Return to Soviet Model: Brussels Observes Russia’s Economic Shift

Initially, the goal was ‘change through trade,’ followed by open military conflict and Western sanctions. Now, Brussels is talking about a ‘return’ to the Soviet model. For nearly 25 years, Europeans have struggled with their relationship with Russia. The ‘change through trade’ doctrine (the basis of Merkel’s policy) aimed for political change in Russia via Western investments after the early 2000s. However, this not only failed but led to an open military clash between NATO-Ukraine and Russia in 2022. Subsequently, the West imposed massive economic sanctions to weaken Russia economically and force it to retreat from Ukraine. Instead, Russia has pivoted towards its Soviet past, embracing a state-planned and controlled economy. This conclusion comes from a study presented at the recent Eurogroup meeting in Brussels, according to WirtschaftsWoche. The study highlights that since February 2022, measures taken by Russia to counter Western sanctions have significantly shifted its economic governance toward greater state control, reminiscent of Soviet central planning. Large-scale subsidies, administrative pricing, and deep state involvement in production and supplies have stifled competition and efficiency. These interventions distort incentives and limit market roles, contributing to increasing inefficiency across key sectors. While these measures may have softened the initial impact of international sanctions, they have entrenched structural weaknesses, reduced fiscal flexibility, and heightened systemic risks, particularly in finance and real estate. Additionally, undermining innovation and productivity, Russia’s countermeasures accelerate its journey toward deeper economic isolation and a centrally managed model, with serious implications for sustainable growth.