As they head for Vilnius, European leaders should remember that Tymoshenko and Yanukovych are not the only people in Ukraine who matter, writes Ian Bond.
Ian Bond is Director of Foreign Policy at the Centre for European Reform, a London-based think-tank
"When Ukraine emerged from the Soviet Union in 1991 it was politically and linguistically divided between the Ukrainian-speaking West and the Russian-speaking East. Many observers expected it to fall apart. The first line of its national anthem seemed grimly appropriate: "Ukraine has not yet died".
Twenty years on, its independence and national identity seem more solid. But Ukraine now faces a moment of decision: will it align itself with Russia or the EU? One month before the Vilnius Eastern Partnership Summit, Ukraine seems to be turning decisively towards the EU – ironically, partly because of Moscow’s pressure on it to join the Russian-led Customs Union instead of signing an Association Agreement, which includes a Deep and Comprehensive Free Trade Agreement (DCFTA), with the EU. A strong popular majority in Ukraine now supports closer integration with the EU.
The EU has set conditions for Ukraine to meet before the Association Agreement can be signed. There has been progress, for example on electoral reform. The biggest obstacle remains, however: ending ‘selective justice’, and in particular pardoning former Prime Minister Yulia Tymoshenko. Former Polish President Kwasniewski and former European Parliament President Cox have been working persistently to achieve this. The Ukrainian government has drafted a law releasing her for medical treatment abroad, but without a pardon. Yanukovych evidently still considers her a political threat, and hopes that his compromise offer will be enough for the EU.
So far the EU has continued to take a firm and unified line with Yanukovych. The European Parliament has extended the mandate of Kwasniewski and Cox in the hope of a deal allowing the Agreement to be signed in Vilnius.
Assuming that a solution is found, Ukraine and the EU will face challenges in implementing the agreement and benefitting from it. For Ukraine, the immediate threat is that Russia will punish it for rejecting the Customs Union.
Overall, Ukraine's trade is quite well balanced between Russia and the EU. But Ukraine is vulnerable to a Russian squeeze on its energy imports. This year it has cut gas imports from Russia by about 30 per cent, and increased imports from Western and Central Europe (saving money in the process). Ukraine hopes to exploit its shale gas reserves. But in the short term, Russia can make life uncomfortable economically and politically.
Russia's claim that it would need to take "defensive measures" against Ukrainian imports if Ukraine signed the Association Agreement is questionable. There is no reason why Russia could not continue to trade normally with neighbours who sign EU Association Agreements, rather than trying to force them inside the high and economically distorting tariff wall of the Customs Union. But Moscow has so far paid more attention to geopolitics than economics in building its Customs Union.
Whatever Russia does, Ukraine will have to accelerate its own reforms in order to benefit from the DCFTA. According to the EBRD, among Eastern European states, Ukraine has made the least progress since 1989 in converging with the EU15 in terms of GDP per capita. The main reasons for this are weak institutions and rule of law; poor governance and high levels of corruption (in Transparency International's 2012 Corruption Perceptions Index, Ukraine was 144th – worse than Russia, Azerbaijan or Kazakhstan, among others); and a lack of modernisation in key sectors (for example steel and agricultural production). With or without an Association Agreement, Ukraine will have to tackle these problems if it wants to close the prosperity gap with the rest of Europe.
In addition, the Association Agreement will require Ukraine to incorporate several hundred EU directives into its domestic legislation. The capacity of Ukraine's public administration will be stretched to its limit. In the long run, meeting European standards will enable Ukraine to compete more effectively on world markets. With its fertile soil, for example, it should be well-placed to increase agricultural exports. In the short term, however, there may be more pain than gain.
Other countries in central Europe and the Western Balkans going through a similar process of adjustment have had the incentive of eventual EU membership. But against a background of enlargement fatigue and concern about Ukraine's size, poverty and institutional backwardness support for offering Ukraine a membership perspective has been limited.
How much does it matter to the EU whether Ukraine leans west or east, or stays uncomfortably balanced between the two? If Russia cares enough to want Ukraine in its camp, why not let it have it? The EU could look at Ukraine in grand, geopolitical terms. The American statesman Zbigniew Brzezinski wrote in the early 1990s that "Russia can be either an empire or a democracy, but it cannot be both . . . Without Ukraine, Russia ceases to be an empire". But it would be a mistake for the EU to see Ukraine only through the prism of Russia.
Looked at in its own right, a prosperous Ukraine with functioning institutions and a modern economy would be a more attractive neighbour and partner than Ukraine inside the Customs Union or remaining in a no-man's land.
Europe should therefore increase both its pressure on the Ukrainian government to reform and its practical support for the changes it seeks. European leaders should step up their engagement with Yanukovych and his government. They should encourage Ukraine to make more use of European Commission technical assistance to implement the necessary EU directives. They should maintain the Kwasniewski/Cox mission as a means of strengthening the rule of law in Ukraine. Above all, they should offer Ukraine a membership perspective – certainly not in the short term, and with a list of reforms attached, but reflecting the fact that, for all its shortcomings, Ukraine has managed to remain a more or less democratic state for two decades.
As they head for Vilnius, European leaders should remember that Tymoshenko and Yanukovych are not the only people in Ukraine who matter. Yanukovych should remember it too. Forty-five million Ukrainians also have a stake in getting closer to the EU.