In the run-up to the 2013 Vilnius summit between the EU and its eastern neighbours, there has been “brutal geopolitical competition” that the Economist has not seen in Europe since the end of the Cold War, with Russia seeking to convince the countries of its “near country” to join its new Eurasian Economic Union rather than sign association agreements with the EU.  The Russian government led by President Putin managed to convince Armenia (in September) and Ukraine (in November) to end talks with the EU and start negotiations with Russia.  Nevertheless, the EU summit with Moldova and Georgia continued to conclude agreements with the EU despite Russian opposition.  Widespread protests in Ukraine led Viktor Yanukovych to leave Ukraine for Russia in February 2014. Russia then launched a military intervention in Ukraine. This action was condemned by the European Union as an invasion that imposed visa bans and asset freezes on some Russian officials.  The Council of the European Union stated that “russia`s violation of international law and the destabilization of Ukraine […] To question the European safety order in its essence.  In 2015, the EU held trilateral talks with Russia and Ukraine on the EU-Ukraine trade agreement, which is expected to enter into force in 2016. The talks were aimed at allaying Moscow`s fears about the agreement, but showed that Russia`s concerns were political or related to maintaining the dominant position in Ukraine and were therefore not legitimate for the EU. Nevertheless, the discussions showed the usefulness of such a commitment for EU Member States and gave Ukraine time to make its economy less vulnerable to a trade war. This study simulates the economic impact of the EU`s enlargement to the East and a free trade area between the EU and Russia. The paper focuses on the impact this would have on the Russian economy. The simulations were carried out with a predictable general equilibrium model of the GTAP, using the most recent GTAP 6.0 beta database, which takes into account previous European agreements between the EU-15 and the eight new Central and Eastern European Member States. The results confirm previous findings that a free trade agreement with the EU is beneficial for Russia in terms of total output, but not necessarily in terms of economic prosperity, compared to the corresponding variation.
The main reason for this is the deterioration that would occur in the terms of trade in Russia. However, improved productivity in Russia would make the free trade agreement with the EU beneficial.