The European Union, Russia and Ukraine

Introduction

This is a briefing paper on recent developments in the relationship between the EU, Russia and Ukraine.  It considers the background to the disputes that have arisen, discusses the EU’s relationship with Ukraine and outlines its response to the crisis, including the sanctions against Russia.  Further background information can be found in a paper prepared by the Senior European Experts Group for a seminar at Regent’s University London in November 2014.¹

Background

In November 2013 the then President of Ukraine, Victor Yanukovych, decided not to proceed with the signing of an already negotiated Association Agreement with the EU, opting instead for Ukrainian membership of the Russian-led Eurasian Economic Union.  The Association Agreement signed subsequently by his successors, will create greater trading opportunities through a free trade area between Ukraine and the EU Member States and commit Ukraine, with EU assistance, to aligning many of its domestic policies and legislation, as well as its foreign and security policies, with the EU.²  Yanukovych’s volte face triggered large-scale opposition demonstrations in Kiev, which ended in violence in February 2014.  The French, German and Polish Foreign Ministers negotiated a political settlement of the dispute with Yanukovych and other Ukrainian political leaders based on the formation of a government of national unity but Yanukovych fled to Russia the following day.

The divisions within Ukraine, between a predominantly Ukrainian-speaking west, which tends to look towards Poland and the EU, and a largely Russian-speaking east with close cultural and economic, as well as ethnic, ties to Russia, has been a continuing problem since independence in 1991.  Crimea, which had been given to Ukraine by Khrushchev in 1954 and which continued to be the base of Russia’s Black Sea fleet, was an additional source of contention.  Six days after Yanukovych fled, unmarked military forces, widely believed to have been Russian personnel from the Black Sea fleet, surrounded airports and Ukrainian bases in the Crimean Peninsula, apparently acting in collusion with its separatist administration.  President Putin has now revealed that this action was planned in the Kremlin in advance of events on the ground.³  Following a referendum on secession (which was illegal under Article 73 of the Ukrainian Constitution), the administration in Crimea applied to join the Russian Federation, a request accepted by President Putin.  The Organization for Security and Co-operation in Europe (OSCE) declared the referendum to be illegal before it was held because it violated both the Ukrainian constitution and international law.  They subsequently condemned the annexation of Crimea by Russia as also being in violation of international law.⁴  In parallel, well-armed separatist groups in Russian-speaking regions of Ukraine seized administrative buildings and took control in the major cities of Donetsk and Luhansk.

These events triggered a major crisis in relations between Russia and the West, and particularly between Russia and the EU.  The intensity of the reaction reflected the fact that Russia had ridden roughshod over the whole basis of the post-Cold War settlement in Europe (the inviolability of frontiers by force) reaffirmed in the Paris Charter of 1990.  In addition it had broken the undertaking of the nuclear powers in the 1994 Budapest Memorandum to guarantee the borders of Ukraine and “refrain from the threat or use of force against the territorial integrity or political independence of Ukraine”.⁵  This agreement was in exchange for Ukraine giving up its Soviet-inherited nuclear weapons.

Russia has asserted that when it accepted that the newly reunited Germany could be a full member of NATO, the West had undertaken not to extend NATO further east and that it has broken this promise.  It has also cited Kosovo to accuse the West of ignoring the inviolability of frontiers by force despite the lengthy negotiating process (involving Russia) that preceded the decision of several Member States to recognise Kosovo’s independence.

Although Ukraine is not a member of NATO, it applied in 2008 (along with Georgia) to join the NATO Membership Action Plan, a first step in preparation for possible ultimate NATO membership.  The applications were supported by the then Bush administration and other NATO members but were turned down in part at German insistence and Ukraine shelved its application in 2010.  But Russia has seen this flirting with eventual Ukrainian membership of NATO as a direct threat to its interests.  In November 2013 President Putin went so far as to say that, while Russia did not oppose the Association Agreement between Ukraine and the EU (a statement belied by events since the fall of Yanukovych), NATO was a different matter:

We are not against Ukraine’s sovereign choice, whatever it is. We are talking about something absolutely different. If we heard that Ukraine joins NATO, then we would really be against it.⁶

What is beyond doubt is that the doctrine now openly espoused by Putin, that Russia has the right to intervene to protect Russian-speaking populations in neighbouring countries, is very dangerous.  There are substantial Russian-speaking minorities in the Baltic States as well as along the whole north shore of the Black Sea, including Odessa, for which an old concept, ‘New Russia’ (Novorossiya), has been revived.  It was Milosevic’s insistence on a similar doctrine in relation to Serbs that produced catastrophe in former Yugoslavia.

The developments in Ukraine have been seen by some commentators as reflecting a fear by President Putin that the fall of the Yanukovych regime in Ukraine, following a popular uprising, might be emulated in Russia.  Others have questioned whether it was sensible to seek to bring Ukraine into the Western orbit, ignoring historical Russian perceptions of Ukraine as part of the Russian heartland, with the origins of Russia itself in Kievan Rus’.  Moreover, in Russian eyes, EU goods flowing into Ukraine as a result of the FTA were certain to damage Russia by displacing uncompetitive Russian goods.  Russia is a significant export market for several EU Member States and, more importantly for many others, the largest (and in some cases, the sole) supplier of natural gas.  There have been repeated disputes involving the Russian state-owned energy company Gazprom over pricing and supplies, which have led to shortages in EU Member States in the past.  On 22 April 2015 the European Commission announced that it was commencing legal proceedings against Gazprom on the grounds that it had broken EU rules in its dealings with Member States to whom it sells gas by charging unfair prices and by hindering cross-border gas sales.⁷

Ukraine suffers from serious problems of governance (for example, pervasive corruption and the political influence of rich oligarchs), its economy is in a perilous condition, and there are private armed militia separate from the official security forces.  Ukraine’s economic problems were worsened by a dramatic slowdown after 1991 (in eight years it lost 60 per cent of its GDP) and the economy only returned to its 1992 levels in 2006.⁸  Since then Ukraine has faced new problems, notably the global financial crisis in 2008, and its GDP fell by about five per cent in 2014 because of the impact of the dispute with Russia.⁹  These elements all add up to make Ukraine close to being a failed state.

Since independence in 1991 Ukraine, unlike its neighbour Poland, has made few economic and political reforms; it is awareness of Poland’s progress that makes the EU particularly attractive to many Ukrainians.  Financial and technical assistance from the EU and other members of the international community is crucial for Ukraine’s recovery and future viability.  The EU sees the Association Agreement as an important element in the reform and modernisation of Ukraine, providing the country with incentives to make difficult but necessary changes.

The conflict in Ukraine continued throughout 2014, with government forces resisting the separatist movements in eastern Ukraine, especially around Luhansk and Donetz, with clear evidence that Russia was providing arms and personnel to assist the separatist forces.  Fresh elections in the spring of 2014 for a new President resulted in a pro-Western candidate, Petro Poroschenko, taking office.  Over 6,000 lives have been lost in Ukraine since March 2014 as a result of the violence; and the shooting down of a Malaysian Airlines passenger plane with the loss of the 298 passengers on board highlighted the dangers the conflict presents to the whole region.

Since March 2014 the EU has adopted three rounds of sanctions mainly targeting individual Russians it considers responsible for the seizure of Crimea and for the aggression against Ukraine as well as key sectors of the Russian economy.  Very similar sanctions have also been adopted by Australia, Canada, Japan and the United States, and by a number of non-EU European countries including Norway and Switzerland.  In retaliation, Russia has introduced sanctions against the EU and some other countries; they include a total ban on food imports from the EU and Norway and the prohibition of 89 leading European politicians and military from visiting Russia.¹⁰  The economic sanctions have had a considerable effect on the Russian economy, with large-scale capital flight, a fall in the value of its currency, poor economic growth and price inflation.¹¹

Two internationally-brokered agreements (co-ordinated by the German Chancellor and the French President and involving the Ukrainian and Russian governments) in September 2014 and February 2015 have sought to bring an end to the conflict in eastern Ukraine.  Known as the Minsk Protocols, the first was unsuccessful in halting the fighting.  After the second a shaky ceasefire took hold, but only after pro-Russian separatists had taken further territory.  The Ukrainian Government committed to giving greater autonomy to that part of the country under the terms of the second Minsk agreement and both sides committed to the withdrawal of heavy weapons.  But fighting has not completely stopped, with several separatist leaders refusing to accept the ceasefire agreement.¹²  Nor have the Russians given any sign of recognising the inviolability of the Russia-Ukraine border which is a requirement of the second Minsk Protocol due to be implemented by the end of 2015.  The Ukrainian Government is also arguing that it cannot comply with the Minsk II requirement for greater autonomy for eastern Ukraine because the Russians have not (in Kiev’s view) complied with the terms of the agreement.  There is also strong opposition to greater autonomy in the Ukrainian Parliament.

The EU & Ukraine

The EU’s Neighbourhood Policy, established after the substantial enlargement of the EU in 2004, is the basis of its relationship with countries on its eastern and southern borders.  One regional dimension of this overall approach is called the Eastern Partnership.  Launched in May 2009, the Eastern Partnership covers six countries formerly part of the Soviet Union: Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine.  The aim of the policy from the EU’s perspective is to consolidate democracy and the rule of law in its neighbours, encourage the development of their economies, and by these means bring stability to a part of Europe often marred by conflict and division since the end of the Cold War.  Not all of the six states are full participants – Belarus is not because of its lack of democracy and poor human rights record and there are also human rights problems with Azerbaijan.

As part of this Eastern Partnership, the EU offered Association Agreements, an opportunity for Eastern Partnership countries to have easier access to the Single Market and which would also involve closer political ties to the EU (such as working with the EU on common issues of concern, for example, on energy and on foreign policy).  The EU saw the proposed Association Agreements as a major economic opportunity for the countries in the Eastern Partnership, as well as for the EU.

The surprise rejection by President Yanukovych of the Ukraine Association Agreement in November 2013, on the grounds that it would damage Ukraine’s trade with Russia (a claim having little basis as the trade portions of the Association Agreement would have created a free trade area, Ukraine still being free to set the terms of its trade with Russia) was a response to Russian pressure.  The real problem was that an FTA with the EU would have been incompatible with Ukraine joining the Eurasian Economic Union, Russia’s desired result.

The annexation of Crimea triggered a first round of sanctions by the EU and other western countries.  The initial leadership came from the United States but several Member States, including the United Kingdom, strongly supported the adoption of similar sanctions by the EU and in March 2014 the EU agreed to do so.  This first round of sanctions imposed travel bans and asset freezes on a number of named individuals who, in the opinion of the EU, perpetrated “actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine”.¹³  This initial list was added to in stages, with the EU adopting sanctions against several Russian companies in May 2014 in line with those adopted by the US.

The second round of sanctions came on 16 July 2014 when the US prohibited certain Russian companies, including Gazprom, from raising capital in the US.  The Obama administration also froze the US assets of Russian defence companies and for the first time added Russian citizens to the list of named individuals subject to sanctions.  The European Council, meeting the same day, stopped loans to Russia by the European Investment Bank and the European Bank for Reconstruction & Development.  Amongst other measures, 11 new names were added to the list of sanctioned individuals.

These two rounds of sanctions by the West were followed in August 2014 by retaliatory measures from Russia.  The import of EU fruit and vegetables into Russia was banned, along with some other foodstuffs.  Similar measures were taken against goods from Australia, Canada, Norway and the US.  The cost to EU Member States of these Russian measures was estimated to be €12 billion in lost exports to Russia.¹⁴  The European Commission later announced a compensation scheme for the worst-hit EU producers.

The shooting down of the Malaysian Airlines flight MH17 over rebel-held Ukraine the day after the July 2014 European Council led to calls for further sanctions against Russia, particularly the adoption of significant economic sanctions against Russian companies.  The EU then adopted capital market restrictions, an export ban on military and dual-use goods to Russia, and added further individuals to the sanctions list.  The result was to align EU and US sanctions more closely together.  At the end of August 2014 the European Council decided on a further round of sanctions, to include the Russian oil and gas sector.

The Eastern Partnership meeting held in Riga in May 2015 reaffirmed the main goals of this part of the EU’s Neighbourhood Policy while also recognising the changed situation since the last meeting in 2013.  The major development in 2015 was the effective division of Eastern Partnership countries into two groups.  Ukraine, Georgia and Moldova are in the first group having signed Association Agreements with the EU and with Georgia and Ukraine likely to be granted visa-free access for their citizens to the Schengen countries in the near future.¹⁵  The second group consists of Armenia, Azerbaijan and Belarus.  These are in the Russian-led Eurasian Economic Union so they will not be signing Association Agreements with the EU and EU Member States have concerns about human rights in all of them.  Co-operation in many fields will continue between the EU and the Eastern Partnership countries but EU leaders were keen to stress that, while they do not accept Russia’s action in Ukraine, they do not see the Partnership, and their relationship with Ukraine, as in anyway directed against Russia.¹⁶

NATO & European Security

Most members of the EU are also members of NATO and see their collective security as being provided through NATO.  But it is the EU that has been the lead in response to the situation in Ukraine.  This has had implications for the non-EU NATO members in Europe, particularly Norway as it borders both Russia and the EU.

NATO’s response has been to provide greater reassurance to the Baltic States, because their minority Russian populations could be destabilised by Russian action and because they share their borders with Russia (in the case of Estonia and Latvia) or the Russian exclave of Kaliningrad (in the case of Lithuania and Poland), as well as adopting new force dispositions in Europe.  As a result, NATO countries have already deployed greater military forces to Eastern Europe on a rotating basis and are making long-term improvements to the readiness of NATO’s early response forces, providing command and control facilities and teams in the area and strengthening the NATO base in Poland.¹⁷  Other measures under way include strengthening NATO’s capacity to respond to different forms of security threat, such as cyber warfare and the use of irregular forces.

The NATO response is still evolving and is likely to be adjusted events on the ground develop.  Russia increased tensions by testing the response times of NATO forces, for example, with overflights by bomber aircraft in the airspace of the Baltic States, Scandinavia and the UK and by holding extensive military exercises in Crimea and Kaliningrad.¹⁸

The EU’s defence and security strategy, last reviewed in 2013, is focused on threats at its perimeter but with an emphasis on dealing with failed states, countering terrorism, people smuggling and disruption to energy supplies.  The evolving situation with Russia has reduced EU security as well as that of NATO, not least because a number of EU Member States including Finland and Sweden, are EU but not NATO members and feel threatened by Russia’s behaviour.  The Nordic countries (Denmark, Finland, Iceland, Norway and Sweden) have announced new plans to co-operate in defence with one another, citing Russia’s action in Ukraine as their reason for doing so; this is a significant shift in thinking by the non-NATO Nordic countries although they have said that it is not a precursor to their seeking NATO membership.¹⁹

Concern about Russia’s long-term approach was heightened by frequent hubristic references to its nuclear capabilities and by reports of a meeting in March 2015 of senior former defence and security officials from both Russia and the West in which the Russian representatives made clear that there was no prospect of Crimea returning to Ukraine, that their Government wishes to see eastern Ukraine become a self-governing entity largely separate from the rest of the country, and that they do not rule out any options, including the use of force, to protect Russian interests in the Baltic States.²⁰  The meeting exposed the extent to which Russia views the international situation completely differently from the West and feels threatened by it.

Future Developments

There are a number of likely developments in 2015:

• The question of the renewal of the EU’s sanctions against Russia – they are due to be reviewed at the European Council in June 2015 and several Member States, some concerned by the impact on their own economies of the economic sanctions and others disagreeing with the approach of the EU to Russia, have indicated they will question their renewal;
• Russia’s own retaliatory measures expire in August 2015 and it will need to decide whether to continue them or not; its decision will no doubt depend on the EU’s actions;
• The trade provisions of the EU-Ukraine Association Agreement are due for implementation in the autumn of 2015 (having been delayed once); there are likely to be further difficulties with Russia when implementation starts;
• The question of whether the current Western embargo on arms sales to Ukraine should be lifted will be debated, with considerable pressure from some quarters for it to be lifted; there is support in the USA for it to be lifted (e.g. Hillary Clinton) but Germany is strongly opposed.

To be effective in its dealings with Russia, the EU needs to remain united.  This is not a question just of sanctions if Russian forces continue to be involved in the fighting in Eastern Ukraine.  Russia is seeking to divide the EU by reaching out to Cyprus, Greece and Hungary, all EU Member States who have grievances with other Member States, particularly Germany.  This Russian tactic will persist and, if it is accompanied by substantial promises of aid or energy, could prove tempting.  But Russia’s capacity to offer inducements will be constrained by its deteriorating economic situation resulting both from sanctions and from dramatic falls in world oil prices.  The majority of EU Member States are likely to remain united because they have a common interest in working together to reduce the risks of further conflict and to restore a rules-based European settlement.

A lasting political settlement is needed not only to end hostilities in eastern Ukraine but also so that the government and economy of Ukraine can be stabilised and the concerns of those Ukrainians who feel particularly close to Russia are fairly addressed.  Without such an agreement it will be hard to bring about an improvement in relations between Russia and Ukraine and between the EU and Russia.  The status of Crimea will also need to be addressed.