The Kaliningrad region is a small and unique part of Russia in the West. This Russian exclave with a turbulent past surrounded by EU members states in the Baltic area has become a sensitive issue in the last two decades. Because of its peculiar character of ‘piece of Russia’ in central Europe and its special economic status it entered the international and political agenda of Russia and have been in the past years a top priority in the EU relations with the Russian Federation.

What I would like to achieve with this paper is an overview on what has been defined as the ‘Kaliningrad puzzle’, trying to point out which have been the main economic and political aspects that led to the situation as it is today, going through the period of economic transition the region passed since the collapse of the Soviet Union, to the current debates on its role as a ‘bridge’ or between Russia and Europe.

I am starting with a brief introduction on the history of the region, then I will dedicate a second part to the economic transition of the region from FEZ to SEZ and its implication, then I will move to deal with the prospects of Kaliningrad in Europe and the role it holds in the discourses on EU-Russia cooperation as Russian exclave in central Europe, to end finally with some conclusions explaining the point of view of the inhabitants of the region and what has been raised as possible solution for the issue. 2. HISTORY AND BASIC REGIONAL INFORMATION

Kaliningrad became part of Russia in 1945 when European borders were redefined at the Potsdam peace conference. The region’s administrative center is the city of Kaliningrad, before the II World War known as Königsberg, the capital of Eastern Prussia. It is one of the oldest cities in Russia, founded by the Teutonic Knights in 1255. Since the beginning of its history, Königsberg actively participated in trade activities and the city was a cultural center, for the region and which as well as to neighbors from the Baltic region.

On July 4, 1946, Köningsberg was renamed Kaliningrad, after the recently deceased Soviet President Mikhail Ivanovic Kalinin, and so the territory surrounding the city, which became Kaliningrad Oblast. Then in 1949-50 the survivors were deported to West Germany and the city was completely repopulated with Soviet citizens from all over the USSR, many of them from the parts devastated during German occupation, Russian soldiers and military personnel.

By 1962-63 a massive rebuilding of the city began. After the British bombings and the prosecution of fighting Königsberg was 90% destroyed, so “when Soviet authorities took control of the region they decided not to reconstruct the city but to build a totally new one, Soviet-style” (Oldberg, 2000:272). But not only they reconstructed the physical aspect of the region, the territorial integration of Kaliningrad was followed by historical revisions by the Soviet state.

In Kaliningrad’s schools, little or no mention was made of the areas in the German past except in discussions regarding its role in the “Great Patriotic War”, and the Soviet Union’s successful campaign against Hitler’s forces in the area. During Soviet times, until 1991, the whole region was a closed military zone, serving as headquarters for the Russian Navy, and entry restriction were imposed, first for unauthorized Soviet citizens and foreigners, and later for foreigners only. After the dissolution of the Soviet Union in 1991, Kaliningrad Region became isolated from Russia’s mainland, and now borders Lithuania, Poland, and the Baltic Sea.

The peculiar geographical position of Russian exclave in the EU created problematic issues such as illegal border crossing. From the centre of Kaliningrad it takes no more than one hour by car to reach the Lithuanian and Polish border. To the nearest point of the Polish border is only 70 km, and to the Lithuanian border only 35 km, while to get to Russia mainland it is necessary to cross at least the territories of two independent states (Lithuania and Latvia or Lithuania and Byelorussia) and to travel over 600-700 km. The closest Russian regional centre, Pskov, is 800 km from Kaliningrad, Vilnius is at 50 km, Riga 390 km, Warsaw 400 km, Berlin 600 km, Stockholm 650 km, while 1. 289 km separate Kaliningrad from Moscow. Kaliningrad Oblast is also Russia’s smallest region, with a territory of only 15,100 square km and a population of 955. 200, and is one of the most densely populated areas of Russian Federation, with an average of 79 inhabitants per square mile. The region’s urban population accounts for 77% of the total population. The largest cities in the region are Kaliningrad, with a population of 431,491, Sovetsk, and Chernyakhovsk.

Ethnic composition in the region has been rather stable over the last two decades. In the city of Kaliningrad Russians predominate (77,9%), followed by Byelorussians (8%), Ukrainians (7,3%), Lithuanians (1,9%), and Germans and Poles (1%). Kaliningrad Region has the world’s largest amber deposit (90% of world’s resources), shelf oil deposits, brown coal, peat, rock-salt deposits, building materials resources; mineral water springs, thanks to its favorable climatic conditions constitutes also a recreational resource, and a good ground for growing of some sorts of beans, barley and wheat.

Whilst all the neighboring countries in the Baltic region underwent radical changes and struggle to join the rest of Europe, the Kaliningrad region seems to stand apart from this. Development in the Kaliningrad region, although not so drastic when compared to other parts of Russia, is much slower than in Lithuania and Poland and the situation remains a big concern for Russia and its neighbors. The region occupies 11th place among 89 subjects of Russian Federations on different economic indicators. But for Kaliningrad it is now necessary to change its environment in order to compete with other EU countries.

The lag in economic conditions is also having an adverse effect on the social, legal and democratic conditions of the region. The uniquely isolated situation in the region is building an increasing dependence on the surrounding countries. However the distance between these countries and the Kaliningrad region is increasing and this isolation runs deep. With the joining to the European Union of Poland and the Baltic Countries, the Kaliningrad region found itself surrounded by the European States, which made the movement of persons and goods between the area and its neighbors and the rest of Russia much more difficult.

But its peculiar situation has not to be seen only as problematic issue as well as possible source of opportunities for both Russian Government and the European authorities. Increasingly, as a result of various discussions between the two, it becomes evident that the Kaliningrad region is an important crossroad between Russia and the European Union. But it is also obvious that Kaliningrad can neither be completely integrated nor separated from Europe, so a reasonable compromise has to be found. 3. ON KALININGRAD’S ECONOMY 3. 1 SOVIET LEGACIES AND THE CREATION OF THE FREE ECONOMIC ZONE REGIME

The economic structure that the Kaliningrad Oblast inherited from the Soviet Era was one of the worst case possible. The strong emphasis on primary economic activities such as ocean fishing and wood processing held no hope for future prosperity. Industry and manufacturing were either directly linked to those primary sectors or were in one way or another focused on military production. In addition the agricultural and energy sectors were underdeveloped and inefficient, causing that the region turned out heavily dependent on food and energy imports.

To make things worse, the regional economy showed, even in comparison with other Russian regions, an exceptionally high degree of integration and inter-dependency, making it foreseeable that the physical separation from the mainland after the collapse of the Soviet Union would have brought to particularly negative effects on the regional economy. Combined with decreasing role of the military oriented industry, a solution had to be found quickly. In the late 1980s, when central control over the provinces started to loosen and the economic situation deteriorated, two diametrically opposed alternatives emerged. Faltin, 2000:100) The first one, which had only little support and was soon forgotten, suggested that Kaliningrad’s main value and purpose was to function as a military garrison and strategically significant outpost of Russia, placed under the direct administration of Moscow. This point of view tacitly acknowledged that the inherited economic structure was practically non-reformable and that only outside (in this case Moscow) help could solve the problems. The second proposal started from the same premises and came to a similar conclusion, only that ‘outside help’ meant foreign investment, technology and knowhow.

According to this proposal the region should have been given enough economic autonomy to be able to offer special conditions to anybody willing to invest in it. The main logic was to attract the necessary capital, technology and know-how to rebuild the economy from abroad. This option prevailed and Kaliningrad adopted the special status as a FEZ (Free Economic Zone), thus presupposing sound political relations with neighboring countries, open borders and a considerable foreign involvement in the region. FEZ is defined as a territory, where there are special favorable conditions for the economic activities of foreign investors, enterprises with a foreign investment share (joint ventures) and for domestic enterprises and citizens” (Faltin, 2000:103). FEZs are purely economic entities, which exist within the state borders of the respective home countries. Thus, the sovereign rights of the state that creates a FEZ on its territory are not affected, meaning that the administration of the FEZ remains in the hands of the state organs. The first FEZ was established in Ireland in 1959, known as the Shannon Export Processing Zone.

From 1986, when the Soviet government under Gorbachev attempted to reform the centrally planned economic system, they took inspiration by the apparent success of China’s economic opening with the help of so called ‘special economic zones’. The Soviet leadership also planned the creation of such zones in the Soviet Union, and since 1990 a large number of different economic zones have been set up in different parts of the Russian Federation. Kaliningrad’s strategy for economic adjustment was then based on this research for foreign investment also thanks to the FEZ Yantar (which means ‘amber’).

While the legal basis for foreign investment was provided by the RSFSR law “On foreign Investment”, the specific conditions for the FEZ Yantar developed gradually over the period from late 1991 to January 1996, in various presidential and governmental decrees and local regulations and decisions. The general system of investment conditions was set out in a presidential Decree of the Russian Government the status of the Special Economic Zone of 14th October, 1991, which constituted the main legal statute of the FEZ for most of its existence.

The economic legislation of the FEZ policy focused on the following areas: the implementation of preferential economic conditions with bilateral foreign trade regulations around a regime of tax breaks, tariff exemptions on imports, a general simplification of administrative requirements with minimal bureaucratic requirements, moderate trade union activities and favorable industrial relations and implementation of infrastructure.

All of this was in order to meet the requirements of internationally operating firms, and in doing this attract foreign capital, support the export oriented industrialization of the country, create employment, promote the transfer of technology and know-how and develop new economic links with the domestic economy. In addition, Moscow was also supposed to provide great deal of investments required for the development of the infrastructure of the zone.

The regional authorities decided to radically alter the province’s status from a closed military outpost to an open free trade area because they realized that the economic structure inherited from the Soviet period could not provide basis for future development and that central support was increasingly unlikely to be forthcoming (Faltin, 2000:109). With central support, in the form of budgetary transfers and subsidies, decreasing, it was believed that foreign capital, technology and know-how were the only way to face the economic transformation to come.

The proponents of this idea based their concept on a number of real or perceived advantages that Kaliningrad region appeared to have. In addition, the region appeared to have a number of distinct characteristics, which seemed to necessitate a special federal status. Firstly, the region’s geographic location on the Baltic Sea in close proximity to western industrialized countries was seen as a compelling advantage for international trade.

Yurii Matochkin, the representative of Kaliningrad in the Supreme Soviet of the USSR and later governor of the province, argued that some places were bound to prosper simply by merit of their location and Kaliningrad was, in his view, just such a place. Similarly, the former director of Kaliningrad State University, Medvedev, once expressed this vision saying that if Petersburg was the window to the West, Kaliningrad must be the gateway to the West.

A second major advantage was seen also in the region’s history, with its 700 years of German past. In the view of Matochkin and other proponents, Germany had a special interest in and responsibility for the region, that binds it more firmly to central and western Europe than any other Russian territory, a factor that many saw as guarantee for success.

Moreover, during Soviet times, Kaliningrad was well known as recreational center on the Baltic coast, for this reason the proponents of the FEZ believed that opening the regional economy would have also attracted western and especially German tourists, and in this way create an income source that would allow the region to finance the infrastructural development necessary for foreign economic activity almost independently from Moscow.

Other important advantages were thought to be Kaliningrad’s well educated labor force, which could have been employed at a relative low wage level in Russia’s only ice free ports on the Baltic sea, competing with neighboring Poland in attracting foreign investors. 3. 2 THE PASSAGE FROM THE FREE ECONOMIC ZONE TO THE BILATERAL TREATY ON SPECIAL ECONOMIC ZONE The program on FEZ underwent different changes and re-assessments during the years from 1991 to 1996, and its functions got redefined.

Up to date there have been contrasting opinions and evaluations of the performance of the region during the transition as FEZ since its coming into force, as well as different commentators attribute the FEZ cancellation to different reasons. It is unclear which factor, or combination of factors, caused this change in policy, but it is quite clear that economic interests had an important weight.

Anyway, although the central authorities constantly delayed the promulgation of the law, on 6th of March 1995, trying to reduce the budget deficit of GDP as one measure to curtail expenditure, the presidential decree no. 244 “on Acknowledgement of Invalidation and Cancellation of the Presidential Decisions on Granting Customs Privileges” cancelled all privileges of the “subjects of the Russian Federation” with regard to foreign economic activities. As a result of this decree, Kaliningrad lost the privileges previously granted to it and the FEZ de facto ceased to exist.

The declared aim of the decree was to enforce the constitutional principle of regional equality. Not surprisingly, the decree gave rise to heated debates in Kaliningrad, with many public demonstrations demanding the re-instating of the FEZ. Matochkin expressed his frustration about Moscow’s unpredictable course when he stated: “In these past years, we have seen Moscow time and again present us with a decree with one hand and take it back with the other, almost the following day. (Matochkin, 1995:6)

The further development of events showed once more that the question about Kaliningrad’s economic status and its solution was primarily determined by political rather than economic considerations. On 18th of May 1995 President Yeltsin signed decree no. 495 “On the socio-economic development of the Kaliningrad region”. The decree also stated that it was necessary to re-evaluate the FEZ in Kaliningrad and stressed the importance of a bilateral agreement between Moscow and Kaliningrad which would once and for all delineate competencies and powers between the centre and the region.

At the beginning of 1996 the Federal Council accepted the law and the bilateral treaty was signed on 12th of January 1996, the law on the special economic zone in Kaliningrad came into force the following year, then in September 1997, the decree of the Russian Government ‘On Federal Program on the Special Economic Zone Development in the Kaliningrad Region for the Period of 1998 – 2005’ was adopted.

From the bilateral treaty that Moscow signed with the Kaliningrad region in January 1996 emerge quite clear the intentions of Moscow to give the province only the necessary minimum level of autonomy that would allow the regional authorities to deal with the province’s special problems, selected privileges to cope with the disadvantages of its physical separation from the mainland, but without elevating the region above the other Oblasts and Krais and ensuring territorial integrity and central control over the region, countering separatism.

The import/export privileges which existed prior to the ‘March 1995 decree’ were reintroduced, but the difference was that the treaty speaks about small customs free zones within the region, while originally these privileges applied to the entire region. “New FEZ legislation was in preparation at this time which envisaged the creation only of small customs free zones and export processing zones instead of the giant super-zones like Kaliningrad. Therefore, this provision was an attempt to bring the economic zone in Kaliningrad in line with the new national FEZ-legislation” (Faltin, 2000:209).

The program also expected a massive total investment of 14,050 billion roubles over seven years, and as its main aim the program stated the “securing of Russian security and political interests in the region” (ibidem:210). By setting out various protectionist measures the program seemed to mark a further departure from the free trade concept of the FEZ. Moreover, probably among the most important issues, foreign investments were not mentioned in the document, instead emphasis should be on domestic investment and inter-regional cooperation. . 3 CONTRADICTING EVALUATIONS ON THE FEZ PERIOD AND POSSIBLE REASONS FOR ITS CANCELLATION This disputes on Kaliningrad FEZ is a part of a broader discourse in Russia on the viability of territories with a preferential economic regime, mostly FEZs (like for instance Sakhalin), and the federal authorities have not yet developed a common position with respect to this. However, there is no doubt that the implementation of the FEZ in Kaliningrad did not reach the original expectations and perhaps potential of the policy.

Today it is widespread the idea, at least from the viewpoint of the national government, that the Russian economic zone policy has produced no substantial benefits, or better, it created high growth rates, but these had nothing to do with ‘healthy’ market-based development. (Birckenbach ; Wellman, 2003:176 kal) On the one side, official data suggest that Kaliningrad’s regional economy, given the territorial isolation got affected by the general crisis of those years more than the mainland, and because of this performed worse than the Russian average during the transition.

In fact, the hypothesis that Kaliningrad’s FEZ policy was a failure was formulated on this basis. On the other side, visiting the region already a decade ago it would have been impossible not to recognize the great evidence that the province was more prosperous than official data suggest. Clear signs of a commercialization in the province and new business, mainly in the service sector (trade, tourism and transport) became evident, but maybe much of this growth went under-reported in the official statistics because of being part of the ‘grey’ border trade. Antonenko ; Pinnick, 2005:256)

It is widely accepted that the creation of the FEZ, with its AT and import-duty exemptions, together with the array of existing resources in the region, helped Kaliningrad in its transition to a market economy in general and helped the Oblast in dealing with its geographic remoteness in particular and in attracting foreign investments, but it is nevertheless criticized for other effects: a strong structural deformation of the regional economy towards trade activities in the form of imports instead of production activities and exports, a drain of currency reserves, and also had a great negative impact in creating extended and widely used possibilities for large-scale tax evasion, customs fraud and other criminal or semi-legal activities. “The exclusive right of Kaliningrad for tax-free trading made the rouble in its territory actually stronger than it is in any other Russian region, so that import transactions and servicing of imports became more lucrative than elsewhere in Russia” (Birckenbach ; Wellman, 2003:180), and exactly this can be recognized as one of the causes for its abolition.

Some commentators cite, at this regard, conflict between the Russian administration and the International Monetary Fund, arguing that IMF guidelines required the Kremlin to cut expenses such as revenue losses due to the customs exemptions of the FEZ. Still others point at a natural divergence between regional and central economic interests, which created many opponents of the FEZ in Moscow, who criticized the smuggling and tax dodging produced by the FEZ. Moscow-based economic barons in some cases were opposed to the FEZ, like for example BMW car dealers in Moscow vexed by the low manufacturing prices of the region, or also St. Petersburg lobbyists worried because it drained business from St. Petersburg’s port. Then, in general, the question emerges why the FEZ mechanism, which is apparently successfully operating all over the world, has become a disappointment in Russia.

The key factor that obstructed the development of Russian FEZs was the fact that, on the contrary of countries like China, where economic zones were part of a “grand” policy program and enjoyed undivided central support and a firm legal basis, in Russia FEZ privileges were granted in order to face the economic and political crisis on an ad hoc basis as part of the bargaining between different levels of government. As a result of this “instrumentalization” of FEZ policy in political power struggles towards the crisis, Russian FEZs lacked both full support from the Kremlin and a sound legal basis (Faltin, 2000:111), and also did not look for a stable development. 4. THE EUROPEAN EUROPE AND KALININGRAD 4. 1 THE REGION’S ECONOMIC OPENING TO THE NEIGHBORING COUNTRIES AND TO THE WEST

While the direct economic benefits of the FEZ policy may have been rather slight, its real value was to represent a step in the right direction away from the traditional military ‘fortress-model’ towards co-operation, openness and integration with its neighbors. With the help of the FEZ, Kaliningrad avoided marginalization and to a certain extent managed to turn its peripheral status into the more positive image of a ‘gateway’ or ‘bridge’ to the West. Indeed, since 1991 the Kaliningrad Oblast has established numerous contacts with foreign states, maintaining even a permanent representation at the EU in Brussels, as the only Russian province. Thanks to the FEZ policy, today marketization in the region is stronger than in Russia as a whole.

In 2000-2001 enterprises with the foreign stake continued to play an increasingly important role in the development of the regional economy. More than 1400 enterprises with foreign equity are currently functioning in the region. 86% of them are located in the city of Kaliningrad. Foreign business partners from 37 countries have set up Joint Ventures in SEZ Yantar. The absolute leadership to this effect is retained by Poland – 416 commercial and industrial JVs, which is followed by Lithuania – 305 JVs, and Germany – 260 JVs (among them – one of the most significant industrial projects on the Kaliningrad soil that has created more than 5000 jobs – BMW automotive factory). The share of foreign partners in the founding capital of the local enterprises amounted to 37%.

In the most dynamic manner foreign capitals were invested into trade and commercial network (supermarkets, shopping moles, boutiques), restaurant and hotel business as well as into hi-tech industries. FDI inflow into the economy of the region increased from US$ 11. 3 million in 1997 to US$ 101. 4 million in 2000. (http://www. russiaconsulmumbai. mid. ru/kalinin. html) Thus, despite the difference of opinion over the evaluation of their economic outcomes in the short and long run, it is possible to argue that “FEZ and SEZ policies not only made borders more permeable, but also served as a constant platform for contacts and discussions between Kaliningrad and its neighboring countries”. Faltin, 2000:288)

Also, at a social level, Kaliningraders became involved in the regional economy with all its problems and opportunities. While the FEZ may have failed to turn Kaliningrad into a prosperous region according to western standards, it succeeded in stimulating the growth of the regional economy and its integration into dynamics of the EU and neighboring Baltic states, and setting the course for Kaliningrad to become a “‘normal’ Russian province in the “Europe of regions”” (ivii). 4. 2 AN UNDECIDED PICTURE: KALININGRAD AS “TESTING GROUND FOR EUROPEAN-RUSSIA COOPERATION” The process of defining an optimal model of economic development of the Kaliningrad Oblast does not really get further. Achieving progress is complicated and hampered by numerous obstacles.

Today neither a coherent economic development strategy for the region has been identified, nor a consensus has been reached regarding the direction to take, and status quo oriented policies prevail. It is clear, “developing an economy is not a non-political task, and any development model has its political preconditions and political implications” (Karabeshkin ; Wellmann, 2004:57), and so part of this irresolute attitude by Moscow’s side can be easily explained by taking into consideration worries about Russia’s interest being harmed and its fears of losing control over the territory and, not less important, implications about the degree and form of the participation of EU and its member states in the development process of the region.

However, the Baltic region is nowadays an area of intense cooperation between the European Union and Russia, and Kaliningrad, first as FEZ and then as SEZ, has now turned into “testing-ground for new mechanisms of cooperation” between the two and an important issue in the discourses of integration. (Antonenko ; Pinnick, 2005:243) It has been said that the regional development strategy must have three dimensions: regional, federal and international, and this last one requires Russia and Western Europe to acknowledge Kaliningrad’s special place in their relations, and to intensify cooperation between the region and the EU. Both parties view Kaliningrad as a special pilot region of active cooperation, with benefits for each, (ibidem:248) and now the need for a coherent economic policy for the Oblast is obvious.

Nevertheless, given the enormity of Russia’s legacy and the immensity of the problems left over from the previous period, Kaliningrad’s path towards a linkage and bridge to Europe is not going to be an easy and smooth one. At present, the options available to the oblast seems to be rather limited, in fact, it would be overly optimistic to think of a sudden change, considering the region’s location, the burden of history, the asymmetries of the situation, and especially Kaliningrad’s dependency on fluid transit, hard currency requirements, visa arrangements and customs procedures due to its separation from the mainland. Kaliningrad has frequently been depicted as an issue that severely hampers the more general developments around the Baltic for all these reasons.

The chances for an improvement hopefully will be taking shape and options will be opening up once the territorial determinants of social life and political processes become less strict. 4. 3 THE IDEA OF THE “PILOT REGION” AND THAT OF EUROPEAN ASSOCIATED MEMBER. MOSCOW’S APATHY TOWARDS CHANGE Kalinigrad Oblast has often been seen as an obstacle in the development of the Baltic region, for the reasons already mentioned. However, EU officials believe that all problems associated with Kaliningrad (transit, the region’s comparative poverty, crime, and so forth) could be solved if it were to become an independent international entity. Europe would be able to assist Kaliningrad directly rather than via untrustworthy Moscow.

At the same time, anyway, Brussels is convinced that Russia will never do anything for the region on its own, and therefore the region’s backwardness will continue to constitute a ‘threat’ for its more civilized European neighbors. Nevertheless experts claim that no area in Europe offers more promise in terms of potential political and economic integration. Speaking in Riga on September 19, 2001, Michael Carter, the World Bank’s country director for the Baltic states and Poland, and former World Bank representative in Moscow, said: “Of all regions in the world, the Baltic must be the region with the highest potential for growth and economic transformation in the coming decade.

Also ex President Romano Prodi, in his visit to Moscow on May 2002 during the opening talks between Russian President Vladimir Putin and the EU Commission, pointed out that the European Union and Russia have entered into a strategic partnership but Russia still is not ready to be considered for EU membership, and continued then rising some debates on why therefore some Russian territories, like Kaliningrad, could not be granted special status by the EU when they are linked to acceding EU member states by historical or political ties and when even in Russia they have special regimes. The idea to transform the Kaliningrad Oblast into a pilot region of EU-Russian cooperation was first brought up in Russia’s 1999 Mid-Term Strategy for Relations with the EU, presented to the EU by then Prime Minister Putin at the EU-Russia Helsinki summit in the autumn of the same year. (Karabeshkin & Wellmann, 2004:59) “The pilot region concept is primarily of political nature, but of course provides also a foundation for economic policy and predermines considerably which choices are available and which are not”.

The pilot region project has been conceptualized as a joint Russian-EU project, with twofold aim: developing a more trustworthy, reciprocal and open strategic partnership between Russia and the EU by cooperating on Kaliningrad, and testing the applicability in Russia of institutional, technological and social standards which are new for Russia, but routine in the EU, by modernizing Kaliningrad’s economy. (Smorodinskaya, 2001:75) Other elements of the project would be to integrate to some extent the regional economy into the European economic space, while preserving the links with the Russian economy, to develop a stronger export orientation and to facilitate the access to the products of the Oblast to the EU markets and to modify the SEZ regime.

The implementation of the pilot region concept would allow Kaliningrad to develop competitive advantages by gaining experiences necessary for establishing the envisaged Common European Economic Space between Russia and EU (Karabeshkin & Wellmann, 2004:59). However Putin, later on distanced himself from the idea and today it is preferred to speak about a “region of cooperation” rather than “pilot region”. Also the project of making Kaliningrad an associated member raised and then did not led to any concrete progress. Associated membership is a European idea which has been discussed on many occasions. The idea did not find reflection in any official document of the European Union because the opinion of the Russian Federation on this question was ‘warm silence’.

Association membership requires changing regional status and the sharing of power with Brussels and this is not in the current interests of Moscow. This idea of close EU participation in the Kaliningrad issue was presented in a strategy titled “The EU and Kaliningrad,” in January 2001. The document is full of words like “cooperation,” “collaboration,” “intensification,” and “development”, yet, as high-ranking officers of the European Committee admit informally, the goal is to turn Kaliningrad into “the European Hong Kong. ” According to this idea, while remaining formally a part of the Russian Federation, the region would have special international status enabling the European Union to feel “at home” in the region.

The first European politician to express an associated idea was German Chancellor Gerhard Schroeder in January 7, 2001 during his meeting with the Russian President Vladimir Putin in Moscow. Chancellor Schroeder then offered the idea of an association agreement for Kaliningrad to the EU’s current Swedish Presidency. Next at a meeting in Hanover he suggested to the Swedish Prime Minister Goeran Persson that Sweden rather than Germany, should promote the initiative. The idea was further discussed at the next Russian-German summit in April and later at the EU-Russian summit in May. But later negotiations between Russia and EU countries concentrated on the painful visa regime and the idea of associated membership was abandoned for a time. Also among representatives of Brussels there have been much discussion about this.

The EU Commissioner for External Relations, Chris Patten, visited Moscow at the end of January 2001 to discuss the issue, but Patten was reluctant to grant Kaliningrad the status of associated member of the European Union. The EU is only worried, he said, “that Kaliningrad is developing only very slowly from a purely military ground into a region with civil structures” (Berndt, 2001). The Russian Baltic fleet is still stationed there, the crime level is very high, and environmental, drug and health problems abound. 5. CONCLUSIONS: KALININGRADERS’ POINT OF VIEW AND A POSSIBLE FUTURE CHANGE IN DIRECTION After having discussed economic and political reasons behind Kaliningrad’s situation, what do Kaliningraders think about the future of the region and what is their perception over the current situation?

Generally speaking, “Kaliningraders relate to the United Europe as a good neighbor and are much more concerned about Moscow’s attitude toward the exclave then about the threats of being close to the EU” (Naumkin, 2004:18). What has Moscow done to tie Kaliningrad to Russia? They believe that in Yeltsin’s time Moscow only deteriorated the situation in the region and shifted the problem on to locals’ shoulders, which resulted in the current high-ticket prices, the high cost of transporting goods, the most expensive gasoline in Russia, and excise duty on cars. And the worst aspect is that Moscow clearly doesn’t see what should happen with Kaliningrad over the next ten years.

Russia’s fears for a rise of secessionist feelings among the population and so the risk to lose a region as Kaliningrad with such a psychological importance as gain of the II World War, are widely discussed and considered as one of the main reason for explaining Moscow’s irresolute attitude towards the issue. It might be true that Kaliningraders are feeling abandoned and disadvantaged and favor closer ties with Poland and Germany, but the threat of secessionism is nevertheless unfounded. Opinion polls after a Referendum made at the end of ‘90s showed that Kaliningraders want the emegence of the region as an economic and political entity, separate but still part of Russia, and do not wish to become a republic within the Russian Federation, and secessionist movement is not supported by more than 4 per cent of the Kaliningrad population (Oldberg, 2001:274). Kaliningrad is currently following a path of ‘inertial development’.

As far as the region specializes in import intermediation and displays unstable economic growth of unacceptable quality, it is making no progress as regards economic integration in the Baltic Sea region or the EU economic space” (Birckenbach ; Wellmann, 2003:191). A ‘shock therapy’ to make the region able to be a possible EU candidate state has been raised as possible solution. It would imply a radical and complete modernization of the region’s economy like the path followed by Poland and Lithuania, a complete change in legal system and market reforms. But this is not only unrealistic because of political considerations but also unattractive in economic terms.

Russia first of all showed clearly as not willing to face any such big change, plus “Kaliningrad is not a sovereign state and therefore it does not have the authority to pursue independent macroeconomics policies” (ibidem:198) and, moreover, most of all Kaliningrad is too much depending on its current privileges, and this has caused such a deep distortion in its economy that if it passed through drastic structural changes it would probably bring to catastrophic effects. Anyway it also true that by opting for a continuation of the SEZ regime as it is now, it would mean meeting the established interests of the dominating business group of Kaliningrad, without offering a real chance for development. Surprisingly enough, today there is no considerable discussion in the society on an appropriate economic policy for the Oblast. The relevant participants in the debate are limited to the regional authorities, business, federal agencies and some specialists in economics.

From a certain point of view it was expected that the EU enlargement of 2004 and the subsequent position of Kaliningrad surrounded by EU member states would have brought automatically improvement. However, there is no reason to expect that such a change will happen. On the contrary, the difference between the region and its neighbors runs deep and “if special policy efforts are not taken, Kaliningrad’s macroeconomic prospects may automatically turn for the worse”. (Birckenbach ; Wellmann, 2003:189) This is why Moscow and Brussels should start seeking joint policy measures for the region, and maybe retake into consideration the project of making it a pilot case for the EU-Russia cooperation, while economically speaking scheduled revision of the SEZ regime and orientating it to export in order to achieve a balance of trade.

Kaliningrad region has moved from a militarized, closed, anonymous Soviet Russian part of an empire to an exclave on the Baltic, Russian by nationality but with special economic interests, more open and Western than Russia at large, and with a specific German pre-history. It holds a crucial role in the post-Cold War world as it constitutes one of the sites where one has to settle whether Russia and Europe stand apart or whether they have a complementary relationship to each other. The most popular idea among Kaliningrad residents is a special status from the mainland, from one hand meaning close association with Europe but from the other, helping them to feel they are Russian citizens. Russia’s government only needs to admit it and decide how to express it.

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