European Window of Opportunities for Viktor Yanukovich

By Oleg Gorbunov

The European Commission imposed 19 demands to Ukraine that are connected with the prospects of Euro-integration of this country. Europe tests the Government of V. Yanukovich on the ability to fulfill its Euro-promises in practice. Will that be a kind of a bad try to approach the same as the one undertaken by Viktor Yushchenko earlier? Is the Government of Nikolay Azarov able for serious internal political changes for the sake of Euro-integration? In the end, who is Yanukovich for Ukrainian Euro-integration – a coffin maker or a savior? The questions are covered by the leading researcher of the International Economy and Foreign Affairs Institute of Ukrainian National Academy of Science Sergey Tolstov.
- How seriously has the approach of the Yanukovich’s team to Euro-integration changed?

- The line of Yanukovich and the current authorities towards Euro-integration of Ukraine doesn’t fit to unambiguous formulation. This line is not limited with a sober estimate of prospects and possibilities of Ukraine, which are evidently not that promising. But it also differs a lot from the enthusiastic “Euro-populism” of the former group at power that changed actual establishment of cooperation on ultraoptimistic and shallow declarations.

The team of Yanukovich perfectly understands that the EU is an extremely significant entity of policy, a “great” neighbor of Ukraine and an integral part of surrounding political environment, the center of attraction for east-European semi-periphery. Bad relations with the EU mean the weakening of international opportunities of the country and its direct way to marginalization. Natural dualism of Ukrainian foreign policy is in maintenance of a definite balance within the EU and Russia relations, moreover that the ruling political grouping in the meaning of roles, gives Ukraine the role of a bridge between Russia/CIS and the EU states.

> Ukraine Map
But getting deeper one can see a number of black spots within the relations of Ukraine and the EU:

- The role of the EU within international policy is still not that clear. Moreover it’s not clear, whether there will be the EU enlargement, whether the EU will be able to overcome current financial crisis within the Euro area.

- It’s difficult to predict, how efficiently the authorities of Ukraine will be able to overcome the current state of recession, to assure the enhancement of compatibility and to establish the conditions for modernization of economy.

- European prospects of Ukraine directly depend on the character of relations between the EU and Russia, the climate of which is able either to intensify, or retain the participation of Eastern European states in integration processes.

From the point of view of near prospects, the talks between Ukraine and the EU on the terms of the free trade area will have a prior importance. In this sense Ukrainian Government will try to agree on the terms that will maximally promote the longstanding transition period, and is hardly ready to make concessions, threatening the stability of internal market. In its turn the EU will insist on more rapid liberalization. This issue in political and in technical relation is the most complicated and painful one. It seems, that till now Ukraine hasn’t done a system calculations of the consequences of the introduction of free trade area Ukraine – the EU without which it is hard to plan terms and consequences of cancellation of limitations within trade, introduction of European standards, introduction of unique rules within energy, liberalization of stock market and etc.

But even in case of coordination of technical conditions of the free trade area during this year, the EU – Ukraine Association Agreement won’t function immediately, as it has to be ratified which potentially prolongs the terms of transition period. Thus, the main problem is concluded in the fact, how efficiently Ukrainian Government will use the new “window of opportunities”, given by the gas price discount, to intensify the modernization of economy and enhance energy saving reforms.
- Will Ukrainian Government be able to harmonize the legislation? Or the issue will again stuck on the struggle against corruption and the introduction of visa-free regime?

The EU line towards Ukraine has changed significantly. The EU unilaterally described to Kiev the program of reforms and for the first time defined approximate period of its accomplishment.

The status of document, which was passed to President Yanukovich, the Administration of Foreign Affairs Ministry and the opposition leader Y. Timoshenko, by the European Commissioner on the EU Enlargement and Neighborhood Policy Stefan Fuhle, was pretty extraordinary.

Probably, the list-schedule (“the matrix of cooperation with Ukraine”) was approved by the European Commission at the level of the Council of the EU Foreign Affairs Ministers.

Although the document reminds the previous plan of actions Ukraine – the EU for 2005 - 2007, it carries the character of a unilateral political initiative. Ukraine won’t be able to amend it, but probably will be able to participate in a joint evaluation of the results of accomplishment. The terms of reforms cover the period from 6 to 18 months, i.e. till Parliamentary elections in 2012. Moreover, the EU counts on coordinated actions of authorities and opposition.

In comparison with the previous document, the new reform plan suggested by the European Commission differs with pretty rigid “forecasting” terms of accomplishment, which influences the financing of individual programs.

The most complicated is the reforming of gas sector (6 months), which allows to open a credit line for 2,5 billion euro to modernize gas transporting system and to have a constitutional reform (6-18 months). This last item supposes the achievement of compromise between the Government and opposition, at least, on the main contradictory articles of Constitution (removal of contradictions, connected with crossing and doubling of authorities of power bodies, regulation of the obligatory accomplishment of direct constitutional norms).
- During the interview to the Russian edition “Kommersant” with V. Bartushko (the representative of Czech Republic in the EU on energy security issues), the European authority criticized greatly gas-fleet agreements between Moscow and Kiev and in general the European prospects of Ukraine. Does this mean that Europeans in reality don’t intend either to conclude an association agreement, or to move forward into the issue of visa-free regime and etc.?

The negotiations on Association Agreement and consultations on suggested “road map” of the movement towards visa-free regime directly are not connected with the suggested by the EU plan of reforms, or with the agreement on prolongation of the Black Fleet locating. Referring to the conditions of the free trade area (the part of association agreement of the EU - Ukraine) Brussels counts that till the end of the year Ukraine “will compromise” in the negotiations on the free trade area. In this sense, the European Commission is directly interested in the achievement of positive result till the end of the year. As for liberalization of visa regime, than in near prospect the EU will most likely agree only on cancellation of visa fees. According to preliminary estimations, the way to visa-free regime will take 5-7 years. Naturally, if Ukraine won’t reach steady rates of economic growth and its status in European system won’t be sufficiently enhanced.

Another thing – “European investments”, about which dwells the representative of Czech Foreign Affairs Ministry on energy issues. We should take into consideration, that European investors are not really sensitive to the problem of presence of Russian Black Sea Fleet within the territory of Ukraine. From their point of view, the factor of the fleet is observed in the dimension of existence or absence of political risks. If the presence of the fleet stabilizes the political situation and minimizes the contradictions than it will be rather a positive factor than a negative one.

As for gas prices reduction, than here there are no reasons to doubt: gas price reduction rehabilitates the compatibility of Ukrainian economy. The combination of these two factors – normalization of Ukrainian-Russian relations and enhancement of profitability of economic activity evidently promote the investment climate. Naturally, in this dimension the reduction of corruption level plays a significant role.

That is why for European investors it is important for political stability to be in the country (at least, in the sense of stability of power fulfillment), for the legislation to be favorable and clear, and for there to be a possibility of guaranteed gaining of profit and return of investments (the absence of default threat and political cataclysms, including non-legitimate change of political regime). Another aspect – which exactly investments can come (or come back) to Ukraine in near future. Probably, we can talk about investments into bonds of foreign debt and a state inner loan (the main condition – stabilization of state incomes, reduction of budget deficiency and realistic macroeconomic indexes) and the investments within stock market (the main condition of stock operations intensification– positive forecasts and steady dynamics of stock market). As for bank sphere, trade and food industry, the inflow of investments is more connected with the level of savings, dynamics of inner demand, state of corruption and the rates of economic growth.

At the same time, the attraction into Ukraine of serious and long-term production investments has always been a complicated problem. First of all, this concerns industrial enterprises with a high share of value added in the produced goods. 
European fund doesn’t go into these sectors of economy, and its attraction has always been an extremely complicated task.

As for the declaration of V. Batrushka, it’s urgent to recall that after the claims of the authority’s representatives from Czech and Slovakia, who commented during and after the gas conflict in January 2009, Ukraine and Russia carry an equal responsibility for transit interruptions.

And exactly the authorities of these states directly warned Ukrainian Government about the attempts to review gas contracts of 19.01.2009. The fact that in the EU states the contracts with “Gazprom” are signed and performed by private energy companies (Gaz de France, RWE, EON, etc.) can’t directly affect the evaluation of current agreements. Moreover, direct gas contract and amendments are concluded directly between “Gazprom” and “Naftogaz” as economic agents.

From political point of view, the line of many central Europeans is understandable. A few years ago they enthusiastically realized the prospect of a new “cold war” with Russia and now it’s difficult for them to adapt to the destruction of schemes, to which they were internally prepared.

But as for Ukraine, the connection between gas (the rehabilitation of the compatibility of economy) and fleet (provision for Russia definite political guarantees) definitely has its sense, as other variants of correction of the issue solution wouldn’t be possible. But V.Batrushka is absolutely right about the necessity of maximum introduction of energy saving. As in case of sufficient growth of world economy energy prices will grow, and this can seriously narrow the current “window of opportunities” for Ukraine. That is why the Government should enhance the involvement of economic entities into the use of energy saving technologies – to use flexible system of compulsion, including preferences and fines.

The final forecast on all the complex of relations between Ukraine and the EU is moderately positive. Till the end of the year they can manage to sign the association agreement, if the EU won’t persist too much on the terms of duties reduction and will directly assist by the introduction of products standards.

However, we shouldn’t expect rapid decisions on visa-free regime.

According to the suggested reforms plan the adoption of anti-corruption laws is pretty real. As for “gas market reforms” (department of “Ukrtransgaz” from NAK “Naftogaz Ukrainy” as an individual agent of transit and raise of internal gas prices), than Ukrainian Government isn’t yet ready to it.

The most complicated issue seems to be a constitutional reform. Its accomplishment is possible only if only an insignificant block of issues will be corrected, dividing the powers of President, Government, Parliament and considering recommendations of Venice Commission (imperative mandate, prosecutor’s office, independence of judiciary). To achieve that, the ruling coalition will have to search for a compromise with most part of “Nasha Ukraina” and the part of BYuT. As for the election legislation the complete concept is needed for its approval. It’s extremely difficult to accomplish the suggested block of reforms till parliamentary elections of 2012, but theoretically it is possible - naturally, if the suggested EU plan can be partially corrected with the participation of Ukraine, and if, surely, it doesn’t initially follow the aim to neutralize European ambitions of Kiev.
- Within the issue of European security Ukraine, the EU and Russia take similar lines. Can we expect any institutional solutions in near future? I.e. simply saying, does that remain at the level of talks or will definite decisions be adopted?

- For sure, there will be no rapid solutions. The main issue is in contradicting attitude of Europeans towards the policy of Russia and its prospects (here just as earlier we observe the combination of two approaches – the readiness to discharge and disposition to preserve tension).

Europeans don’t want to refuse of NATO and don’t foresee rapid development of defense part of the EU. At the same time, we need to use the “Obama factor” at maximum. If republicans will come instead of him, we can lose the chance.

To intensify the process, we need to promote an engaged dialogue, but not only within the frameworks of “Corfu process”, but also within other arenas, including more active discussion of conflict problems, holding conferences, suggestion of new approaches, etc.

Still there are two serious possibilities to be comprehensively used – the presidency of Kazakhstan at OSCE in 2010 and potential presidency of Ukraine in 2013. Kiev declares the intention to suggest its approach, which will allow to get closer the lines of Russia, the EU and NATO, including the organization of European security OSCE summit. Ukrainian variant of suggestions is not yet finalized. As expected, in comparison with Russian draft of European security treaty, Ukrainian suggestions will mostly touch upon political-legal bases of interaction of states within new conditions and formulation of common interests, connected with the struggle against existing threats and overcoming of dangers, which endanger the interests of all participants of the European system.
Translated by EuroDialogueXXI  from politcom.ru