If Robert Mundel was not awarded to the Nobel Prize for his theory on the optimal currency area (OCA), today we could not stay here to discuss whether or not the integration process in Europe has produced an optimal union and then worthy to survive. Although it is true there have been political, economic and energetic tensions it is true that it is possible to look for new ways for cooperation within the EU and between EU and Russia. The cases of Ukraine and Turkey might give new forms or ways for coming to new agreements. We should take in consideration the current situation from a political, economic, commercial and energetic (especially regarding the natural gas) point of view to shed new light on the overall phenomenon. It is not a mystery that, at present, the energetic topic has notably affected the relations between Russia and European Union (EU). To this we must add the worry of Putin with regard to the possible installation of an antinuclear shield of the United States in Europe. In this context Ukraine and Turkey have a big opportunity to moderate the geopolitical equilibrium between Europe and Russia. Moreover, both might be in the future members of the EU. From this perspective it would be interesting to seek to analyse the possible scenarios of development in the political and economic relationships between Ukraine and Turkey vis-à-vis Russia and EU.

Empirical studies investigating whether a group of countries should strengthen their relationships are necessary backward looking. But, at the same time, closer relationships affect all economic and financial areas as well as the policy decision-making process. A question is what kind of forces trade integration unleashes over. The economists agree that more integration boosts the trade relations among countries. We can assume that countries trading partners are more likely to become more integrated. This will in turn promote economic, financial and monetary integration and might also encourage forms of political integration. Even the business cycle among countries trading partner would become more synchronized (Raguseo D., 2007). What the economists don’t know for sure is what linkages do exist between trade relations and socio-economic similarity. Of course, that closer trade relationship has positive effects on a policy-making process cannot be disputed. For that reason we suggest to analyze the relation between the degree of trade integration, the share of intra-industry trade and the political economy similarity between countries. It is convenient to assess the level of trade integration as share of bilateral trade in total trade of each trading partner countries, as follows:



where TIij denotes the bilateral Trade Intensity between countries i and j. Trade intensity may be defined either in relation to exports, import, or trade turnover.
Raguseo D. (2004) calculates the share of intra-industry trade using the Grubel-Lloyd Index and he reports a significant and positive relation between trade intensity and socio-economic integration among selected EU member countries. The index represents the share of absolute value of intra-industry trade in trade turnover.



where X and M denote exports and imports by commodity groups i, respectively. An index value of 0 shows that there is exclusively inter-industry trade, i.e. a complete specialization on different products for each country, while an index value of 1 indicates exclusive intra-industry trade. Indeed, is the similarity of trade structure (e.g. the level of intra-industry trade) the most important force inducing the convergence among trading partners. In fact, it is the structure of foreign trade, and not the direct effect of bilateral trade, which induces the convergence among trading partner. This likely will in turn induce to stronger political support. That’s why, it will be very useful to report evidence on intra-industry trade for Turkey and Ukraine vis-à-vis European Union (EU) and Russia to shed new light on the possible development in the trade relationships across these regions (see Raguseo D., 2006) Whether economic features are expected to increase across countries this will stimulate also some forms of political institution and cultural cooperation (see Bugueno R., 2007a)

The table 1 summarizes the main political and cultural features of Turkey and Ukraine.

Table 1: Ukraine and Turkey comparative table about political, energetic and cultural issues.



Apart from the main features described in table 1, Ukraine and Turkey are countries that do not import energy. Therefore, they play a role of “corridors” and, at the same time, are able to control or canalize the flow of energy in a strategically important area of the globe. This might deal to be real intermediaries in the political and energy process in the region as actors in the status of moderators (Bugueno R. & Arrizavalaga, J. 2007b). In the same way their geopolitical positions are interesting because they might take part in negotiations and agreements between the producers and consumers of energy, that’s the case of the European Union and Russia (1). If we suppose also a better future perspective on the life standard and a more stable exchange rate, really these two countries would have a major capacity of influence the political economics in the region. In this context Russia was already trying to act faster than the EU (2). This is proved by the agreement signed in June between the Italian firm ENI and the Russian one Gazpron to build a new gas pipeline from Russia to Bulgaria to supply energy to the European Union (3). But at the same time to break the intentions of the project Nabucco, like energy corridor that would to past for Turkey and possibly it would make connections with Austria and Hungary. That would give major influence to Turkey in his attempt of being a member of the European Union in spite of the opposition of France. Interesting it is also the role that Hungary and Poland might play in the Center and Eastern Europe, which has often been removed from the energy debate.

Summing up, Turkey and Ukraine are both attractive countries due to their geopolitical and strategic position. They can notably contribute to the political economy debate in Europe even though they must attenuate their institutional instabilities, mostly for Ukraine. Indeed, this country is not yet candidate to the European Union as Turkey. The analysis of the possible development in the political economy relationships between these two countries vis-à-vis EU and Russia is dense of hypothetical implications. Nevertheless, the results of an empirical test of the proper hypothesis should help governs, politicians and policy makers at any level to better understand which could be the most feasible and efficient scenarios in the development of the economic, political and social affairs in Europe. Some address also the question in terms of game theory referring to the Nash equilibrium as the sole solution in case countries are rationally selfish profit or utility maximizing. Indeed, the concept of utility is quite obscure and unfathomable. John Nash in his seminal article for which was award to the Nobel Prize also, in our opinion, seems a bit confused on this concept. Whether “Social Utility” or “private utility” of lobby that acts against the public interest. We still believe that a solution indicated as optimal by Vilfredo Pareto is not impossible. Aware of the difficulty to collect comparable data for these countries and that serious empirical research brings high risks of uncertainty mostly when there is a lack of previous comparative studies, we let the duty to complete this pilot revise as further scientific contribution and reason to stimulate shining debate among young scholars.

Notes

(1) Even if Ukraine produces oil, it is a negligible quantity whether compared with other countries as the Arab countries.

(2) Also we must emphasize that Georgia, Ukraine, Azerbaijan and Moldavia agreed in the summit of his regional alliance GUAM, some economic projects and of security(Army) that they dispute to Russia his leadership in the transport of energy and in the solution of his respective separatist conflicts. Nevertheless they do not have the potential comparable with Russia, either his final interests are so compatible in the reality. Only an interest to joint moves away from the influence of Russia, but is very difficult.

(3) In the Russian plans they join in his agreements with Turkmenistan and others for the gas supply and oil for the 'South Stream' project. Turkey for this motive feels the threat of losing influence in his project, because especially in the field of Kazakhstan and Turkmenistan his provisions are. Therefore the area of Black Sea is the geopolitical sector of the energy transport more important of the area. Also there is the project Poseidon that would join Turkey with Greece and Italy.
See: http://www2.cera.com/istanbul2007/1,3323,,00.html East meets West, Conference 25-27 June, 2007, in Turkey. On the other hand there is the agreement of the European Commission with Algeria so that the African country exports natural gas without restrictions to Europe across Spain and Italy.

References

BUGUEŇO, R., (2007a) “After Fidel: Ethanol?”, EAC Analysis and Studies http://www.eac.sk/page.php?doc=365.

BUGUENO R. & ARRIZAVALAGA, J. (2007b), “Hugo Chávez and new energetic panorama in Latin-American”, (Forthcoming) Panorama 2006/2007, Ministry of Defense, Slovakia,

RAGUSEO, D. (2007) “Economic Trends in European Union Countries since the Eastward Enlargement”. In: Economics and Management vol. 10, n° 2, p. 12-21. ISSN 1212-3609

RAGUSEO, D. (2006) “European Union – with or without Turkey?” EAC Analysis and Studies. http://www.eac.sk/page.php?doc=289

RAGUSEO, D. (2004) “European Monetary Integration: The case of Slovenia” Paper from the VIII International Conference of Young Scholars. Prague: University of Economics in Prague, 2004. ISBN 80-245-1009-X

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Domenico Raguseo is PhD student at the Faculty of Economics – University Matej Bel – Banska Bystrica (Slovakia) domenico.raguseo@umb.sk

Rodrigo Bugueňo Droguett PhD, is an Analyst at the Euro-Atlantic Center.