Economic, Not Electoral Concerns Doomed Ukraine’s Europe Pact

Ukrainian president Viktor Yanukovich visits Athens, Greece, October 6, 2011

Ukrainian president Viktor Yanukovich visits Athens, Greece, October 6, 2011 (Prime Minister’s Office of Greece)

Ukraine’s shock decision last week not to sign an association agreement with the European Union but “renew dialogue” with Russia instead was probably not born out of electoral concerns on the part of President Viktor Yanukovich and his ruling conservative party. Rather, Ukraine feared economic catastrophe if it severed ties with its former Soviet master.

Yanukovich’s supporters are concentrated in the east and south of the country, a region that is home to Ukraine’s ethnic Russian minority, while the pro-Western opposition is most popular in the west. Yet by far most Ukrainians, regardless of ethnicity, favor closer ties with Europe over Russia.

A GfK Ukraine poll last month showed three times as many respondents favoring the association agreement with the European Union, and full membership in the future, as supporting entry into Russia’s customs unions. An IFAK Ukraine survey conducted for DW-Trend earlier this month showed 58 percent of Ukrainians in favor of the European pact with just 31 percent adamantly opposed to it. In the east and south, support for joining the European Union was lower but still 50 percent.

A poll conducted by the Kiev International Institute of Sociology in September revealed that support for European Union membership over the customs union doesn’t break down so much along regional lines as generational ones. Only voters over the age of fifty by and large prefer deepening ties with Russia instead of Europe.

Ukraine’s government, then, didn’t scuttle the European trade deal — which was due to be signed in Lithuania this week — because it feared it would cost it votes. More likely, Prime Minister Mykola Azarov was speaking the truth when he said his country suspended negotiations in order “to ensure national security.” Russia, its biggest foreign investor and main supplier of oil and natural gas, had threatened to take “protective measures” if Ukraine signed the agreement.

Ukraine’s economy relies heavily on coal, fuel, grain and steel exports. More than 60 percent of its exports go to other former Soviet republics while the country imports some 60 percent of its natural gas and more than 90 percent of its oil, virtually all of it from Russia. It has started developing its own Black Sea and shale gas reserves in order to become less dependent on imports but it might take years before those efforts bear fruit. Ukraine could simply not afford to ignore Russia’s threats yet — nor the promise of a discount from Russia’s Gazprom energy company.

In recent months, Russia has blocked Ukrainian goods at the border, including chocolate — an industry that is not coincidentally controlled by former trade minister Petro Poroshenko, a proponent of Ukraine’s integration with Europe. It also froze imports of Ukrainian railway carriages. As a consequence, Ukraine’s foreign reserves fell 30 percent this year while the economy contracted 1.5 percent in the third quarter. Its national debt has increased to 77 percent of economic output.

If Ukraine signed the association agreement and Russia kept up its “protective measures,” the country would likely have required international financial aid. Yet the International Monetary Fund suspended a $15 billion credit in 2011 after Ukraine had repeatedly failed to miss the reform targets on which this support was conditioned.

“What will be our compensation for the huge losses from losing the customs union market?” Azarov wondered in parliament in Friday. “Unfortunately,” he said, “we did not receive a realistic answer to this question.”

According to the prime minister, the “straw that broke the camel’s back” was a fresh list of demands from the IMF, including budget and energy subsidy cuts which could have caused electricity prices to rise up to 40 percent for Ukrainian consumers. That, in turn, could have very well have hurt Yanukovich in the next election, due in February 2015.