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Alexander Rahr: Ukraine remains Europe’s enfant terrible

Alexander Rahr
11:35 14/05/2010
Alexander RAHR

RIA Novosti interview with Alexander Rahr, German Council on Foreign Relations, Director, Russia-Eurasia Center

- How would you assess the current state of cooperation between Russia and Ukraine after the agreement was signed in Kharkov between Russian president Dmitry Medvedev and his Ukrainian counterpart Viktor Yanukovych?

- Ukraine is among those European countries which have been hit the hardest by the economic downturn. Industrial production and exports have fallen by 40% and inflation has increased by 20%. The previous government was guilty of doing nothing and failed to implement the required reforms to ensure a better functioning free market economy and rule of law. The country has an enormous foreign debt, owing $35 billion to Western nations and Russia. As a result, it can not pay for expensive Russian gas without resorting to Western loans.

In addition, in the past Ukraine did nothing to diversify its energy sector. Many Western experts believe it is almost a miracle that Ukraine has avoided a default. Nevertheless, the danger of a national bankruptcy remains, and there is a possibility of Ukraine becoming Europe’s second Greece.

Given Ukraine’s geopolitical significance, the West provided Kiev with more assistance over recent months than it did to other countries that found themselves in a difficult financial situation. The International Monetary Fund loaned Ukraine $16 billion, of which $10 billion have already been allocated. This is despite Kiev’s failure to comply with the loan conditions due to the difficult social situation in the country

Yanukovych is short on time. The new government will need to make very important and painful decisions in the coming weeks and months to salvage the country’s budget. Yanukovych has very limited space to maneuver. Ukraine, which lacks natural resources, has scanty financial resources of its own. Therefore, Yanukovych will have to rely on external assistance, or to be more precise – assistance from Russia.

Kiev can no longer count on the benevolence of its “strategic partner” as has often been the case in the past. Russia will dictate its own terms to Ukraine. Ukraine’s former president Viktor Yushchenko failed in his policy of portraying Ukraine as a "victim" by unleashing conflicts with Russia. He hoped to accelerate Kiev’s entry into NATO and the EU by presenting Ukraine as "the frontline in the fight to protect the free West from Russia’s neo-imperialist ambitions."

During the Russian-Georgian war of 2008, Yushchenko supported Mikhail Saakashvili more staunchly than any other Western leader. Yanukovych has defused relations with Russia. He proposed to transform Ukraine's gas transportation network, consisting of large and small gas pipelines stretching for 37,000 km, into a tripartite gas consortium. In addition to Ukrainian companies, it will include Russian and European firms, with each party having a 30% share in the consortium. The idea of establishing such a consortium was first proposed before the Orange Revolution.

The tripartite consortium could jointly modernize the Ukraine’s obsolete pipeline network and subsequently exercise joint control over gas transit to Europe. Had the consortium been established earlier, those ill-fated gas conflicts could have been avoided. In response to Ukraine's attempts to use its monopoly transit position for political purposes, Russia undertook the construction of pipelines bypassing Ukraine and other countries in Central and Eastern Europe.

The Nord Stream and South Stream pipelines, laid across the bottom of the Baltic Sea and Black Sea respectively, are nearing completion. Yanukovych immediately realized that the new pipelines would seriously undermine Ukraine’s role in gas transit to Europe. Ukraine’s budget depends primarily on revenue generated by gas transit. Therefore, on coming to power, Yanukovich tried to persuade Russia to at least abandon plans to build the South Stream pipeline. In return, the struggling Ukrainian leader offered Russia a concession for the management of the Ukrainian gas transportation network, in addition to the opportunity of supplying gas directly to Ukrainian consumers. 

- What is your assessment of the political and economic consequences of the recently signed document, extending the lease for Russian fleet’s presence in Ukraine?

- Yanukovych needs Russian support to resolve Ukraine’s economic problems. Russian investors are once again welcome in Ukraine. The new president knows how to reach agreement with Russia. First of all, Russia opposes Ukraine's accession to NATO. It is rather difficult for Moscow to imagine the capital of Kievan Rus as part of the West. Understanding the mindset of Russia’s leaders, Yanukovych announced that Ukraine would be a neutral country.

Ukraine has no intention of joining either NATO or the CIS Treaty on Collective Security. Russia seeks the extension of the Black Sea fleet presence at the naval base in Sevastopol beyond the end of the lease in 2017, and Yanukovych has agreed to extend the lease in return for Russia’s flexibility in energy-related matters. Technically, Ukraine could go even further and recognize the independence of Abkhazia and South Ossetia, if Moscow were to agree to provide additional economic concessions. The Kremlin is quite interested in the range of concessions offered by Yanukovich, but Moscow wants more from Kiev. Putin is ready to discuss all possible options for Ukraine’s joining the Custom’s Union, but it will be difficult to accomplish this without violating Ukraine’s WTO membership commitments.

- During Russian-Ukrainian talks held in Kharkov on April 21, Moscow agreed to provide a discount on the price of gas to Ukraine. Will this ease the country’s difficult economic situation? How would you characterize current relations between the EU and Ukraine in light of the recent events?"

- The EU does not really know what to do with Ukraine. During the gas conflict between Russia and Ukraine, the EU realized that Ukraine had flagrantly violated the rules of the game. That is why the EU supports the construction of the Nabucco gas pipeline, which will supply Central Asian gas to Europe through the Caucasus and Turkey, bypassing Ukraine. As a result, Ukraine will be deprived of the revenue from gas transit to Europe.

Ukraine's accession to NATO, which is advocated by some countries in Central and Eastern Europe, is hardly possible, given that the absolute majority of the Ukrainians oppose joining the alliance. Yanukovych is against the country’s joining the EU, instead wanting to consolidate Ukraine's status as a "strategic bridge between Europe and Asia.

New transport infrastructure should be created with the support of the West. Yanukovych believes that Ukraine should facilitate the creation of a new security architecture in Europe. He supports the idea of a "multipolar" world and wants security guarantees both from the West and from Russia.

Ukraine remains Europe’s enfant terrible. As EU member states themselves experience economic difficulties, the West’s willingness to help Ukraine is very limited. Perhaps the EU needs to offer Ukraine the concrete prospect of accession, as it did for Turkey. The EU can not prevent Ukraine’s current leadership from keeping all options open for the country’s economic survival and, if there are no alternatives, entering into a new form of economic integration within the CIS.

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RIA NovostiAlexander RahrAlexander Rahr: Ukraine remains Europe’s enfant terrible

11:35 14/05/2010 RIA Novosti interview with Alexander Rahr, German Council on Foreign Relations, Director, Russia-Eurasia Center.>>

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