Ukraine: Between Russia and the West

However, this time around much weightier geopolitical issues have also come to the fore. Determined to accelerate the re-integration of the former Soviet economies, Russia is putting ever greater pressure on Kyiv to finally make up its mind about its participation in that project. It has made clear that Ukraine would receive a significant gas price reduction if it agreed to join the Russia-led Customs Union (which also includes Belarus and Kazakhstan). But Kyiv’s long-standing policy of equidistance between Russia and the EU stands in the way of such a move. With Brussels indicating that it would be unlikely to be able to conclude a Deep and Comprehensive Free Trade Agreement with Ukraine if the latter conceded to Russia’s demands, Kyiv is now under intense pressure from both sides. It is currently attempting to find a way out of this impasse. Even assuming that it were possible to circumvent the implicit clash between the EU and Russia’s Customs Union’s regulations, there would be numerous obstacles to getting the relevant legislation passed by the Ukrainian parliament.

Ukraine’s ongoing geopolitical dilemma has had major implications not only for Europe’s energy security but also for the economic well-being of this country of some 45 million. While reams of analysis have been written about the Orange Revolution and the country’s troubled politics, the fact that Ukraine is one of the poorest countries in the former Soviet empire – with per capita GDP below the likes of Albania or Bosnia and less than one-third of neighbouring Russia and Poland – is frequently overlooked. Having plunged by 15% in 2009, Ukraine’s economy has since staged a modest recovery, but it remains in deep trouble in almost all respects. It also lags far behind most of the other former communist countries as regards the pursuit of deep structural reforms. 

Against this dire background, it is high time to focus on the consequences of Ukraine’s geopolitical dilemma, rather than its causes, and to propose ways how to tackle them. Perhaps more than any other European country, Ukraine needs international understanding for what is its seemingly intractable predicament. At the same time, and on a more practical level, it urgently requires external financial assistance as well as new markets both in the West and East.  

Professor, New York University, Prague  

 

 

 

 

It is indeed high time for Ukraine to make some tough choices, hopefully the right ones.

Since gaining independence Ukraine's leaders have been performing, with varying degrees of skill, a tightrope act, making simultaneous advances to Russia, the West, and NATO. Clearly, in terms of actual economic assistance, Ukraine's biggest donor over all this period has been Russia. The West has been very generous with words, but real aid - specifically, in terms of cheap energy, especially before the Orange turmoil – has come from the big Eastern brother.

Russia is also Ukraine's top international trade partner, with the volume of bilateral trade surpassing $50 billion in 2011. This compares with $6 billion of trade with neighboring Poland, $10 billion with China and $2.4 billion with the US. Then there is another important factor: hundreds of thousands of Ukrainian Gastarbeiters in Russia sending billions of dollars to their families back home. It's a fact of life that most of these immigrants work in Russia illegally, depriving the Russian treasury of untold sums in unpaid taxes. 

Besides economic considerations there are countless family, historical, cultural and religious ties between the two Slavic countries, which no politicians with populist or nationalist agendas can undermine.

Ukraine is, of course, a big geopolitical prize in the rivalry between Russia and the West. Ukraine's leaders are well aware of it and use it to their advantage. However, were Ukrainian leaders interested above all in the well being of the country's citizens, they would not allow themselves to be manipulated by either side and would think in strategic terms.

Taking into account that Russia's top foreign policy priority is the building of the Eurasian union within the post-Soviet space, it is very unlikely that Ukraine will be able to get any future economic concessions from Russia unless it joins the Customs Union, which currently comprises Russia, Belarus, and Kazakhstan. Even the Belarusian President Alexander Lukashenka – that seasoned wizard at the game of hard-to-get who for years kept squeezing economic concessions from Moscow by all sorts of trickery – eventually had to accept the Kremlin's rules of the game.

As for the European Union, its promises to offer Ukraine membership in some indefinite future clearly do not constitute a credible option. With Europe now in dire economic straits, one wonders what kind of carrots the EU can offer to Ukraine to induce it to turn its back on Russia.

Poland’s assumption of the EU presidency last year was accompanied by a declaration that one of the EU's top priorities would be the securing of the status of associate membership for Ukraine and, as part of that process, the finalizing of the Deep and Comprehensive Free Trade Agreement (DCFTA) by the end of the year. This was accompanied by lavish praise for Ukraine's democratization and efforts at European integration.

These declarations have very little to do with harsh realities on the ground. As statements of policy, they would be simply amusing were it not for the hard-nosed, realist reasoning behind them. The major rationale for this policy is the strategic importance of pulling Ukraine into the Western orbit and preventing it from slipping further into the Russian sphere of influence. Professor Alexander Motyl, a leading Ukrainian expert, has put it more honestly than his Western counterparts when he stated that "even an authoritarian Ukraine should be integrated into the European institutions."

The question then logically arises: If this applies to Ukraine, why not to Russia? Wouldn't it be better for Europe and the West generally to integrate Russia as well as Ukraine? Why not try to integrate both these countries into the European home instead of trying to pull Ukraine away from Russia? Why force Ukraine to choose between Russia and the EU when there is a better choice for Ukraine – a rapprochement both with Russia and the EU?

When Putin talks about the Eurasian Union he also envisages a free trade zone stretching from Lisbon to Vladivostok. This is logically in line with George Bush Senior’s vision of the new security architecture from Vancouver to Vladivostok.  Opinion polls show that the majority of Ukrainians would go along with both these projects, so perhaps Yanukovich’s dramatic slippage in the same polls is the result of his not being in tune with the populace.

Curiously, the judgments of some European leaders on the subject of Ukraine are decidedly warped. When Sweden's Foreign Minister Carl Bildt says that Russia is using economic blackmail to force Ukraine to change its foreign policy course, it merely demonstrates his failure to comport himself in accordance with the basic rules of diplomacy, especially deplorable in a minister of a country priding itself on its neutrality.

For almost two decades the West and Russia waged a "war over Ukraine”, which at its peak threatened to divide Europe and Ukraine itself. Then came the economic crisis and the battlefield must now be seen in a totally different light. Suddenly Europe and Ukraine face a new reality and have to rethink their irrational fears, ambitions, fantasies and strategies toward themselves and Russia.  

During the unchallenged Hegemon’s drive to construct its New World order, Ukraine elites, understandably, invested tremendous efforts into forging Ukraine-NATO-EU ties. From 1995 through 2000 more than 3,000 Ukrainian servicemen took part in NATO’s Bosnia and Kosovo missions. In June 2004, President Leonid Kuchma replaced Ukraine's 1993 Military Doctrine with a new one that portrayed NATO as the basis for the European security system and pledged to pursue the Euro-Atlantic integration. In 2003, 1,650 Ukraine troops were sent to Iraq and were withdrawn 30 months later after the loss of 18 lives.[1] Ukraine was surreptitiously arming Georgia and her "volunteers” shot down four Russian planes in August 2008. 

Ukraine’s strategy of playing Big Guys against each other in the hope to get more from each proved, however, to be disastrous. She did get some handouts but only puny foreign investments, and her membership in the Golden Club is as remote as ever. 

I often drive to Crimea and can compare Central Russia with Eastern Ukraine. During the Soviet times, Ukraine’s living standards were somewhat higher than those of Russia; today they are significantly lower. Russia’s GNP per capita is four times that of Ukraine. Ukrainian population has shrunk by six million people and four million Ukrainian Gastarbeiters work in Russia. Ukraine’s once powerful machine-building industry is dilapidated and desperately needs total retooling and restructuring to survive. Conceivably, European companies can move some of their consumer goods assembly facilities to Ukraine, but Europe has no use for Ukrainian ships, rockets, tractors, airplanes, and tanks. 

Only Russian capital and markets can help resuscitate and modernize Ukrainian heavy industry. For that to happen, Ukraine has to adopt a totally new strategy toward both Europe and Russia. First, she has to recognize that the Big Guys have their own problems and needs. What are these?

Russia needs manpower, equipment and modern managerial techniques for her huge development and modernization projects. However, in Russian eyes Europe is no longer the icon of modernity and progress. The state of the art technologies, the fastest trains and computers, the tallest buildings and so forth can today be found in the Far East. 

Europe is suddenly facing her own geopolitical dilemma. Look at the map—Western Europe looks like a tiny peninsula in the northwestern corner of Eurasia— remarkably like Greece at the time of Roman Empire. If Europe continues its isolationist policy, it will face the prospect of turning into a community of squabbling nations whose economies stagnate and living standards are fall. To avoid degeneration along the lines of the ancient Greek civilization, Europe needs lebensraum for development and growth.

Here is where Ukraine’s historic chance lies. She should stop begging the EU to take her in as yet another client state. Instead, by joining the Russia-led Customs Union, Ukraine can help Europe to enter the Eurasian Economic Space. Huge markets of potentially some 250 million consumers of Eurasia have yet to be developed. Russia can’t do it alone. 

"Ukraine’s geopolitical dilemma” abides in her sub-consciousness as a small-brother syndrome. It’s time for her to mature into an ambitious adult. She doesn’t have to move anywhere and join any Big Brother. Ukraine is a sovereign European state, and she could and should be a prosperous one. In fact, geographically, culturally and linguistically she is perfectly positioned for the role of Europe’s unifier. She should become the main driver of pan-European integration. Torn by the Mongol occupation, religious schisms and twentieth century wars, Europe should strive to become a whole body at last. 

In conclusion, all European "geopolitical dilemmas” – those of Western Europe, Russia and Ukraine -- can be solved if they abandon brotherly squabbles and join forces in the Grand Eurasian Project. Putin’s offer of a free trade zone stretching from Lisbon to Vladivostok seems to mean just that. 

[1] Jeffrey Simon, Ukraine against Herself: To Be Euro-Atlantic, Eurasian, or Neutral? Strategic Forum, Iss. 238, Febr. 2009.

Ukraine is indeed firmly stuck between the EU and Russia. It belongs to the common neighborhood of the EU and Russia and partly lives in a Russian house and partly with the European family. The country has been in such a situation for more than twenty years and will remain there for another twenty years. Vlad Sobell proposes that Ukraine should "marry” Russia because Russia has the means to care for it, feed and dress it nicely and make Ukraine sufficiently attractive for the "real marriage”— with the EU. Does Ukraine in reality love the EU so much that it would sacrifice its dignity and cheat on her "Russian husband” with the sole aim to land finally in the arms of the EU? Perhaps this may become reality in twenty years. Until then, Ukraine will continue to ponder and decide who is nicer and richer - Russia or the EU.

However, the problem of choice will be solved sooner than later. Some experts predict that world energy prices will fall and ruin Russia's economy. Other experts predict that the EU will seriously stumble in the present Euro-crisis and subsequently will need to appeal for Russian financial assistance. Again, if we see the situation in which Ukraine finds itself in purely geopolitical terms, it would be right to say that neither Ukraine nor any other CIS country in the post-Soviet space could join NATO and the EU against Russia's will. The EU, hit by the financial crisis, has become too weak (even if assisted by the US) to prevent Russia from exercising stronger influence in the post-Soviet space. On the other hand, Hillary Clinton is wrong on "re-Sovietization”. Russia is definitely too weak to re-establish a new empire and it can't prevent the Westward orientation of countries like Ukraine, Georgia, Moldova, Turkmenistan or Azerbaijan. 

The Eurasian Union has a long, long way to go before it becomes reality. Vlad Sobell rightly suggests that Ukraine should support Putin's plan for a free trade zone stretching from Lisbon to Vladivostok. Such an arrangement – by the way strongly endorsed by former German Chancellor Gerhard Schröder in several recent interviews – would help to create a common economic and security space among all OSCE member states – West Europeans, Central Europeans and former Soviet Republics. Russia would become a participant in the new European house, which would automatically open the door to the EU for Ukraine, Georgia and others. Sometimes one wonders why this simple concept has not been realized in the immediate aftermath of the Cold War.     

Brussels is telling Ukraine it cannot have a free trade area with the EU and join the Eurasian Customs Union (ECU) at the same time, forcing the Yanukovich administration to do something it has sought to avoid since coming to power in 2010 – choose definitively between Moscow and Brussels/Washington. 

And that’s too bad because the Eurasian Customs Union offers Ukraine a slew of tangible benefits that Europe cannot begin to match.

While Europe contracts (by 0.6% in the 3rd quarter of 2012, year-on-year), Russia expands (by 2.9%) – and does so even in the face of a severe global recession now entering its fifth year.  

 

Nor is Russia’s relatively strong economy a flash in the pan. From 2000 to the onset of the global crisis in 2008, the European Union’s average annual growth rate hovered around 2%, whereas Russia’s averaged 7%. Europe has long been a low-to-no-growth affair. 

 

But ECU membership entails one specific benefit that is of particular importance to Ukraine: sharply reduced costs for imported energy carriers.  

 

The IMF is making elimination of gas subsidies to domestic consumers a pre-condition for continued lending – vital if Ukraine is to have access to world capital markets, avoid draconian budget cuts, and expand its shrinking economy.  

 

The IMF’s demands would result in an effective six-fold increase in gas prices for Ukrainian businesses and households – which puts the Ukrainian government in a serious political bind. It is understandably loath to bite this political bullet, and yet cannot risk antagonizing the IMF.  

 

Membership of the ECU is the tailor-made solution.

 

The Deep and Comprehensive Free Trade Agreement (DCFTA) with the EU offers Ukraine few tangible benefits. It was never intended to. The point of the DCFTA is not to bring Ukraine into the European Union (that is emphatically not on offer), much less to modernize Ukraine (Europe has no money for that), but to keep Ukraine out of the Eurasian Customs Union. Anything to thwart Moscow.

 

To top it all off, there is a fly in the European ointment that raises questions as to whether Ukraine is being offered anything at all. I refer to the continued imprisonment of former Prime Minister Yulia Timoshenko.

A number of European states, not least Germany, are insisting on Mrs. Timoshenko’s release before the EU agrees to a free trade deal with Kiev. Will Kiev signs if that remains a precondition? Does the current Ukrainian administration want Mrs. Timoshenko footloose and fancy free in the run-up to the 2015 presidential election?

 

And what of the opposition, whose leader Arseniy Yatseniuk loves to tout the superiority of Europe’s liberal values? He owes his leadership of the United Opposition to Mr. Yanukovich’s distinctly un-European treatment of Mrs. Timoshenko.  

 

Thus, we have a perfect muddle. It seems both the Azarov government and the opposition prefer an agreement that may not be on offer, and which provides scant real benefits (the DCFTA), to one that is on offer and provides copious benefits (the ECU).  

 

Meanwhile, true to form, soon-to-depart US Secretary of State Hillary Clinton’s likening of the ECU to a resurrected USSR added an unhelpful, inaccurate, and anachronistic note to the already confused Ukrainian scenario. One would think that an enlightened US foreign policy rooted in the national interest would see that Ukraine’s affiliation with the ECU – leading to the forging of ties between the Eurasian and European Unions – would serve US interests well.   

 

But that would depend on a rational US global policy, which we do not have. Instead, under Mrs. Clinton, we have a policy based on ideological impulsiveness, featuring sanctions against Russia (the Magnitsky Act); her dangerously naïve support for the "Arab Spring” (i.e., the empowerment of the Muslim Brotherhood in Egypt and al-Qaeda-linked jihadists in Syria, and eradication of ancient Christian communities across the Middle East); and her obsessive pushiness on "gay rights” (but only in traditionally Christian countries like Russia and Serbia, not with our new, "democratic” Islamist friends). 

 

Let’s at least hope things in Washington will improve with Mrs. Clinton’s departure and Senator John Kerry’s accession at Foggy Bottom. Surely, they could hardly get worse.  

 

Kiev's attempts to keep flirting with two suitors may soon reach a dead end. Paradoxically, the precipitating factor may come from the West, in the form of the US-dominated IMF's unwillingness to extend further support without ruinous hikes in domestic energy prices. A DCFTA cannot relieve Kiev of that demand, but affiliation with the ECU -- along with domestic prices for Russian energy -- would. With the IMF prepared to make its decision in the next few weeks, the clock is ticking.

 

 

Ukraine unfortunately generates much skepticism among international investors, the business community and policymakers. Last year its leaders shook hands with fewer foreign partners than in previous years, its politics remained messy and consensus-seeking continued to be elusive. Despite its considerable potential, Ukraine’s economy is still relatively small – a result of persistently poor policymaking over the years. And it is now in crisis once again, having likely entered a double-dip recession in the final quarter of last year. 

In a world in which the economy determines a country’s global weight, Ukraine geopolitical standing is mediocre. Situated between two global powers – the EU to the west and Russia to the east – Ukraine has sparked much debate about whether it should finally make its mind up and choose one of these centers with which to throw in its lot or stick to its current position – that is, somewhere in between. 

However, Ukraine’s geopolitical dilemma will not be resolved in such a simple manner. The solution will be much more complex than is currently envisaged. There are several reasons for this.  

First, Ukraine has a strong tradition of reform aversion. Imagine a nation that relatively recently experienced a kind of Great Depression and Weimar–style hyperinflation. Such was the state of Ukraine’s economy throughout most of the 1990s. The traumas of the loss of savings and high unemployment have resulted in the population’s preference for paternalistic politics and the tendency to reject structural reforms. And the brain drain of would-be reformers has not helped either. The inefficiencies and imbalances of the 1990s remain to this day, including the outsized and heavily subsidized consumption of natural gas.

Second, Ukraine’s politics are highly polarized. A young democracy, the country has politicians who have been primarily concerned with staying in power, rather than seeking a constructive consensus. As a result all of Ukraine’s politicians are exceedingly vulnerable to populism. 

Third, there is the issue of Ukraine’s geopolitical orientation. Foreign observers tend to think that Ukraine’s most prominent politicians support a clear-cut foreign-policy orientation. For instance, since the mid-2000s the incumbent president Viktor Yanukovich has been considered  "pro-Russian” and former Prime Minister Tymoshenko  "pro-Western”. In fact, this is only partly correct. In general, Ukraine’s most prominent politicians have traded sides and acted contrary to their perceived foreign-policy orientation. Today, as was the case in the past, they are driven mainly by the survival instinct and vested interests (hence, the high level of corruption in Ukraine). The noble objective of serving the national interest is at the bottom of the list. 

Finally, a look at Ukraine’s democratic tradition. The Orange Revolution has been defeated. Eight years since that entirely peaceful uprising, the political pendulum has swung back, with the losers in the Revolution now occupying prominent positions. President Yanukovich, the main loser, is aiming for a second term. The leader of Svoboda, who back in 2004 was barred from a prominent role owing to his xenophobic rhetoric, is now in parliament with a 35-strong faction that strives to become the most vocal opponent to the ruling parties. These two politicians would love to face off in the final round of the presidential elections in March 2015, a scenario that would most likely lead to Yanukovich’s re-election for a second term.  

However, the Orange Revolution has had a lasting legacy. It was driven by the young and supported by the middle-aged and elderly and its spirit of courage and determination lives on. Despite the prominence of President Yanukovich and his (jailed) arch-rival Tymoshenko, a new generation of leaders did emerge in the October 2012 parliamentary elections. This gives rise to the hope that Ukraine’s politics is maturing and becoming less prone to paternalism. It also raises the possibility that the electorate will be ready for a program of modernization.

That said, what are the prospects for Ukraine geopolitical standing in the near future? Would Ukraine be able to tackle its economic and political problems without making a bold step in geopolitics?

The two years remaining before presidential elections will be very difficult, as Ukraine faces a steep IMF debt repayment schedule along with an annual bill of about $10 billion from Gazprom. The government has two options: Either strike a new re-financing deal with the IMF or cooperate with Russia by entering its Customs Union. 

A deal with the IMF requires unpopular structural reforms and hence undermines Yanukovich’s plans for re-election in 2015. A deal with Russia—one that included a reduced gas bill along with a loan—would allow the country to repay its IMF debt and would not require any structural reforms. But this does not mean that Yanukovich would concede any sovereignty to the Kremlin. In 2010, Russia lent a helping hand, providing a gas price discount along with a $2 billion loan via VTB Bank. At that time Moscow expected that Kiev would start moving toward its Customs Union, but Kiev failed to oblige. Today Ukraine needs a loan of some US$7 billion to refinance at least a 75% of its IMF debt. Surely, this time around, Russia would be much more exacting and unforgiving? 

I believe that, when faced with the need to transfer sovereignty to Moscow, Ukraine’s political class will choose to continue negotiations with the IMF. It is conceivable that a complex deal will be put together, gradually placing the economy on a more sustainable footing. Hence, cooperation with Russia will remain within the existing framework of international and bilateral agreements and Ukraine will continue to pursue its course of East-West equidistance.

 

It seems counterintuitive, but a strongly pro-Russian Ukraine may have the best chances of reversing her fortunes when dealing with Putin’s Russia. This argument does not mean that Ukraine must yield to Kremlin’s demands. On the contrary, it suggests that Kiev can outsmart Moscow, attacking "its former imperial master” from the direction that the latter believes to be impossible. However, before the argument is developed, let me dismiss a false assumption and point to a contradiction that confuses debates about the Russo-Ukrainian relationship.

 

It is commonly believed that Ukraine is a former Russian colony. However, historically speaking, Ukraine was the first Slavic state to appear under the name of Kievan Rus on the political map of Europe. It is only due to Ukrainian expansion to the "wild East’ that Muscovite Russia assumed its language, Orthodox religion, and cultural identity. Therefore, it is Russia that initially was a Ukrainian colony rather than the other way around.

 

The second premise concerns the rightful belief that Ukraine is more "European” than Russia, while pretending that the country derives her roots from the late medieval polity of Ukrainian Cossacks – the Zaporizhian Sich. This combination of beliefs is contradictory. If it were the Cossacks who founded Ukraine then the country would have been more Asiatic, because her founders would have come from the Turkic nomadic tradition. In contrast, Moscow’s assertion that it is the heir to the Byzantine Empire – again, through the Kievan connection – makes Ukraine more European as its tradition comes from the medieval Greeks.

 

I have delved into these historical facts to show, first, that Russia cannot claim primacy within the Eastern Slavic community and, second, that Ukraine cannot base her Eurocentric policy on appealing to her past. These two negations shift the focus of discussion from post-colonial struggle in the Eurasian space to competition for cultural dominance between Kiev and Moscow. The EU becomes in this dimension an external observer whose main objective seems to be the prevention of consolidation of large Slavic states along its eastern border. But does Ukraine have a real chance to overpower its larger neighbor? My impression is "yes” but under conditions that this country needs yet to achieve. At this point a discussion of Russian weaknesses within its social space is in order.

 

Modern Russian elite places the concept of unbridled economic egoism at the core of its social value, which places the nation under constant stress. Unlike North America, where strong religious principles mitigate the resulting damage, or Western Europe where long-lasting traditions of class solidarity restrain the excesses of the upper class, Russia has no means to maintain its social fabric other than through state redistribution of its petroleum largesse. However, Putin’s model of governance lacks an effective mechanism to keep resurgent corruption under control. As a result, the redistribution fails progressively to bind the society together as growing chasm between the "haves” and "haves-not” attests. In short, unrest is brewing in Russia.

 

Granted, Ukraine is not spared from the same deficiencies, but her ruling class possesses fewer resources than its Russian counterpart and, hence, is less likely to maintain its position. The question is: who will come after Viktor Yanukovich? If the next leader bases his or her agenda on restoring social justice, the appeal of such policy would resonate wide across the Ukrainian eastern border. The example of Belarus is indicative in this respect. In early 2000s, when the idea of the Russo-Belarusian political union was mulled over in both countries, the discussion of who would become its president indicated that Belarusian president, Alexander Lukashenko, was sufficiently popular with the Russian electorate to win the popular vote. Potentially, it is exactly this possibility that was instrumental in turning Moscow policymakers away from the idea. Next time it may prove to be impossible for the Kremlin to stave off a challenger from the near abroad, given the growing dissatisfaction with its rule. However, up to now the discussion has not touched on the EU position towards its eastern neighbors.

 

The EU’s actions indicate that its key interests in the area are purely economic. Its main inquietude concerns the pricing of Russian natural gas, which the European Commission finds to be excessive. Otherwise, the current Eurasian situation is favorable to the EU. Both Russian and Ukrainian national elites are not encumbered with a sense of moral duty to their countrymen and hence they are ready to offer for sale all assets their countries possess. Thus, the EU is keen to do nothing except to keep an eye on possible consolidation of eastern Slavic states according to the Russian scenario. Essentially, the Kremlin intends to organize what can be dubbed in corporate terms as a "hostile takeover” of Ukraine. Yet, such a move would not be damaging to European vital interests. It would merely raise the Kremlin’s bargaining power in a potential "swap” of shares in "Russia Inc.” for a minority stake in the "West Inc.”