https://thepeacemonger.substack.com/p/europe-chose-a-k-mart-economy-with?
A conversation with Stanislav Krapivnik
Ian Proud
53 minutes ago

For decades, European industry and living standards rested on a steady, under-appreciated flow of goods from Russia. Not just pipeline gas and oil, but a far broader basket: wheat, fish, potatoes and other foodstuffs; steel products and aluminum components that went into Mercedes and BMW; wood, paper and chipboard; silicon boards; the noble gases essential for electronics manufacturing; base and advanced chemicals; and, crucially, machine tools that underpinned Russian industry’s own modernization.

Russia functioned as a large-scale supplier of raw materials, semi-finished goods and finished components. Cutting that relationship required a impossible adjustment by the EU. It required a policy choice, willingly taken, to accept higher prices and reduced industrial competitiveness.

The decision to do so was presented as a moral and strategic necessity. This is nonsense.

Modern economies grow by trading with everyone who can supply what they need at competitive prices. Europe instead chose to shrink the set of partners it would accept which inevitably pushed up prices: that’s just basic economics.

The same pattern had already been imposed on Ukraine after 2014: a deep and comprehensive free-trade agreement (DCFTA) with the EU that required reduced trade with Russia. Ukrainian output has since contracted in real terms even while hundreds of billions of dollars in external support arrived.

Why? Look at the economic data and you’ll see that the huge boost in fiscal spending - which mostly went on defence, was offset by huge growth in the trade deficit, on top of reduced household consumption as the country emptied of people.

Europe is now running a version of the same experiment on itself while at the same time continuing to pour billions into Ukraine which it can’t afford, and which doesn’t help Ukraine to grow.

What is striking is how little reciprocal economic pain Europe imposted on Russia. Russian industry has been under active reinvestment since roughly 2007–2008. Economic sectors, in particular agriculture and industry, have been revitalised.

The explicit aim has been greater self-sufficiency. In the energy sector, major Western firms that once held major stakes on Russian projects - Stas mentions Exxon’s prior stake in Sakhalin - have been told, in effect, that they are not needed back.

On the military-industrial side the gap is equally clear: Europe does not produce any tanks, fifth-generation aircraft, satellites or advanced artillery systems that Russia cannot already field or source.

Much of Europe’s remaining high-tech content still depends on American chips, software or subsystems. In practical terms, large parts of the European economy now sit closer to second-world status than the rhetoric of technological leadership allows; this is pure delusion.

The hope or expectation in some European firms that normal commercial relations can simply resume once the war ends therefore rests on a misreading of Russia’s altered economic landscape.

Russia already has alternative customers for its energy and materials. Any future trade with Europe will be transactional, not preferential. There is no commercial reason for Moscow to restore the old terms or to re-admit European suppliers that have been replaced.

Reconstruction of the damaged territories occupied during the war will further reinforce this: steel, cement, wiring, machinery and labor will be drawn overwhelmingly from inside Russia or from partners that stayed open. That rebuild is already visible in places such as Mariupol and will constitute a multi-year domestic demand driver.

None of this required foresight beyond basic economic observation. The volume and composition of pre-2022 EU-Russia trade is freely available for anyone to see. The direction of Russian industrial policy was visible. The choice to interrupt the flow of trade was political. Evidence, once more, that it is better to put economics before politics in foreign affairs.

The subsequent rise in Europe energy costs, loss of intermediate inputs, and slower growth are the predictable results of this political choice. Future historians will observe that Europe chose economic suicide, then complained about it for years as someone else’s fault.