Commission calls ‘fiscal convergence’. In other words, giving the EU a greater say over how its member states raise or lower levels of tax and spending.
Yet the Commission also views the crisis as a chance to stretch its ambitions for fiscal reform to deepen engagement with the EU Eastern neighbourhood. It has committed €16 billion to bolster EU external action as part of the 2021-27 budget’s Next Generation EU recovery instrument.
In particular, the process of incentivising political reform in the post-Soviet space is top of the fiscal agenda in Brussels. At the same time as the Multiannual Financial Framework proposal was put forward in the summer, the Commission approved a fund of €30 million in macro-financial assistance (MFA) to Moldova.
Although stating that it aims to help Chisinau recover from the socio-economic consequences of the pandemic, the EU is clearly looking to expand the competency of its Eastern Neighbourhood Policy (ENP). The ENP aims to promote democracy, rule of law, and a liberal economic development in Moldova and other former Soviet states – not dissimilar to the way the EU began to tie with the former Warsaw Pact states of Poland, Hungary and the Czech Republic in the 2004 enlargement process.
The €30 million deal came after Moldova agreed in a memorandum of understanding that it will make progress in areas including financial sector governance, anti-corruption measures, and crucially, the implementation of a Deep and Comprehensive Free Trade Agreement. In effect, Brussels is using the pandemic as an extraordinary opportunity to increase its influence on Moldova, opening the possibility of EU membership – much to Russia’s frustration.
It is no coincidence that on the same day that the EU agreed the disbursement, Moscow’s Ambassador to Moldova ruled out any ‘magical’ withdrawal of Russian troops from Transnistria. Yet it is a sign that Moscow is running out of ideas to pull Moldova further away from European integration as the EU draws Moldova ever closer towards its orbit.
The political system in Moldova has tried to strike a balance between its relations with Russia and the West. Similar to the East-West divisions that have existed in Ukraine since the collapse of the Soviet Union, loyalties are split within Chisinau’s system of government. Igor Dodon, the incumbent president, has sought to keep positive relations with Moscow after his country signed an association agreement with the EU in 2014. Fearful of potentially following Ukraine’s example in light of the Crimean annexation, Dodon made reassurances to Putin by securing Moldovan observer status in the Eurasian Economic Union – a body that Russia has used to respond to the EU’s growing eastern economic presence. Meanwhile, the pro-Western Moldovan government has sought to prove its credentials in making overtures with Europe.
Foreign Minister Nicu Popescu, in an attempt to maintain a neutral stance, has nevertheless all but stated the reality of Chisinau’s close relations with the EU by asserting that there is no alternative to strong pro-European integration. And so it is no wonder that pro-EU sentiment has strengthened in the country.
As Russia placed an embargo on Moldovan goods after the EU association agreement was struck, entrepreneurs have seen a tangible return in engaging with the EU market. The Deep and Comprehensive Free Trade Area, which came into force in 2016, resulted in a 4.5% GDP increase a year later. Accepting the EU’s latest macro-financial assistance package is a sign that Moldova is throwing caution to the wind in terms of following a similar path to the one that Ukraine took before the Russian intervention.
Moldova is following a pattern where its neighbours in South-Eastern Europe have adopted a pro-EU stance in return for fiscal support since the collapse of the communist system. A case in point is Bulgaria’s adoption of the currency board in 1996 in order to bring hyperinflation under control following a period of economic hardship.
Under the 1994-97 Socialist Party administration, Bulgaria was slow to implement reform given the close relationship the government enjoyed with Russian business. Its prime minister, Andrey Lukanov, was made Gazprom’s representative of a joint Russian-Bulgarian venture in 1995. The influence that Moscow held over Sofia’s administrative decision-making resulted in financial mismanagement and disastrous food shortages. However, the opening up of economic relations between the EU and Sofia in the form of the country’s inclusion in the Phare programme by 1996 intensified the process of political reform.
The Bulgarian government adopted policies designed to prepare the country for EU accession, in areas such as public administration and infrastructure. Negotiations between the EU and Bulgaria over the country’s accession process began only three years later as Bulgaria followed the EU’s requirement to establish a market economy.
It is no exaggeration to suggest that a similar story could also occur today in the case of Moldova. The Covid-19 pandemic, despite its socio-economic difficulties, offers a new impetus for the EU to expand its influence in the former Soviet state. However, unlike Bulgaria, Moldova is a country that has a East-West divide on its territory as well as a conflicting approach to handling the EU-Russia rivalry. Russian military presence in the breakaway region of Transnistria is an issue that remains to be solved.
The deepening of economic relations between Brussels and Chisinau, while making progress in terms of Moldovan EU accession, is not without its wider risks to regional stability. If the Commission proceeds purely on the basis of financial assistance, it may further entrench divisions within Moldova’s post-Soviet politics and make a tough Russian response increasingly likely.