EU suspends Ukraine trade talks amid protests in Kiev

Thousands took to the frigid streets of Kiev today to protest against Ukranian President Viktor Yanukovych‘s decision to spur a free trade deal with the European Union in favor of closer ties with Russia.

Štefan Füle, the EU’s commissioner for enlargement, wrote earlier today that work towards an agreement with Ukraine has been suspended and that arguments being made by Ukraine to revise the terms of a possible agreement “have no grounds in reality.” President Yanukovych is scheduled to travel to Moscow this week to discuss a trade agreement with Russia that could shut the door on closer ties with the EU.

The grim mood on a possible EU-Ukraine deal, punctuated by the ongoing protests in Kiev, is a departure from the end of the week, when Catherine Ashton, the European Union’s foreign affairs chief, indicated that the EU trade agreement was on track to possibly being signed next year.

Ukraine’s decision to back out of an EU agreement that was assumed to be wrapped up but for the signing late last month sparked the anti-government protests that have rocked the country ever since. Even as Ms. Ashton headed for home tens of thousands of protestors were still on the streets of Kiev, and they remain there today.

Yanukovych “made it clear to me that he intends to sign the association agreement,” Ashton said on arriving for a meeting in Brussels.

On Saturday the government suspended two high-level officials and opened investigations against two others who are thought to have been responsible for a heavy-handed police raid on the occupied area of Kiev on November 30. That raid helped galvanize the opposition and led to 350,000 demonstrators taking to the square the following day.  

On Friday, during a heated two-hour-long roundtable meeting between Yanukovych and opposition leaders, no progress about ending the stand off was made.

In fact, Prime Minister Mykola Azarov told those present that if Ukraine had signed the association agreement as it currently stood it would have led to the country’s economic collapse due to a dramatic increase in the trade deficit and insufficient foreign currency reserves. He has asked the EU for 20 billion euros in aid in return for signing the deal.

Tough times

Perhaps more than anything, the current political situation in Ukraine speaks of the difficult economic realities the country finds itself in.

On Dec. 7 the Ukrainian government said it needed at least $10 billion in loans to stave off a possible default. The country owes some $4 billion to Russia for gas supplies and Moscow has been staunchly opposed to a Ukranian trade deal with the EU. On Friday the national currency, the hryvnia, tumbled to its lowest level against the dollar since 2009.

The desperate need for cash has been the issue over which the EU’s and Russia’s rivalry for closer ties with the Ukraine has turned. According to experts, the country has very little foreign capital remaining.

“Yanukovych is heavily dependent on external financing, this is what gives Putin leverage,” says one Kiev-based think-tank director, who asked not to be named.

The Ukrainian government doesn’t just have to contend with economic pressure from overseas. Within Ukraine, the oligarchs – a few hundred wealthy businessmen who wield considerable power behind the scenes – have traditionally favored closer ties to Russia.

“The oligarchs stopped Yanukovych signing the European Union agreement,” says Yaroslav Pylynskyi, director of the Kiev office of the Kennan Institute, a US-based research center. “They understand that Western capital coming into Ukraine is competition for them.”

Those currently protesting against the government in Ukraine see the powerful influence of the oligarchs as one of the main problems their country faces in its efforts to open up its economy. The country currently lies in 144th place on Transparency International’s Corruption Perception index, down from 118th place back in 2007, while Yanukovych’s son, Oleksandr Yanukovych, has become one of the richest men in Ukraine during his father’s tenure.

But not all of the oligarchs are in agreement. Over the last few weeks, several of the richest oligarchs have come out in favor of the anti-government protests, or at least shown a balanced view on the protesters’ hopes and aims.

On Friday, Rinat Akhmetov, Ukraine’s richest man, called for negotiations between the government and the opposition, while the nation’s second richest man, Victor Pinchuk, has praised the protestors for the strength of their commitment to civil society. One oligarch, Petro Poroshenko, owner of Roshen Confectionery Corporation, has even taken to the stage in Independence Square to show his support.

West or east?

Ukraine is often described as a divided country, with a pro-European west and a pro-Russian east, and one noticeable trend among the protestors in Independence Square is that the majority, though by no means all, come from the areas around Kiev and the west of the country.

The eastern half of Ukraine, which is far closer to Russia culturally, and relies heavily on Russian trade, is much more sparsely represented among the crowds. This is understandable – in the industrial cities of the east exports to Russia are often an economic lifeline.

According to Prime Minister Azarov, speaking on December 13, trade turnover with Russia has dropped 16 percent this year due to sanctions from Russia and Ukraine’s membership in the World Trade Organization.

Yet, with protestors adamant that they want to see their country move closer to Europe, a decision must eventually be made. And time may be running out.

“Words and deeds of president and government regarding the Association Agreement are further and further apart,” Mr. Füle wrote earlier today. “Their arguments have no ground for reality,” he wrote.

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