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23 December, 2013

Mr. Putin may have won a victory in the geopolitical campaign that he is waging for Ukraine. It was, however, one battle, not the war

The European Union is not prepared to get into a bidding war with Russia for Ukraine. But it appears that the attraction of European living standards, rule of law and democracy remain strong with Ukrainians, particularly the young. Mr. Putin's Russia offers nothing that can compete with that.

First, it is unclear what Mr. Yanukovych promised to Mr. Putin in order to secure the $15 billion credit line and gas discount.  In his December 19 press conference, Mr. Putin said the loan and gas price cut were unconnected to Ukraine's talks with Europe. That is very hard to believe, and it is equally difficult to believe that Mr. Putin demanded -- and received -- nothing in return from Mr. Yanukovych.

Second, the Russian loan does not come with any reform requirements, as would an IMF loan, which also would have had a longer term and a lower interest rate.  If Ukraine uses the $15 billion and does not implement economic reforms, it will likely find itself again facing an economic difficulties sometime in 2015. Mr. Yanukovych presumably seeks to delay that until after the presidential election.  But to where would Ukraine turn for credits in 2015 if it is confronted by a new financial crisis?

READ ALSO: Putin's Expensive Victory

Third, to the extent that the lower price for gas reduces Kyiv's sense of urgency about developing its own domestic sources of energy, including unconventional gas, Ukraine risks slowing steps to strengthen its energy security. That will likely leave it more dependent on Russia.

There is no evidence that the U.S. government was aware of the specific content of the Ukrainian-Russian negotiations prior to December 17. It certainly understood, however, that Mr. Putin would make an effort to slow or derail the Ukraine-EU association agreement.

The Putin-Yanukovych agreement has slowed Ukraine's movement toward Europe, but whether it has caused Kyiv to reverse course and turn toward the east remains to be seen. Ukrainian and Russian officials denied that Mr. Putin and Mr. Yanukovych discussed Ukraine's entry into the Customs Union. Those denials stretch credibility. But it seems to me that, were Mr. Yanukovych to try to take Ukraine into the Customs Union, he would face significant opposition at home from Ukrainian business, elites and the public. Mr. Putin may have won a victory in the geopolitical campaign that he is waging for Ukraine. It was, however, one battle, not the war.

READ ALSO: Bohdan Futey: “The beating we saw is not just physical, but mental, too. The government wants to evoke fear in people”

The European Union is not prepared to get into a bidding war with Russia for Ukraine. But it appears that the attraction of European living standards, rule of law and democracy remain strong with Ukrainians, particularly the young. Mr. Putin's Russia offers nothing that can compete with that.


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