Protests continue as hopes fade of last-minute EU deal with Ukraine

By bne IntelliNews November 29, 2013

bne -

Hopes that Ukraine might at the last minute sign off on a deal to move closer to the EU have faded as the second day of the bloc's Eastern Partnership summit in Lithuania opened on November 29.

Despite comments from Kyiv over the past week that a deal is unlikely to be concluded, Ukrainian President Viktor Yanukovych travelled to Vilnius to see what offers he could coax from the EU in return for signing the Association Agreement and Deep and Comprehensive Free Trade Agreement. There is still a tiny chance that a deal could be done in the last few hours, but no one in Vinius thinks it likely.

The breakdown of the agreement has been signalled for days, with Ukraine looking to continue its strategy to play the EU and Russia off against one another while jumping in with neither. Moscow wants Kyiv to join its Customs Union trade bloc instead of throwing in its lot with Brussels, and has implemented trade restrictions and threatened much worse. It is also clearly ready to offer price discounts on the natural gas imported by Ukraine.

Those carrots and sticks are hugely compelling for Yanukovych, whose country has been teetering on the edge of economic catastrophe for months. Kyiv has insisted it needs $20bn per year if it is to survive the added Russian pressure. The EU put around €1.5bn on the table, and insists on tough conditions.

"We will make very clear here that the EU is ready to accept Ukraine as an associate member, to sign the association treaty," German Chancellor Angela Merkel said at the end of the first day of the summit on November 28. "Then we will see. We have no hope that it will happen this time, but the door is open."

Polish Foreign Minister Radek Sikorski was even more forthright following talks with Yanukovych. Asked how the negotiations went, he retorted curtly: "They didn't. It's over."

That did little to cheer the 10,000 or so gathered on Maidan Square in central Kyiv, continuing over a week of protests since the government declared on November 21 that it was breaking off talks with Brussels due to Russian pressure. With half an eye on events at home, the Ukraine delegation seemed set on muddying the waters - predicting a "positive result" from the meetings despite the clear lay of the land. "I am sure that the decision at tomorrow's summit will be positive. We will find a solution," First Deputy Prime Minister Serhiy Arbuzov said on November 28.

Tim Ash at Standard Bank speculates that Yanukovych only turned up in Lithuania to try to garner some friendly comment from the deeply disappointed EU leaders. "The Yanukovych line... seems to be to play for time/keep options open, and come away with something which he can then use in negotiations with Russia likely next week over a gas/financing deal," Ash writes. "He probably hopes he can get enough 'warm words' from EU leaders in terms of the EU integration process to calm the mood on the streets, and take momentum out of street demonstrations."

With a last-minute deal looking impossible, discussion of what happens next grew throughout November 28. Looking to his leverage with Moscow, Yanukovych and his entourage continue to suggest that a deal with the EU is still on the cards, and can be done by the spring when another Ukraine-EU summit is scheduled. The president added that his decision will depend on the success of negotiations between the prime ministers of Ukraine and the Russian Federation, which will begin on December 3.

However, if Yanukovych leaves Vilnius empty handed, most commentators believe the EU will not revisit the offer after being so badly let down, not to mentioned embarrassed, by Yanukovych's attempts to horse trade. Top EU officials are hinting that they can't do business with Yanukovych and will wait for a new government to try again. European Parliament President Martin Schultz told Bloomberg: "What's very certain is that the president of a country isn't the country. One can agree with Yanukovych or not. Maybe another government with another orientation will come to power."

Opposition leader and heavyweight boxing champion Vitaly Klitschko also travelled to Vilnius. His UDAR (Punch) party has narrowed the gap with Yanukovych's ruling Party of Regions to only 2% in a poll released this week ahead of elections set for early 2015. "We'll do everything to remove the government if Yanukovych doesn't sign the agreement," he told reporters. "The new government will have to sign the integration agreement for Ukraine to become a true European country."

As Anne Applebaum pointed out in an editorial in the Washington Post the Ukrainian president's attempt to squeeze out more concessions from Europe - in effect Ukraine was asking for some €160bn in compensation for losing business with Russia - was to totally misunderstand what the EU was offering. At the same time, the EU couldn't do such an deal even if it wanted to.

Yanukovych will be headed to Moscow next week to try to cash in the chips he believes he has won in the game of playing the EU off against Russia. The failure of the Vilius summit to secure a deal with Ukraine will be seen in Russia as a big foreign policy victory for President Vladimir Putin, but it is unclear what he will do next: drive home his advantage and call for Ukraine to sign up to the Customs Union immediately, or propose some watered-down deal that is membership in all but name?

Given the tension on the streets in cities across Ukraine, there will almost certainly be a cooling off period that could last for months.



#CustomsUnion #EEU

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