The edge of east and west

By bne IntelliNews April 22, 2010

James Marson in Kyiv -

On April 21, Ukrainian President Viktor Yanukovych agreed a deal with Moscow to host the Russian Black Sea Fleet until 2042 in return for a 30% discount on gas imports. Yet just three weeks earlier, he had slapped a deputy prime minister on the wrist for suggesting that Ukraine could join a union with Russia and Belarus. So who is Mr Yanukovych? A president to take Ukraine toward Europe? Or a man with an eye on his country's old imperial master in Moscow? The answer could be both.

Good relations with Russia tend to be viewed as exclusive to good relations with the EU. But Yanukovych has repeatedly argued otherwise. And some experts suggest that the recent sharp upward turn in the relations with Russia should not be seen as a threat, but an opportunity. "Tensions with Russia harmed relations with the European Union," said Yevhen Marchuk, a former prime minister and defence minister, at the International Security Forum in Lviv on April 16.

In a recent paper, leading Ukraine analyst Andrew Wilson from the European Council on Foreign Relations wrote that Yanukovych could even be "Ukraine's Richard Nixon... In the same way that Nixon's anti-communist credentials gave him the political cover to engage China, Yanukovych's links with Moscow and his support among Ukraine's Russian-speaking population may make it easier for him to engage with Europe."

Top administration officials, as well as the president himself, have been keen to stress that agreement with Russia is pragmatic, and has its limits, while deepening relations with Europe remains the strategic goal. "The EU is the number-one priority," said Leonid Kozhara, a foreign policy advisor to Yanukovych, at the Dragon Capital investment conference at the end of March. "Russia is the number-two priority."

So Yanukovych's decision to cave in to Russian demands to extend the Black Sea Fleet's lease in Crimea, therefore, came as a surprise to many.

It's all about gas

The concession was driven by economic necessity. Without cheaper gas from Russia, Ukraine would have struggled to keep its budget deficit to 6% of GDP, required for the International Monetary Fund to restart its crucial lending programme. The Ukrainian economy is still on the rocks after a 15% contraction last year and needs all the help it can get. But the concession was a large one. The opposition decried the move as the first step towards Ukraine losing its sovereignty, pointing out that the constitution expressly forbids the basing of foreign forces on the country's territory.

The move came after Yanukovych had already signalled an end to Ukraine's movement toward Nato by declaring Ukraine "non-bloc" and abolishing the body overseeing preparations for entry into the alliance. This was largely symbolic given the lack of support both from some Nato members and a large proportion of the Ukrainian population for Ukraine joining, but it took off the table one of the primary causes of Moscow's irritation with Kyiv in recent years.

Critics have complained that the declaration that Ukraine is a "non-bloc" state was made without any debate in parliament or broader public discussion. Experts also worry it could leave Ukraine in a security vacuum. "It's a debate we had in Poland in 1989. We rejected the idea of being non-aligned, sandwiched between the EU/Nato and Russia. If you're not firmly attached to a group, you can be seen as a grey zone up for grabs," said Janusz Onyszkiewicz, a former Polish defence minister, speaking at the International Security Forum.

Despite the Black Sea Fleet agreement, the new administration has already demonstrated boundaries on its engagement with Russia. When Yanukovych visited Russia in March and spoke of a "sharp turn" in relations with Russia, Putin responded tersely: "Join the customs union." But leading Ukrainian officials have consistently stated that Ukraine cannot enter the union - which joins Russia, Belarus and Kazakhstan - because of its membership of the World Trade Organisation. Such a move would also complicate the proposed Deep Free Trade Agreement with the EU, which the Yanukovych administration says it is committed to. "It's a cold shower," says Sacha Tessier-Stall, a foreign policy analyst at the International Centre for Policy Studies in Kyiv, of the Black Sea Fleet agreement, "but it doesn't signal an end to EU integration."

That process depends, however, not on declarative statements, but on concrete reforms, which stalled amid the infighting under previous president, Viktor Yushchenko.

Political stability has been achieved after a government loyal to Yanukovych was formed in March, but the constitutionally dubious method of creating the new coalition led to accusations that Yanukovych and his team are trying to seize all the power in their hands. Controversial figures from the era of former president Leonid Kuchma have also returned to roles in government, including in the key gas sector.

EU officials have thus far held their noses for the sake of long-desired political stability. The question now is how this power is used - to push through overhauls or to put snouts in the trough. "It can turn into a generous administrative feast, or be used for development," said Marchuk.

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