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Between Moscow and Brussels: Ukrainian Dilemmas

By Vilen Khlgatyan

For many months top officials in Kiev were indicating that Ukraine was going to sign an Association Agreement (AA) with the EU at the latter’s Eastern Partnership summit in Vilnius on November 28-29. However, a weekend meeting between Russian President Vladimir Putin and his Ukrainian counterpart, Viktor Yanukovych, appears to have changed the calculus once again. While the content of Putin and Yanukovych’s three hour meeting remains a secret, it is likely that Putin reminded his visitor of the cons an AA with the EU would entail for Ukraine, while emphasizing the pros of membership in the Customs Union (CU). A possible shift in official Kiev’s strategy took place on November 13th when the Ukrainian parliament failed to vote on legislation to release former Prime Minister Yulia Tymoshenko from prison in order to receive medical treatment in Germany. The ruling Party of Regions blamed the opposition for the fiasco over the proposed piece of legislation, while the latter claimed Yanukovych and his party are doing all they can to prevent a deal with the EU.

Two days prior on November 11th, Prime Minister Mykola Azarov, known for his pro-Russian views, said that official Kiev “is worried at the situation which occurs in trade and economic relations with our strategic partner – Russia.” Indeed Azarov informed the attendees of his meeting with the representatives of the national public associations of disabled people, that the decline of exports to Russia by a quarter, if sustained, is a materialization replete with the very likely closure of Ukrainian companies, massive layoffs, a drop in state budget revenues, and lower living standards. He further added that the EU has not offered any specific proposals in regards to the reorientation of Ukrainian exports, nor is the EU offering compensation to Kiev for any export business it will lose if Russia decides to curb imports from Ukraine. On the same day, the leaders of Ukraine’s major industries and unions met with Yanukovych and voiced their concern that Ukraine’s fragile economy is not ready to be opened up to Western firms. As a result they suggested postponing the signing of an AA for one year, and in the meantime encouraged the authorities to raise the competitiveness of the economy by raising domestic demand, making credit cheaper, lowering taxes, and normalizing trade relations with the CU members.

In league with the issues raised by the industrialists and union leaders are Ukraine’s depreciating currency reserves and massive deficit, which have put the country at a ‘very high default risk’ according to Moody’s rating agency. Although the EU along with the IMF have made tentative plans to provide Kiev with emergency funding should Moscow retaliate or the need arise, the viability of these plans are in doubt as several EU states face similar financial problems, and Ukraine has rejected IMF demands to raise gas prices for households, which essentially bars the disbursement of any funds. These are all valid points and concerns which the EU elite have either failed to notice or chose to disregard. Their insistence on linking the release of Tymoshenko and so called ‘selective justice’ with the signing of an AA is short-sighted. First, it gives Yanukovych the ability to shift the blame on Brussels if no AA is signed in Vilnius, since Tymoshenko remains a polarizing figure for much of the Ukrainian population. Second, the strong possibility that Tymoshenko would run in the 2015 presidential elections and win, deters Yanukovych. Moreover, on a personal level it irks Yanukovych that the West treats Tymoshenko as if she can do nothing wrong even though she has been involved in questionable business dealings since the 1990s, and during her term in public office, while Yanukovych continues to be portrayed as a Kremlin lackey who can do nothing good.

To his credit, Yanukovych realizes that Ukraine is the symbolic gem of Moscow’s Eurasian Union project, and the linchpin for a possible future expansion to European states like Moldova, Serbia, and Greece should it ever leave the EU. He also sees the strategic decision Brussels made to force the six Eastern Partnership states to choose between East or West, between Russia and the future Eurasian Union (EAU) or the EU. Thus he is raising the stakes for both sides in order to force Moscow and Brussels to compete and offer better terms for Ukraine. Yanukovych’s mentor, Leonid Kuchma, followed a similar policy of oscillation in regards to his policies toward the West and Russia. Kuchma won the 1994 Ukrainian presidential elections in part because he promised to improve ties with Moscow and further integrate the economies of the two states. Even so, as soon as tensions arose between Russia and Ukraine, he changed course and began to flirt with the West. It is important to remember that it was under Kuchma that Ukraine first started talks with Brussels to attain a free trade treaty and eventually sign an AA. He also signed a partnership agreement with NATO and articulated the possibility of Ukraine’s membership in the military alliance. However, when domestic scandals began to tarnish his image among Western policymakers, he went back to pursuing closer ties with Russia. The aim was always to keep power concentrated within his clique, and to prevent either the West or Russia from becoming too dominant in Ukraine.

Yanukovych is following the same strategy as his mentor, and even employing similar stratagems in order to reap as many benefits as possible. He realizes that going West or East will entail a loss of power of varying degrees. With the EU he will have to abide by Western social and political norms, which is not appealing. Indeed the Eastern Partnership has always been more of a political project for the EU elite rather than a purely economic one. With Russia he fears the potential of going from being the most powerful man in Ukraine to playing second fiddle to Putin. After-all, Kuchma and his predecessor, Leonid Kravchuk, kept Russia from (unofficially) incorporating Ukraine only with the greatest difficulty. Yanukovych does not want to be remembered as the man who gave up Ukrainian sovereignty, regardless of how little actual authority is assigned to the CU. The irony is that signing an AA with the EU and one day joining it will also require relinquishing sovereignty but to an even greater degree. Ukraine’s influential oligarchs also fear being overrun by their wealthier Russian counterparts; a fear that unites those oligarchs who support Yanukovych along with those who are opposed to his administration. However, this fear has subsided somewhat as some of the oligarchs have come to the realization that the EU’s business elite will not be any easier to outmaneuver than their Russian equivalents, hence their request to delay the signing of the AA.

The reality though is that Ukraine will soon have to decide which side of the proverbial fence it wishes to live in, the time for playing both sides and attempting to reap maximum benefits from both while giving little in return is coming to a close. Like Armenia before it, Ukraine will arrive at a fork in the road and will have to choose between either the European Union or the Customs Union. Official Kiev’s ability to raise the stakes will diminish with the continued economic decline facing Ukraine. In this case, the benefits Ukraine could have extracted had it signed an AA, or gone with the CU earlier, will have dwindled as well.

Vilen Khlgatyan is the Vice-Chairman of the Political Developments Research Center (PDRC).

PDRC is a non-profit organization based in Armenia. The Center owes no allegiance to any government, or to any political organization, and is strictly independent. PDRC was founded in July, 2006 in Armenia by a number of individuals interested in how to manage on objective and useful researches in the politically dynamic 21st Century. The PDRC is the primary source of precise and objective information on national and international political issues with a focus on the Caucasus.

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