Caught in a balancing act, Ukraine’s new leadership faces tough political and economic choices
In November 2013 Ukraine rejected the signing of a European Free Trade Agreement (EFTA). Since then, the Autonomous Republic of Crimea has left Ukraine in a quickly organised referendum with strong backing from Moscow. Such an outcome has been cheered in Moscow and created outcry in the West where Russia has been accused of illegally annexing part of Ukraine’s territory. In late May this year Presidential elections took place in Ukraine with victory going to Petro Poroshenko, seen as a moderate ‘Europeaniser’ with substantial business interests in Russia. His problem is that he comes to power with Ukraine facing its most serious challenges since becoming an independent state.
Support for Ukraine moving towards Europe and away from Moscow remains at best mixed across the European Union. Former socialist states are vocal in making the case for the EU to aid Ukraine to shift gradually from Moscow’s orbit into the European fold. The thinking behind this strategy is that a ‘European’ Ukraine will act as a ‘buffer’ against the historic enemy, Russia, to the east. However, from the larger and more prosperous EU states, Ukraine – crucially – can expect less support. France has historically strong ties with Russia and its failure to stop a joint-funding project with the Russian military in 2014 reveals its position. Germany also is unlikely to want to back large-scale financial support for Ukraine. It is highly dependent on the import of Russian gas to drive its economy and large amounts of high quality German manufactured goods are exported to Russia. Whilst the EU has been extremely supportive in terms of rhetoric and has provided some short-term financial loans to Ukraine, it remains unclear to what extent the EU is prepared and able, politically and financially, to fund the vast reforms required in Ukraine.
The USA has also been extremely supportive of Ukraine joining the EFTA and highly critical of Russia’s annexation of Crimea. Indeed, since 1991, in terms of recipients of US AID, Ukraine stands as high as third in the list, behind only Egypt and Israel. Recent American reactions in the Ukraine crisis suggest that the mantra of the well-known Cold-War American diplomatic warrior, Zbigniew Brzezinski – ‘without Ukraine Russia ceases to be empire, whilst with Ukraine, bought off first and subdued afterwards, it automatically turns into empire’ – still holds true today as the basis of US foreign policy towards Ukraine.
In many parts of Russia’s political elite and across Russia’s population, independent Ukraine is seen as an historical aberration. It is viewed as inherently part of the ‘Russian world’, part of a wider ‘East-Slavic’ civilisation which is fundamentally different from the rest of Europe. Historically, the proto-state of ‘Kyiv-Rus’ is seen as the first ‘Russian’ state, with the origins of the Russian Orthodoxy deriving from Kyiv in the tenth century. Certainly, since Ukraine’s independence, Russia has invested heavily into Ukraine’s economy and also sought to influence internal Ukrainian politics, attempting to keep the country within its orbit of control. Russia’s decision to get involved in the annexation of Crimea, although clearly at odds with international law, meant that President Putin could gain huge popular support at home by bringing Crimea back into the ‘Russian fold’.
The West’s ‘interventions’ into Iraq and Afghanistan and its failure to engage militarily in Syria have caused Moscow to realise that, no matter how hard-line the rhetoric from Washington or the EU, the West actually has no appetite for military confrontation in Ukraine. In contrast, Russia knows that the West does not know to what lengths Russia will go itself. Russia has no intention of allowing Ukraine to join NATO and is potentially ready to expunge large amounts of political and financial capital and incur international isolation to achieve this aim. After Ukraine’s signing of the EFTA in June 2014, Russia may ban the import of Ukrainian goods, which in the short run would significantly impede any attempts in Kyiv to generate an economic recovery. It’s also likely that Russian capital will seek to purchase Ukrainian strategic industrial interests in the short term.
Poroshenko’s main priorities include ending the military unrest by separatists in eastern Ukraine and maintaining the territorial integrity of Ukraine. Whilst much media attention has been focused on whether or not unrest in eastern Ukraine is directly funded by Moscow, Poroshenko’s more fundamental problem is that the Kyiv administration does not possess political legitimacy in these regions. He may need to give these regions greater political autonomy within the Ukrainian state. Failure to do so may lead to further splintering of Ukraine’s territorial integrity.
Following its signing of the EFTA in June 2014, Ukraine has the opportunity to gain some key economic advantages. Yet, in the short term, numerous difficulties remain. Ukraine relies heavily on exports to Russia and, if Russia decides to ban the import of Ukrainian goods, this would hit the Ukrainian economy hard. Large parts of Ukraine’s economy remain uncompetitive unless fundamental reforms are implemented, especially in respect of corruption. A cleansing of Ukraine’s business environment is fundamental to the attraction of meaningful Foreign Direct Investment.
Additionally, Poroshenko’s administration will need to gather enough political support amongst Ukraine’s elites to be able to chart a path towards meaningful economic reforms. Amongst Ukraine’s oligarchs business interests are inextricably entwined with political interests. Two leading oligarchs – Ihor Kolomoiskkyi (Privat Group), based in Dnipropetrovs’k, and Serhii Taruta (Industrial Union of Donbass), based in Donets’k – have chosen to become governors of these two important regions in eastern Ukraine and thus oppose separatist movements. Similarly, Rinat Akhmetov, Ukraine’s richest individual, Head of the SCM Group, has shown no support for separatist movements either. Such political maneuverings demonstrate that they would prefer to maintain full control of their regional fiefdoms within an independent Ukraine than be exposed to supervision from Moscow.
To sum up, as stated at the outset of this post, Ukraine is now dealing with its most serious challenges since becoming independent. Crimea has been annexed and separatist movements in the Donets’k and Luhans’k regions are demanding greater autonomy from Kyiv or accession into the Russian Federation. Kyiv badly needs to foster a meaningful political project which strives to create ‘unity out of diversity’, accommodating both the desire to ‘Europeanise’ Ukraine and maintain close links with Russia.