Ukraine makes a deal with Russia: why did that happen?

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of PLC.

The approach so far of the EU towards Ukraine has been unbalanced, with too many political requirements and too little economic support. It is not surprising that Russia took advantage and made a more attractive financial and economic offer, writes Volodymyr Tsybulko.

Volodymyr Tsybulko is a political expert and former member of the Ukrainian parliament.

The end of this year has brought new arrangements between Kyiv and Moscow instead of the signature of the Association Agreement (AA) between Ukraine and the EU. This was a surprise for many European states. But is the new format of relations in the EU-Ukraine-Russia triangle accidental?

Let us have a look at the whole year of 2013 from the point of view of the development of relations between Ukraine and the EU, and also the positions of the Russian Federation towards Kyiv and Brussels. This will allow seeing tendencies which led to the present results. 

Following the EU Foreign Affairs Council in December 2012, which formulated the list of the main criteria which Ukraine needed to fulfill to sign the AA, Kyiv started to work dynamically in the field of euro-integration. Progress was achieved almost in all benchmarks.  What was not done was only the final adoption of the law on public prosecution, the electoral code, and also the full solution of the Yulia Tymoshenko issue.

Moreover, representatives of various EU countries, in particular Germany and France, raised the Tymoshenko issue as the key condition for signing of the AA by Ukraine. Thus, all capitals of the countries-members of the EU were perfectly aware of the difficult economic situation in Ukraine and drastic measures of Russia on closing up of its borders and markets for the Ukrainian production. The initial approach of the European Union towards Ukraine was unbalanced, with too many political requirements and too little economic support. It is not surprising that in the similar situation Russia took advantage of the weakness of the European position and made a more attractive financial and economic offer. This allowed Russia to win the first round of battle for Ukraine.

In Moscow on 17 December Ukrainian president Viktor Yanukovych signed a whole package of agreements in different spheres. But the most important ones concern the reduction of the Russian gas price for Ukraine from 400 to 270 dollars per one thousand cubic meters, and granting of a credit by the repurchase of the Ukrainian government bonds for the sum of 15 billion dollars. These two questions together managed to outweigh all preferences which were promised by Brussels in exchange for the signing of the AA.

In terms of the financial assistance, Europe and the USA had an opportunity to offer an alternative to Ukraine in the form of a new credit from the IMF. But Brussels and Washington did not choose to use it, as the Fund laid down extremely severe conditions for Ukraine, such as rising gas prices for the population and devaluation of the national currency. If Kyiv agreed on these conditions, and also signed the AA with the EU, the next couple years would become extremely difficult for the welfare and social security of the majority of the population of Ukraine. And this is on the eve of the presidential elections in 2015. Thus, the IMF tool was not effectively used by the EU and the USA for the support of Ukraine. Why then is the West so much surprised, that Kyiv accepted the deal with the most favorable conditions (the credit deal with 5% annual interest)?

And when we come to the gas deals, we should look for a broad balance of interests of Ukraine, the European Union and Russia in this question. After signing the addition to the gas contract establishing a new price, Moscow has openly brought up a question of the gas consortium on the Ukrainian Gas transportation system (GTS) management. And now we are talking about a tripartite format with Germany's participation. Considering the last rapprochement between Russia and Germany in the question of removal of the OPAL gas pipeline (and also Nord and South streams) out of the jurisdiction of the Third Energy Package, we should not doubt that a compromise version of arrangements between Kyiv, Berlin and Moscow will be found.

And in terms of other Ukraine-Russia arrangements we should expect the deepening of cooperation between Kyiv and Moscow in nuclear power, oil processing and transit, development of infrastructural projects (for example, the bridge through the Strait of Kerch), deepening of cooperation in the sphere of aviation, space and defense technologies. This will, certainly, strengthen economic and political positions of the present Russia. Ukraine will thus get economic stability and preservation of access to the markets of Russia.

On the other hand, the package of the last arrangements between Ukraine and Russia did not include talks about Kyiv joining the Customs Union. This aspect allows speaking about the preservation of the "window of opportunity" for Ukraine in terms of the AA signing with the EU. Formally Ukraine has not yet closed this "window", and now the European Union has time to determine its further strategy of interaction with Ukraine. 

The course on the AA signing in 2014 would be the most optimum line of Ukraine-EU interaction. But for this purpose, frank negotiations between Kyiv and Brussels, and also not less frank dialogue between Brussels and Moscow regarding the search of a compromise of interests in Kyiv-Brussels-Moscow triangle would become an important condition of success of new negotiations and guaranteeing the practical signing of the AA. Thus, EU concessions in the form of transferring Ukraine under the full influence of Russia will be a heavy strategic and economic loss of the European Union. Because it will be much more difficult for the EU defend its interests towards a strengthened Russia.

In this regard, the results of the Vilnius summit and new agreements of Viktor Yanukovych and Vladimir Putin in Moscow are only the end of the first round of the political game and transition to the following one. What's left is only to hope that the relations between participants in it will be more transparent, pragmatic and deprived of "double standards".