European Union vs. Belarus

The 27 member states that make up the EU have adopted an internal single market with free movement of goods, services, capital, and labor. The EU, which is also a customs union, aims to bolster Europe's trade position and its political and economic weight in international affairs.

Despite great differences in per capita income among member states (from $28,000 to $109,000) and in national attitudes toward issues like inflation, debt, and foreign trade, the EU has achieved a high degree of coordination of monetary and fiscal policies. A common currency - the euro - circulates among 19 of the member states that make up the European Economic and Monetary Union (EMU). Eleven member states introduced the euro as their common currency on 1 January 1999 (Greece did so two years later). Since 2004, 13 states acceded to the EU. Of the 13, Slovenia (2007), Cyprus and Malta (2008), Slovakia (2009), Estonia (2011), Latvia (2014), and Lithuania (2015) have adopted the euro; seven other member states - excluding Denmark, which has a formal opt-out - are required by EU treaties to adopt the common currency upon meeting fiscal and monetary convergence criteria.

The EU economy posted moderate GDP growth for 2014 through 2017, capping five years of sustained growth since the 2008-09 global economic crisis and the ensuing sovereign debt crisis in the euro zone in 2011. However, the bloc's recovery was uneven. Some EU member states (Czechia, Ireland, Malta, Romania, Sweden, and Spain) recorded strong growth, others (Italy) experienced modest expansion, and Greece finally ended its EU rescue program in August 2018. Overall, the EU's recovery was buoyed by lower commodities prices and accommodative monetary policy, which lowered interest rates and stimulated demand. The euro zone, which makes up about 70% of the total EU economy, performed well, achieving a growth rate not seen in a decade. In October 2017 the European Central Bank (ECB) announced it would extend its bond-buying program through September 2018, and possibly beyond that date, to keep the euro zone recovery on track. The ECB's efforts to spur more lending and investment through its asset-buying program, negative interest rates, and long-term loan refinancing programs have not yet raised inflation in line with the ECB's statutory target of just under 2%.

Despite its performance, high unemployment in some member states, high levels of public and private debt, muted productivity, an incomplete single market in services, and an aging population remain sources of potential drag on the EU's future growth. Moreover, the EU economy remains vulnerable to a slowdown of global trade and bouts of political and financial turmoil. In June 2016, the UK voted to withdraw from the EU, the first member country ever to attempt to secede. Continued uncertainty about the implications of the UK's exit from the EU (concluded January 2020) could hurt consumer and investor confidence and dampen EU growth, particularly if trade and cross-border investment significantly declines. Political disagreements between EU member states on reforms to fiscal and economic policy also may impair the EU's ability to bolster its crisis-prevention and resolution mechanisms. International investors' fears of a broad dissolution of the single currency area have largely dissipated, but these concerns could resurface if elected leaders implement policies that contravene euro-zone budget or banking rules. State interventions in ailing banks, including rescue of banks in Italy and resolution of banks in Spain, have eased financial vulnerabilities in the European banking sector even though some banks are struggling with low profitability and a large stock of bad loans, fragilities that could precipitate localized crises. Externally, the EU has continued to pursue comprehensive free trade agreements to expand EU external market share, particularly with Asian countries; EU and Japanese leaders reached a political-level agreement on a free trade agreement in July 2017, and agreement with Mexico in April 2018 on updates to an existing free trade agreement.

As part of the former Soviet Union, Belarus had a relatively well-developed industrial base, but it is now outdated, inefficient, and dependent on subsidized Russian energy and preferential access to Russian markets. The country's agricultural base is largely dependent on government subsidies. Following the collapse of the Soviet Union, an initial burst of economic reforms included privatization of state enterprises, creation of private property rights, and the acceptance of private entrepreneurship, but by 1994 the reform effort dissipated. About 80% of industry remains in state hands, and foreign investment has virtually disappeared. Several businesses have been renationalized. State-owned entities account for 70-75% of GDP, and state banks make up 75% of the banking sector.

Economic output declined for several years following the break-up of the Soviet Union, but revived in the mid-2000s. Belarus has only small reserves of crude oil and imports crude oil and natural gas from Russia at subsidized, below market, prices. Belarus derives export revenue by refining Russian crude and selling it at market prices. Russia and Belarus have had serious disagreements over prices and quantities for Russian energy. Beginning in early 2016, Russia claimed Belarus began accumulating debt - reaching $740 million by April 2017 - for paying below the agreed price for Russian natural gas and Russia cut back its export of crude oil as a result of the debt. In April 2017, Belarus agreed to pay its gas debt and Russia restored the flow of crude.

New non-Russian foreign investment has been limited in recent years, largely because of an unfavorable financial climate. In 2011, a financial crisis lead to a nearly three-fold devaluation of the Belarusian ruble. The Belarusian economy has continued to struggle under the weight of high external debt servicing payments and a trade deficit. In mid-December 2014, the devaluation of the Russian ruble triggered a near 40% devaluation of the Belarusian ruble.

Belarus's economy stagnated between 2012 and 2016, widening productivity and income gaps between Belarus and neighboring countries. Budget revenues dropped because of falling global prices on key Belarusian export commodities. Since 2015, the Belarusian government has tightened its macro-economic policies, allowed more flexibility to its exchange rate, taken some steps towards price liberalization, and reduced subsidized government lending to state-owned enterprises. Belarus returned to modest growth in 2017, largely driven by improvement of external conditions and Belarus issued sovereign debt for the first time since 2011, which provided the country with badly-needed liquidity, and issued $600 million worth of Eurobonds in February 2018, predominantly to US and British investors.