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Yanukovych’s Dilemma

Protestors in Kiev on November 27 (Ryan Anderson via flickr http://bit.ly/1cmDHYt)

Ukrainian protestors toppled a statue of Vladimir Lenin in Kiev’s Independence Square last Sunday in a symbolic gesture of rejection against Russia’s historical influence in the country. Yet, Ukraine remains inexorably tied to its old Soviet master economically, politically and culturally, making any divorce between the two extremely painful, particularly for Ukraine.

When the calculation was made, Ukrainian President Viktor Yanukovych had little choice in Vilnius last month but to seek to cool relations with Russia by putting off the signing off the Association Agreement with the European Union. Otherwise, he risked seeing the country’s economy plunge into chaos. Now, Yanukovych needs to work with the opposition to lay out a clear roadmap for European integration over the coming years.

Simple calculus

Some may blow off Yanukovych’s decision as a broken promise or an end to the country’s European aspirations, but this completely ignores everything the government has said since the decision. In a televised address that followed the government’s decision to suspend negotiations with the EU, Yanukovych reiterated that the country would not sacrifice its European aspirations, stating, “I would have been wrong if I hadn’t done everything necessary for people not to lose their jobs, receive salaries, pensions and scholarships.”

Rumours may be swirling that Yanukovych has secretly hashed out a deal with Russia to join the country’s competing Eurasian Customs Union, but these accusations remain unsubstantiated and widely flamed by the opposition. What is probable is that Yanukovych will reach a cash deal with Putin to help tide over struggling public finances. This is hardly bribery, but common sense. Aside from some hardline elements in Yanukovych’s party, few are under the illusion that the country would benefit from joining the Russian-led customs union or that the Ukrainian public would accept such a decision.

If putting the EU deal on the back-burner was indeed a tactical decision, it was surely the right one for Ukraine under the circumstances. The EU may be the country’s largest commercial partner, but Russia is a close second, the Russian market representing some 25% of the country’s exports. If one has any doubt as to Vladimir Putin’s sincerity when he makes a threat, it is only necessary to look at the long history of Russian economic aggression vis-à-vis its neighbours. In Moldova, Belarus, Georgia and Armenia, among others, the Kremlin has restricted market access with surgical precision to inflict maximum pain.

Moreover, the country continues to be highly dependent on Russian natural gas for its energy needs despite herculean efforts, such as reversing gas flows and buying Russian gas from Germany. The country already needs some $18 billion in external funding to cover debt repayments and gas deliveries for the coming year. If the country completely snubbed Russia, its best hope for quick cash would be dashed and politically sensitive gas prices would have risen even more. Ukraine already pays the highest gas prices in Europe, paying $420 per 1,000 cubic metres, some $50 more than the European average.

In Armenia, which renounced its European aspirations back in September, Gazprom raised gas prices by a staggering 50% in April in a clear sign that Moscow was not happy with the country’s flirtation with the EU. After the Armenian government threw its hat in with Moscow’s customs union, Putin announced a new subsidy that would keep the price of gas relatively low at $189 per 1,000 cubic metres.

Despite its best efforts, the EU could not provide Ukraine much, if any, assurances that it could shield Ukraine from Russia’s wrath. While the Association Agreement and free trade deal came with many tangible benefits for Ukraine, they are diffuse and will only materialise in the long-term. Russian threats, on the other hand, put a much more palpable price tag on Ukraine’s decision. In the end, the EU could not help Ukraine with its immediate liquidity problems and there would be little the Union could do if Gazprom further inflated prices or even cut off the gas.

Second chance to make true on promises

The final weeks in the run-up to the Vilnius summit were largely clouded by the Tymoshenko drama, but the die had most certainly already been cast. Yanukovych was faced with the dilemma of either immediate public backlash for not signing the EU offer or snubbing Russia and facing widespread public destitution down the road as the economic situation degenerated. As one Russian parliamentarian candidly put it, “he [Yanukovych] has a difficult choice between public fury and political uprising now, and a hunger uprising a year down the road.” If Yanukovych’s immediate concern was economic stability for his country, he made the right choice.

Now, Yanukovych faces a second dilemma: ride out the protests or crack down. He has called for compromise, yesterday backing talks with the opposition, and will cooperate with EU envoy, Lady Catherine Ashton, over the next 48 hours to work towards diffusing the tense standoff. Nonetheless, police activity in Kiev since Monday, particularly the raiding of Yulia Tymoshenko’s party offices, send worrying signals. The opposition is delusional if it thinks it can sign the Association Agreement immediately without grave consequences, but both sides must come together to map out Ukraine’s path to Europe.



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