Why the EU and US Should Get Involved A.S.A.P.

Largely unnoticed in Western mass media, there is currently a major economic and political confrontation growing in Eastern Europe that could shatter the post-Cold War European security architecture. The Kremlin has taken a surprisingly adversarial view of Ukraine’s intention to sign a far-reaching Association Agreement with the European Union. The conclusion of this historic treaty could happen as soon as the Eastern Partnership summit in Vilnius later this month, or may happen sometime in 2014. Through provisional application, large parts of this so far uniquely comprehensive contract would go into force soon after the signature, before the Agreement is ratified by the 28 EU member states.

Until recently, it seemed that the Kremlin’s anti-Western sentiment was focused on NATO, which is seen by most Russians as not only a defense community, but also an anti-Russian alliance. A few weeks ago, however, the Russian ruling class began making clear that it sees the EU not only as a competitor, but also as a geopolitical rival in Eastern Europe – an unwanted intruder into Moscow’s presumed sphere of special interest in the former USSR. A number of recent comments by high-ranking Russian officials on Ukraine’s immanent inclusion into the European unification process has led to a Russian-Ukrainian war of words, with some Moscow commentators reacting ever more hysterically. For instance, Russian President Putin’s official adviser on economic integration Sergei Glazyev said recently that Kyiv’s signature under the Association Agreement with Brussels will be “economic suicide,” a “surrender of sovereignty,” and a “violation of the Russian-Ukrainian Friendship Treaty on which the entire foundation of our relations is built.” Russia is seemingly preparing a whole battery of reactive measures concerning both its exports to Ukraine – above all in the energy sphere – and its imports from Ukraine in a number of sensitive trade areas.

Ukraine’s Vulnerability

Despite encouraging signs of partial reform progress during the last few months, the Ukrainian economy, currency, and state remain in a precarious, pre-crisis situation. Viktor Yanukovych’s policies since assuming the presidency in 2010 have been altogether insufficiently reformist, even making life for businesspeople – whether domestic or foreign – more difficult than before. Over the last three years, the Ukrainian government’s various halfhearted, ambivalent, or destructive economic innovations have done little to improve Ukraine’s overall economic and financial situation. On the contrary, the most urgent budgetary, regulatory, and structural problems were left largely untouched. Recent moderate improvements in Ukraine’s business climate recorded by the World Bank are too little, too late to change the substance of the overall grim picture.

Large sections of the Ukrainian economy are de facto dependent on Russia. This concerns both the availability of Russian markets to Ukrainian producers and the delivery of Russian raw materials, including natural gas, to Ukrainian companies and households. In its current difficult economic situation, Ukraine will be especially vulnerable to Kremlin pressure. Should Moscow use its considerable leverage to the full, the Ukrainian economy would be unable to withstand it and could go into a free fall, with grave social repercussions including a likely rise of tensions between the Ukrainian- and Russian-speaking parts of the country. All this would not bode well for the still unconsolidated Ukrainian state and raise the specter of separation or even civil war.

Once secessionist scenarios are in the air, Moscow, in turn, will be unable to resist claiming its responsibility for the over eight million ethnic Russians living predominantly in eastern and southern Ukraine. A particularly fragile hot spot is the Crimean peninsula, largely populated by ethnic Russians, where the Russian Black Sea fleet is stationed. It will be difficult for Russia to stand aside should the Ukrainian state disintegrate and pro-Russian regions declare their readiness to become part or protectorates of the Russian Federation. In the absence of clear borders along which Ukraine could be divided, large-scale armed confrontations over the demarcation of this dividing line cannot be excluded.

Protecting Russia from Itself

In view of such far-reaching consequences, Moscow may not be interested in a fundamental destabilization of Ukraine or deep involvement in Ukrainian affairs. Soberly assessed, neither an escalation of inner-Ukrainian tensions nor a collapse of the Ukrainian economy – and even less so a possible Russian military intervention like in Georgia in 2008 – would be strategically beneficial to Russia. Nevertheless, the Moscow leadership is currently furious about Ukraine’s impending success in concluding the Association Agreement either this or next year. Many Russian politicians are on jingoist autopilot, driving them to make ever more threatening gestures.

Should Ukraine continue dismissing these threats and sign the Association Agreement as planned later this month, the Kremlin will be tempted to use its overwhelming economic power to punish Kyiv. After the rhetorical flare ups of the last weeks, Putin may have no other choice than to demonstrate to a whipped-up domestic public his consistency, resoluteness, and principles. Once the ensuing Ukrainian economic downturn and political escalation spiral have gained momentum, it will become difficult to stop mutually reenforcing destructive tendencies that, in a worst case, could lead the country down the road towards separation, civil war, and military intervention. Bear in mind that explosive crises and armed confrontations have been the rule and not the exception in the successor countries of the former Communist multinational states – whether in the Western Balkans, Northern and Southern Caucasus, or Central Asia. The peacefulness of Ukraine’s post-Soviet internal development and relations to Russia so far were notable exceptions that, however, may not hold in the future.

In light of such catastrophic scenarios, the EU and the US should give explicit signals to Moscow that Russian economic pressure on Ukraine is unacceptable. They should, in particular, make clear to the Kremlin that the cost of a Russian trade war against Ukraine would also include increasing economic losses, diplomatic conflicts, and political tensions in Russian relations with the West. While Ukraine’s relative economic leverage regarding Russia is low, the sum of the various trade, investment, financial, and other relations between Russia and the West is substantial. The partial dependency of the Russian economy and budget on sustainable cooperation with the West – especially in the energy sphere, but also in a range of other economic, political, and scientific areas – bestows special responsibility upon the EU and the US. The West should use its considerable leverage to raise the stakes of a Russian confrontation with Kyiv. It can do so relatively easily and thereby protect not only Ukraine’s concerns, but also its own interest in political stability in Eastern Europe. The West would, in fact, also be acting in the interests of the Russian people by preventing a Russian-Ukrainian trade (or even real) war and the far-reaching estrangement between the two “brotherly nations” that would be the result.

Association Goes Both Ways

It is reassuring that many politicians in Brussels apparently understand well the urgency of the situation. In one of the most remarkable resolutions of its history, the European Parliament, representing more than 500 million EU citizens, stated on September 12 that “Now more than ever, attention needs to be drawn to the alarming pressures in the EU’s Eastern Neighborhood and on the Eastern Partnership project itself, which is being contested and questioned by Russia.” However, the Union also has to make clear to both its member states and to Russia that its upcoming agreement with Ukraine means not only a new Ukrainian relationship with the EU, but also vice versa. It will make little sense to the Ukrainian elite and population to embark on a painful transition of their entire socioeconomic system to EU standards if the Union’s member states continue doing business as usual with a Russia that punishes Kyiv for its Association with Brussels. It is primarily this treaty – prepared, pushed, and propagated by the EU Commission, in the interest of the Union’s member states – that is currently unleashing Russian wrath against Kyiv. The EU has a large share in creating the current situation which may entail considerable risks for the Ukrainian economy, society, and state.

Over the last few years the EU has been active in proposing, formulating, and promoting the Association Agreement. It will now have to show how serious it is about its Eastern Partnership program and Association policies in the former USSR. At least the European Parliament has made its position clear; in the aforementioned September resolution, it again “stresses the need for the EU to fulfill its responsibility to engage and defend in the spirit of solidarity those Eastern Partnership countries that have been exposed to Russia’s open, alarming, and escalating pressures intended to deter them from entering an association with the EU, and asks the Commission and the Council [of the EU] to come forward with concrete, effective measures to support the partner countries.”

However, the European Parliament has only few prerogatives regarding the EU’s security policies, while the Council and Commission guide Brussels’ behavior toward Russia but do not have veto powers with regard to individual member states’ foreign policies. If push comes to shove: Are the EU countries, their taxpayers, and their companies ready to bear the costs of economic measures against a Russia that attempts to bring Ukraine to its knees? Will not only the EU as an institution, but also the governments of the member states be prepared to challenge, for instance, European corporate preference for smooth business relations with affluent Russian energy companies for the sake of European integration? Or is the European business lobbies’ interest in colluding with Russia’s large state corporations so overwhelming that the EU member states will leave Ukraine out in the cold? Do the decision makers not only in Brussels, but also in Berlin, Paris, Rome, and London fully understand the repercussions that a breakup of Europe’s geographically largest country could have?

The Forgotten 1994 Budapest Memorandum

While the US is neither a direct party to this conflict nor as economically tied to Russia as the EU, America too bears its share of responsibility. In 1994, the US was a major force behind Kyiv’s agreement to dispose of its nuclear weapons. Back then Ukraine was the world’s third largest atomic power, with a nuclear arsenal larger than that of Britain, France, and China combined. President Leonid Kuchma wanted initially to preserve some of these weapons for Ukraine to deter above all Russian revisionism. In the so-called Budapest Memorandum of that year, the US, Russia, and Great Britain gave Ukraine comprehensive national security guarantees for Kyivan disarmament. The three countries also guaranteed “to refrain from economic coercion designed to subordinate to their own interest the exercise by Ukraine of the rights inherent in its sovereignty and thus to secure advantages of any kind.”

Ukraine removed all nuclear warheads from its territory by 1996 and has today no weapons of mass destruction. Nevertheless, Russia has since violated the 1994 Memorandum’s economic provision repeatedly with its various sanctions against Ukraine (as against other post-Soviet countries), especially during its de facto five-day trade embargo against Ukraine in August 2013. Russia is now threatening comprehensive economic sanctions if Ukraine signs the preinitialed Association Agreement with the EU. Will the US today come to Ukraine’s aid in a possible larger confrontation with Russia?

It is difficult to say yet what exact measures Moscow will take if Kyiv and Brussels indeed sign the Association Agreement this or next year. Perhaps the Russian leadership is not yet certain itself how far it is willing and able to go in that case. However, the current war of words is gradually narrowing the range of future options for the Kremlin. As Russian opinion makers continue to accuse the Ukrainian leadership of betrayal, ungratefulness, and duplicity, the Kremlin may be locking itself into an escalation that it will find ever more costly to stop. As the anti-Ukrainian media campaign continues, the likelihood that the confrontation between Kyiv and Moscow will get out of hand increases. The West should as soon and as directly as possible make clear to Russian leaders the entire array of economic, financial, political, and diplomatic repercussions that a Russian strangulation of the Ukrainian economy would have for Moscow. Such an early signal should help Moscow form a clear picture of the risks it will face in the case of escalation and accept the new reality of the gradually integration of Ukraine into Europe.

First published at Berlin, in the “IP Journal” of the German Council on Foreign Affairs (DGAP).