A Lesson Learned

BERLIN/KIEV | | ukraine

BERLIN/KIEV (Own report) - Over the weekend, Brussels and Kiev confirmed that the implementation of the EU Association Agreement with Ukraine will be delayed for at least another year, to facilitate negotiations with Russia. Even though the ratification ceremony will be held Tuesday, the agreement will not go into effect before the end of 2015, providing enough time for discussing - and possibly respecting - Russian misgivings. For years, the Russian government has been saying that it could expect billions in economic losses, should the association agreement take effect, as planned. If no mutual agreement is reached, Russia would find itself compelled to take retaliatory economic measures. Berlin and Brussels have always bruskly rejected any negotiations with Moscow on the matter. Now, they have declared their acceptance, only because Kiev is facing economic breakdown and even total collapse, if Russia implements its announced measures. Because Ukraine's economic output could shrink as much as 10 percent this year, the country will probably need billions in new loans. How energy supply can be secured for the harsh Ukrainian winter, is completely unclear. Already at the end of November 2013, Moscow and Kiev had proposed negotiations. If Berlin and Brussels would not have ruthlessly tried to enforce their interests, Ukraine would possibly have been spared the disastrous social, economic, and political consequences.

Only Ratified

Over the weekend, the EU Commission and the Ukrainian government have confirmed that the EU-Ukraine Association Agreement, to be ratified tomorrow, will be implemented at least one year later than originally planned. The European Parliament and Ukraine's Verkhovna Rada will hold ratification ceremonies tomorrow. After all, this had been the objective behind the Maidan protests and the current government came into power through the violent escalation of these protests and the ensuing putsch. However, following ratification, negotiations will begin on more than 2,000 Russian alteration requests, which, according to reports on the talks between Berlin, Moscow, Brussels and Kiev, could change fundamental elements of the agreement.

Facing Collapse

This maneuver must be seen in the context of Ukraine's looming economic collapse. Already in the first quarter of 2014, the country's industrial production slumped by 5,1 percent, which, to some extent, could only be compensated by a growth in the agricultural sector. Since then, not only the general crisis but also the civil war in Donbass, the country's industrial heartland, have escalated, weakening the economy more than expected. Valeria Gontareva, head of the National Bank of Ukraine, estimates that the economy will shrink by another 9, or even 10 percent, which will cause huge problems for Ukraine with the IMF. In April, the IMF granted Kiev a $17 billion loan assuming an economic slump of 5 percent and recovery in 2015. Even at that time, analysts had called this assessment completely unrealistic.[1] Kiev may soon require billions in new loans. However, the situation seems hopeless because of close ties between the Ukrainian and Russian economies, and because the conflict between the two countries and the mutual economic restrictions are particularly affecting Ukrainian companies. The head of the National Bank now predicts a 35 percent decline in Ukrainian exports to Russia - a loss that can hardly be compensated for.[2]

No Gas for Heating

Ukraine also faces massive problems of energy supplies for this winter. Because Kiev has not paid its bill of more than a billion Euros for earlier gas supplies, Russia has halted gas exports. Negotiations about a resumption of exports have remained inconclusive. Alternative supplies from the EU have begun to flow; however, they are insufficient, even for the intermediate term. For example, approx. one-fifth of Ukraine's gas needs could be satisfied through a Slovakian pipeline. Gas began to be pumped at the beginning of the month. Other gas pipelines from Poland and Hungary to Ukraine have only a limited volume. Besides, there is not enough gas available for sending to Ukraine. Most recently, Poland attempted to re-export Russian gas to Ukraine. The contract does not allow for this, and even the usually Russian critical German media, considers this "legally adventurous."[3] In Kiev, the population has long since been called upon to save energy. The municipal administration has set up crisis units for winter.[4]

A Blind Alley

In this context, the November 1, 2014 implementation of the EU Association Agreement is out of the question. For years, Russia has been complaining that the implementation of the agreement - in its planned form - would lead to considerable economic losses. If companies from the EU are allowed duty-free export to Ukraine, the articles will then be able to be sold in Russia, underbidding Russian companies. Moscow has predicted a consequent damage of up to two billion Euros per year - and has announced that it would take countervailing measures if necessary. These measures would have affected Ukrainian exports to Russia, with devastating consequences for the very precarious Ukrainian economy. Kiev cannot run that risk.

An Alternative Solution

According to a recent article in the "Süddeutsche Zeitung," Chancellor Merkel, over the past few months, has been preparing an alternative solution, which she had already sounded out during informal talks with the presidents of Russia and Ukraine at the 70th Anniversary celebrations of the allied landing in the Normandy. Berlin and the EU have declared that they are prepared to consider Russian misgivings and suspend or revise the stipulations of the agreement that would seriously impinge on the Russian economy. According to the article, EU Commissioner of Trade, Karel de Gucht had already initiated concrete negotiations on July 11. Ultimately, during informal talks at NATO's summit in Newport, Chancellor Merkel has been able to overcome Ukrainian President Poroshenko's resistance and the opposition within the EU Commission. Poroshenko has finally agreed, "to accept as many revisions as the EU commission finds reasonable." Commission President Barroso signaled, "that he would go along with the deal."[5] This means that the ultimate decision on the agreement is in the hands of the German government. As far as the concrete measures are concerned, the article explains that the Russian objections - supposedly more than 2,000 - will be evaluated and, if necessary, recorded in alterable annexes of the Association Agreement, since the agreement is already signed and therefore cannot be modified, without serious loss of face. As an alternative, the amendments could be recorded in official correspondence between the Ukrainian government and the EU Commission. Because this all takes time, the agreement will not take effect before the end of 2015.

Wiped off the Table

Already years ago, Russia had asked the Ukrainian government for talks on the consequences the EU Association Agreement would have on its economy and demanded that a mutually agreeable solution be sought - but to no avail. In May of this year, former EU Commissioner, Günter Verheugen retrospectively criticized the fact that "the significance the association of Ukraine (and others) would have economically and politically simply were not discussed with Russia." "Russia's misgivings that trade with Ukraine would suffer was wiped off the table."[6] November 22, 2013 - protests at the Maidan had just begun - Ukraine's Prime Minister at the time, Mykola Azarov, made a plea for "tripartite" negotiations "with Ukraine, the EU, and Russia." Moscow agreed, as long as the negotiations "took place before the agreement for a free trade zone was signed with the EU."[7] This is why Kiev asked for a postponement. Berlin and Brussels once again bruskly refused the will to negotiate - and instead began to back the putsch, with the known results.

Unrealistic

According to the "Süddeutsche Zeitung, a "lesson has been learned in Brussels." "It cannot be ignored that the Ukrainian and Russian economies are intertwined." It is "unrealistic" to "want to conclude an agreement that does not take this into consideration." Ukraine, after all, is significant "to two major economic interest groups" - "the Europeans and the Russians."[8] Had Berlin and Brussels considered this banal fact back in 2013, rather than attempting, at all costs, to impose their hegemony, they would have spared Ukraine immeasurable losses.

Other reports and background information on Germany's policy toward Ukraine can be found here: The Crimean Conflict, The Kiev Escalation Strategy, Cold War Images, The Free World, A Fatal Taboo Violation, The Europeanization of Ukraine, Official Government Vocative, An Unusual Mission, "Scientific Nationalists", Crisis of Legitimacy and "Fascist Freedom Fighters", The Restoration of the Oligarchs (IV), For Peace and Freedom, The Finnish Model, Second-Class Stakeholders, Establish Facts, Ukrainian Patriots and Ukrainian Maneuvers.

[1] Robin Wigglesworth, Roman Olearchyk: Ukraine's economy: Broken down. www.ft.com 20.08.2014.
[2] Paul Sonne: Ukraine Economy Battered, as More Fighting in East Despite Cease-Fire. online.wsj.com 13.09.2014.
[3] Ukraine-Krise: Moskau droht Europa mit reduzierter Gaslieferung. www.spiegel.de 09.09.2014.
[4] Jan Pallokat: Die Angst vor dem Winter. www.tagesschau.de 13.09.2014.
[5] Daniel Brössler, Cerstin Gammelin: Durchlöchert von Tausenden Ausnahmen. www.sueddeutsche.de 12.09.2014.
[6] Verheugen zur EU-Russlandpolitik: Warum Helmut Schmidt irrt. www.spiegel.de 19.05.2014.
[7] Rede des Premierministers Mykola Asarow im Parlament, 22.11.2013 (inoffizielle Übersetzung). Ukraine-Analysen Nr. 124, 26.11.2013.
[8] Daniel Brössler, Cerstin Gammelin: Durchlöchert von Tausenden Ausnahmen. www.sueddeutsche.de 12.09.2014.