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Analysis & Opinion
25.05.12 Russia Profile Weekly Experts Panel: Europe Shuns Ukraine As A Dictatorship
Introduced by Vladimir Frolov

Contributors: Dick Krickus, Andrei Liakhov, Anthony Salvia

Ukraine’s President Victor Yanukovich and his friends are finding themselves and the country they govern increasingly isolated internationally, with the EU and Russia demanding that they free former Prime Minister Yulia Tymoshenko. Is Ukraine ready to abandon its aspirations for membership in the EU? Is it a strategic shift toward integration with Russia within the Customs Union and the future Eurasian Union? Is Europe pushing Ukraine into Putin’s embrace? Is Ukraine really a “dictatorship” on par with Alexander Lukashenko’s Belarus?

Last week, German Chancellor Angela Merkel was quoted by the Financial Times of London as saying that Ukraine is “a dictatorship” because of its abominable treatment of Yulia Tymoshenko and Yuri Lutsenko – two of the most prominent Ukrainian opposition leaders who have been jailed on trumped up charges for their fierce criticism of the Yanukovich regime. Ukraine’s government insists the charges deal with massive corruption and fraud that resulted in huge financial losses for the Ukrainian budget.

In response to what seems to be politically motivated persecution, the EU has frozen the process of signing and ratifying the Association Agreement and the Common Economic Space Treaty with Ukraine, with senior EU officials even shunning meetings in Brussels with Ukrainian Prime Minister Mikola Azarov and his deputy Valery Khoroshkovsky.

The EU leaders and their East European counterparts declined to participate in the Kiev-sponsored East European summit in Yalta two weeks ago, resulting in stunning international humiliation for Yanukovich. Now the EU leaders are threatening to boycott the Euro 2012 soccer championship in Ukraine next month – a gesture that would signify the loss of international legitimacy for the Yanukovich regime.

Russian President Vladimir Putin seems eager to exploit Yanukovich’s international travails as he puts pressure on Kiev to join the Russia-sponsored Customs Union with Belarus and Kazakhstan. The Customs Union is a means of preparing for membership in the future Eurasian Union, which Putin proposed last fall before his election as president.

Putin is squeezing Kiev’s finances, refusing Ukrainian pleas for a drastic reduction in natural gas prices under what Yanukovich claims was a fraudulent agreement negotiated by Tymoshenko in 2009. Moscow has made it clear that a reduction in gas prices is possible only if Ukraine joins the Customs Union or agrees to hand over control over its pipeline transportation network, which ships Russian gas to Europe, to Gazprom.

So far, Kiev has been reluctant to commit to Putin’s Eurasian project since it would annul Ukraine’s prospects for EU membership, however flimsy they might be. But now, with Europe openly shunning the Yanukovich government and refusing to move ahead with the already negotiated Association Agreement and the Common Economic Space Treaty, Kiev seems to be having second thoughts.

Last week, Yanukovich declared a “strategic pause” in Ukraine’s relations with the EU (saying it would benefit both sides), while Ukrainian Foreign Minister Konstantin Grischenko told a conference in Brussels that Ukraine will not be seeking full EU membership after all, a major departure from Kiev’s long-stated objective of securing EU membership as part of Ukraine’s “European choice.”

Is Ukraine ready to abandon its aspirations for membership in the EU? Is it a strategic shift toward integration with Russia within the Customs Union and the future Eurasian Union? Is Europe, particularly Angela Merkel’s Germany, pushing Ukraine into Putin’s embrace? Is Ukraine really a “dictatorship” on par with Alexander Lukashenko’s Belarus? Will the EU impose sweeping sanctions on Kiev with visa bans for the regime’s key leaders, as it did for Belarus?

Andrei Liakhov, Partner, Integrites Worldwide LLP, London

Ukraine’s aspiration to join the EU has always been and still is a bit misplaced. As early as 2004, then- President Viktor Yushchenko was unequivocally told that the EU would not accept Ukraine at least for another 20 years or even longer. No coherent reasons were given at the time, but these are rather clear anyway, as the EU cannot absorb such a large and economically weak country as Ukraine without radically reforming its inner workings in order to preserve the current power balance and decision making mechanisms. The domestic political situation forced Yushchenko to continue his EU-centric rhetoric knowing full well that EU membership is an unachievable goal.

The International Monetary Fund (IMF), the World Bank and the EU withdrew all financial help to Ukraine during Yulia Tymoshenko's premiership simply because most IMF loans were misappropriated, much in the same way IMF loans to Russia were in the summer of 1998.

It would seem that these two factors, coupled with the inability to even trace the fate of the IMF money (nevermind returning it), dictated the way the current regime treated Tymoshenko and the somewhat slow and, until very recently, reserved reaction to her conviction by the EU.

It is not clear whether the recent EU decision to suspend virtually all cooperation with Ukraine is the delayed reaction to the sentence, or the result of clever PR by Tymoshenko's propaganda machine, which views EU pressure on Ukraine as her only chance of political survival.

Thus, it would seem that EU membership was not on Yanukovich’s agenda from the start, and nothing the EU could do (short of a full ban on the participation of national teams in the Euro 2012 games) could have a significant impact on policies pursued by Kiev.

However, everything Kiev says and does suggests that a strategic alliance with Russia is off the table as well, but for different reasons. In EU-Ukraine relations, it’s the EU that does not want to take the relationship to a new level. In the Ukraine-Russia relationship, Ukraine is the most reluctant partner. The former relationship, if taken to a new level, would inevitably mean a disaster for the Ukrainian economy, while the latter has clear economic advantages.

It is obvious to Kiev that strengthening ties with Russia is a poisoned pill and would most probably result in the loss of control over large parts of the Ukrainian economy. The fact that Russia is the single largest lender to Ukraine (the non-sovereign lending is done primarily via VTB Capital and is secured on Ukrainian assets) is manageable as long as Kiev controls the assets and cash flows. But in combination with the Customs Union, a single economic space and other similar schemes inherent in an advanced relationship with Russia, it will mean a loss of substantial cash flows and, ultimately, assets, and could lead to open bloody conflicts between various economic clans, Ukrainian business elites and Ukraine’s Russian partners. That would spell the demise of the Yanukovich clan, which is currently going through a frenzied asset grab exercise. The prospect of losing that is obviously an unbearable thought.

Currently there are no signs that Russia is really applying real pressure on Kiev – otherwise, the non-sovereign lending would have ceased a year ago. The recent spat over the gas price is, it seems, a part of the 20-year-long tradition of the way Gazprom and Naftogaz conduct their gas price negotiations.

Thus, it would seem that it is business as usual as far as Kiev’s relationship with the EU and Russia is concerned. It is unlikely that the EU would impose any radical sanctions. It is equally unlikely that Kiev would jump on the Russian bandwagon anytime soon, as it has learned to maintain a fine balance between Europe and Russia and profit handsomely from courting both in the true Ukrainian style.

Anthony T. Salvia, Special Advisor to the Undersecretary of State for Political Affairs in the Reagan Administration, Executive Director, American Institute in Ukraine, Kiev

At the time of Tymoshenko's arrest last August, Yanukovich was rapidly coming to the point where he would have to give up his favorite game of playing Brussels and Moscow against each other, extracting whatever putative benefits were to be had from both parties and never choosing one or the other definitively.

Just as Tymoshenko was being bundled off to the slammer, Yanukovich found himself in a position of having to decide definitively for Europe: the negotiations with Brussels for a free trade area were coming to an end, as the final agreement was to be signed in December. Brussels upped the ante by making the conclusion of the agreement contingent on Kiev's rejection of membership in the Russian Customs Union, including Russia's offer to sharply reduce the price of imported Russian gas. At that point, Kiev's only hope of getting Moscow to agree to lower gas prices would be to transfer its pipeline system to Gazprom. Yanukovich was in a bind and the Europeans did nothing to relieve his discomfiture: they rebuffed his request for a clear roadmap to eventual membership in the EU.

Tymoshenko’s arrest and Europe's inevitable reaction let Yanukovich off the hook. The Europeans refused to sign any association agreement with a Ukraine it believed to be in the grip of neo-Stalinist repression. Much to Yanukovich's relief, the European deal was taken off the table – at least temporarily. But to what end?

Yanukovich's policy of balancing Moscow and Brussels has less to do with earning tangible benefits for Ukraine (there are none; benefits – and costs – only enter the picture when you choose one or the other) than with his own effort to balance internal political forces, to straddle Ukraine's own internal east-west divide. This makes some political sense: the Party of Regions may have fallen in the polls, but is nevertheless likely to prevail. That’s because, in part, Ukraine has no effective political opposition, and in part because Yanukovich has proven adept at the east-west balancing act.

If it is true that Angela Merkel's abhorrence of Kiev's treatment of Tymoshenko is pushing Ukraine into Russia's arms, impelling Yanukovich to do what he should be doing anyway, there's nothing wrong with that. Joining the burgeoning post-Soviet economic space, gaining unimpeded access to a market of 200 million people which is growing at rates more than double those of a terminally moribund Europe, reaping the benefits of reduced prices for imported Russian gas – these are real benefits that Europe, even before the onset of a fiscal and monetary meltdown, was unable to match.

In declaring a "strategic pause" in Ukraine's relations with the EU, Yanukovich may be on the verge of ditching his balancing act between east and west. That would be fine. It makes increasingly little sense in view of Europe's slow-motion fiscal and monetary meltdown. Ukraine's strategic context is changing, and Ukrainian policy must change with it.

For good measure, Yanukovich should insist that NATO withdraw its offer of membership and quit mentioning it at every diplomatic encounter.

Recent EU developments have been unseemly in the extreme: "Europe" has been revealed as an arrangement designed to suit German interests and the German obsession with price stability; meanwhile, the Latins, who favor more debt to rectify what is in effect a crisis of indebtedness, are in open rebellion against German austerity. This raises the prospect of Europe becoming, like Japan, an economic zombie for decades on end. It also raises serious questions about the longevity of a federal Europe.

Russia, meanwhile, though not without its own problems, is perking along. Its sovereign debt is only 11 percent of the GDP (compared to America's 100 percent and Greece's 125 percent), foreign direct investment is rising steadily, and wisely, it has been accumulating gold reserves. There is a lot to be said for Ukraine working in tandem with other ex-Soviet republics in laying to rest the legacy of 70 years of Marxist-Leninist misrule. It sure beats signing on to a utopian scheme hatched in Western Europe that is increasingly being discredited even there.

If the Latins are ganging up on the Teutons, let the Slavs join forces until this nastiness blows over. May Kiev's "strategic pause" in relations with Brussels become a fundamental reorientation in Kiev's strategic direction.

Dick Krickus, Distinguished Professor Emeritus at the University of Mary Washington, former H.L. Oppenheimer Chair for Warfighting Strategy at the U.S. Marine Corps University, Washington, DC

Nicu Popescu of the European Council on Foreign Relations provides a framework to understand relations between Ukraine and the European Union. For years, the leaders in Kiev have been adept at playing a game that adheres to the following rules: “Promise both Russia and the EU everything they might want to hear (usually integration into some Russian or EU-led initiative); ask for something in exchange (market access, lower gas prices, financial assistance, opportunities for lucrative but opaque deals etc); get what you asked and drag your feet on delivering on your promises; and if either the EU or Russia is upset for not getting what they were promised, threaten that you will intensify cooperation with the other external partner.”

It is against this backdrop that Yanukovich felt confident that the arrest of the former prime minister on trumped-up charges will not cost him very much in Moscow or Brussels, even though it may have prompted outrage in both Russia and the EU. In the first case, because Tymoshenko was responsible for a gas deal with Putin that her critics claim resulted in huge financial loses for Ukraine, while in the second, the arrest and mistreatment of the pugnacious woman has appalled most Europeans.

Analysts argue that there is no evidence that the former prime minister has benefited financially from the gas deal with Russia. Her arrest is purely a political ploy to remove a talented opponent from the playing field.

That said, there are few influential political leaders in any of the former Soviet entities that do not harbor skeletons in their closets, given the chaos that prevailed long after the Soviet Union collapsed and legal nihilism flourished. As a consequence, this shadowy legacy represents a huge barrier to any serious effort to fight corruption in countries like Ukraine and Russia today.

Turning to EU-Ukrainian relations in particular, one could argue that in spite of a number of attempts to punish Yanukovich – such as withholding an “Association Agreement” that promotes the ultimate integration of Ukraine into the EU – there is scant evidence that he is paying much attention to the EU’s threats. Indeed, he even refused an offer from Angela Merkel to provide a hospital bed for Tymoshenko in Germany. To snub the leader of Europe’s richest country is indeed a noteworthy display of machismo.

How can one explain such churlish behavior on the part of Yanukovich when he clearly desires harmonious relations with Brussels? The answer is simple: as long as Europe is tottering on the brink of economic calamity, Brussels cannot back its threats with real muscle. This condition will persist even after the present economic crisis is resolved; for as long as the EU functions more like a confederation and not a true federal system with a strong executive, it will be incapable of addressing a host of critical issues that threaten its integrity and those of the member states.

Meanwhile, the Ukrainian oligarchs will employ whatever means necessary to remain in power and to safeguard their wealth. Simultaneously, progress toward a pluralistic and law-based society will not occur as long as the opposition is divided and the Ukrainian people are afflicted by apathy and cynicism.

Finally, earlier this week, Zbigniew Brzezinski remarked to an audience of Russia-watchers in Washington that he is convinced that an independent, democratic Ukraine can provide a pathway for Russia into the Western community. If he is correct, Yanukovich’s affection for despotic rule bodes ill for either one of those events happening any time soon.
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