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. Last Updated: 07/27/2016

Russia Keeps Cool In Run-Up to Euro

As Europeans brace for the continent's radical transition to European Monetary Union, they are unlikely to get much sympathy in Russia, where politicians and businesses struggle to transform the world's largest country into a full market economy while preparing to drop three zeros from the ruble Jan. 1.


"Euro? What is it?" replied a Moscow banker in a typical response when asked about the likely consequences for his bank once European Monetary Union and the euro are introduced from 1999. "Why should we be affected?"


A Foreign Economic Relations and Trade Ministry official, who asked not to be identified, said Russia had more serious things to worry about.


"The slump in production, ecological and technical barriers to our trade, our wish to join the World Trade Organization -- this is what will affect our foreign trade," he said.


"There will be no impact on us from the introduction of the euro in the next three or four years."


But given that more than a third of Russia's foreign trade is with the European Union and that Germany is Moscow's largest Western partner, the euro cannot simply be ignored.


Russian officials and bankers see the impact as being mostly connected with changing currency units in trade invoices and bank documents.


Banks will also have to look more attentively at Eastern European currencies to compensate for the loss of others on the foreign exchange market, bankers say.


Economic and monetary union is scheduled to start in Europe in 1999 with the introduction of the single euro currency in several, but not all, European Union countries.


Trade with European Union countries accounts for about 40 percent of Russia's foreign trade turnover, but the Foreign Trade Ministry has not yet made up its mind how this rare profit-making sector will work after 1999.


Sergei Burmistrov, deputy head of the ministry's Economy and Information Department, said it was waiting to see how strong the euro would be against other currencies.


"The question is how firm the euro will be in the international financial system," he said. "If the euro is stable, we forecast a gradual growth of our [trade] turnover at about the same rate as in the last five or seven years. There may be a small decrease due to technical problems, but not on the whole."


Yaroslav Lissovolik of the Russian-European Center for Economic Policy said Russia, with its weak ruble, would have advantages in exports compared to euro countries.


Whether Russian foreign debt gains also depends on cross-rates between the euro and other currencies, said Deputy Finance Minister Mikhail Kasyanov.


"It is difficult to say [how it will affect Russia]," he said. "It is clear it will be the most liquid currency. The effect on Russia will depend on how different currencies are fixed against the euro and the state of our liabilities in [Deutsche] marks."


Russia will gain if the euro proves to be weaker than the Deutsche mark after the conversion, as the volume of its 2 billion Deutsche mark ($1.1 billion) Eurobond, which will automatically be converted into euro, would shrink in dollar terms, he said.


He also said Russia had plans to issue a euro-denominated Eurobond at some time in the future.


"There will soon be no marks, or any other currencies, that is why we shall, of course, issue one," he said.


Some Russian and foreign banks have already set up a special clearing center to ease relations between banks in euro and non-euro countries, a Uneximbank spokesman said.


"Our banks were getting ready beforehand," he added.