As Ukraine officially pivots away from Russia and towards the EU, what are the implications for Kiev and the Kremlin?

Ukrainian President Petro Poroshenko attends a media conference at EU headquarters in Brussels, Thursday, Aug. 27, 2015. Photo: AP

The agreement between the EU and Ukraine on the creation of a free trade zone was finally effected in January 2016 after eight years of negotiations.

The Association Agreement signed in the first half of 2014 has become one of the most controversial diplomatic actions in 21st century European history. At the time, though, it did not appear that the agreement would bring about the destructive consequences for European and global politics that have vividly manifested themselves today.

When in 2007 Ukraine entered into negotiations on substituting its former Partnership and Cooperation Agreement (PCA) that it signed with the EU in November 1994 with a new agreement, it made perfect sense. Ukraine thus followed in the footsteps of EU-Russia relations, which back then focused on discussing the possibility of concluding a new agreement in lieu of the outdated PCA signed in June 1994.

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So what went wrong with the Association Agreement? The short answer is that Europe and the entire world changed dramatically, and diplomats and politicians did not recognize these changes right away.

In August 2008, the war between Georgia and Ossetia made Russia openly and resolutely take the side of South Ossetia by sending its military to help the unrecognized republic. For the first time in post-Soviet history, the Russian army crossed national borders, which adversely affected the relations between Moscow, Washington and Brussels and jeopardized the conclusion of a new agreement between Russia and the EU.

The Eastern Partnership Program that was initiated by Poland and Sweden and started working in the spring of 2009 defined the EU stance and showed that the fight for post-Soviet space was moving to a new, more active phase. At the time, the Kremlin thought that the rivalry over the post-Soviet space would be purely economic and would not spill over civil boundaries; however, as it turns out, that was definitely a miscalculation.

Moscow then spoke of the "competition of integration projects," and Russia believed in its growing economic might and influence within the CIS. In response to the Eastern Partnership initiative, Russia stepped up its efforts on transforming the Customs Union into the Eurasian Economic Union.

Politicizing the economy 

Russia rather quickly achieved positive results in its quest to become one of the leaders in the new multipolar world. Integration processes involving Russia, Belarus and Kazakhstan sped up dramatically. At the same time, the Kremlin was erroneously presuming that there were common and generally acknowledged rules of competing for influence on the territory of the CIS, and these rules would be observed by all parties, including Washington and Brussels. Moscow started its economic competition with the EU, and the growing Russian economy was meant to become the most powerful instrument for influencing the CIS countries.

Since then, economic ties between Russia and Europe turned more political, and the so-called “energy wars” started. Russia launched strictly politically motivated gas pipeline projects on its western borders (the South Stream and the Turkish Stream). The same European Commission that used to be Russia's main partner during the period of national economic reforms turned into Russia's main opponent. Interdependence gave way to conditionality, when any measures aimed at developing the Russia-Europe economic partnership were tied to the Kremlin's political concessions.

Passing the point of no return

The moment when the relations passed the point of no return came in the fall of 2011. The U.S. and its allies reacted exceedingly negatively to Vladimir Putin’s reelection in 2012. During her visit to Dublin in December 2012, Hillary Clinton, the U.S. Secretary of State, publicly announced the beginning of a diplomatic war by accusing Moscow of the desire to restore the Soviet Union on the post-Soviet space. 

Moreover, the Kremlin sincerely believed that the U.S. supported the opposition Bolotnaya Square movement in 2011-2012, and so the Russian leadership concluded that Washington's main goal was to orchestrate a regime change in Russia.

Since 2012, all moves in the relations between Russia and the West were driven by the logic of conflict development, with all parties gradually raising their stakes. Russia was on the defensive and tried to maintain its political and economic influence in Ukraine and other post-Soviet countries. The U.S. was advancing by providing active support to those forces inside the CIS that supported breaking off relations with Moscow.

As a result, Ukraine became the main arena for the confrontation that is still going on, even though in 2015 for a moment it looked like the sides started seeking a way to end the futile and destructive conflict. Ukraine found itself between a rock and a hard place due to its geopolitics and its special historical and cultural meaning for Russia.

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Ukraine, which used to be the center of Soviet manufacturing, is quickly turning into a rural country. Depopulation is catastrophic: currently, the population of Ukraine is at 42.5 million, compared to 50 million at the time of the fall of the Soviet Union.  The country is the world leader in natural population loss, and its mortality rate is the highest of all Europe and second in the world.It is worth pointing out that Ukraine is no longer considered an attractive economic asset for external players. In 2014-2015, its GDP dropped by 16 percent, and nowadays it is among the poorest European countries. Ukraine's crumbling economy is completing the process of deindustrialization. The automobile and chemical industries are virtually destroyed, and iron and steel and nonferrous metal industries will soon follow.

That is why the current fight to control Ukraine between Russia and the West hardly has any specific economic motives behind it. It is driven by geopolitical interests and the anti-Russian containment strategy adopted by the U.S.

The Association Agreement: Theory vs. reality 

Theoretically, the Ukrainian leadership is right in deciding to drift towards the EU. If Ukraine's purpose is to build a modern economy and raise the standard of living, then a rapprochement with Europe is the shortest and most attractive path.

The EU is technologically advanced, has efficient democratic institutions, and runs a market economy. Contemporary Ukraine desperately needs all of these things. The fewer the obstacles for cooperation, the lower the transaction expenses associated with this cooperation. But that is just theory. The reality is quite different.

Nowadays the EU is going through a difficult stage in its development that can be described as a structural crisis. Its impressive economic growth came to a halt in 2007 and has been stagnating ever since. The EU budget was frozen over a decade ago, and now its member states are competing in trying to contribute as little as possible.

The prospects of EU expansion have been abandoned, and now all efforts are allocated towards keeping the Schengen visa-free zone that was created over 20 years ago. Europe is overwhelmed by its migrant crisis, and for now it is difficult to foresee all of its negative consequences. Unemployment is high and only recently started showing signs of decreasing in some EU countries.

Even the sharp drop in the price of imported energy sources that used to give the European economy a powerful boost goes almost unnoticed in the EU. In other words, Europe now cannot afford large-scale measures that would support such a big country as Ukraine. And symbolic aid does not do it anymore.

When countries with vastly different economic development levels create a free trade zone between them, the strongest economy always wins. It is an economic certainty that cannot be overruled. Immanuel Wallerstein's World-Systems Theory, which has gained support throughout the world, also asserts the pointlessness of rapprochement between developing and more developed countries, unless the former receive extensive support.

These are the factors that determine the current situation around Ukraine. The U.S. and E.U. provide negligible economic support that does not come close to meeting the needs of the collapsing Ukrainian economy. Russia, which used to be a major economic partner, has turned into the main opponent of the current regime.

Moscow regularly deals heavy blows to Ukraine’s certain industries and agriculture that further exacerbate the difficult economic situation. Bilateral trade went down from $50.6 billion in 2011 to $13 billion in 2015. Transport ties between the two countries almost fully collapsed. Air traffic is suspended, and transit through the territory of the neighboring country is extremely complicated and close to the point of stopping altogether. Now there is talk of blocking the transit of natural gas.

Will the performance of Ukrainian goods in the EU market boost the Ukrainian economy? Yes, but only in the long-term perspective. The European market is highly competitive, and its quality standards are much higher than in Ukraine.

A telling fact: in 2015, the export of Ukrainian goods into the EU decreased by almost 30 percent, in spite of the EU giving Ukraine an advance by lowering the fee for most Ukrainian goods imported into the EU. Under these circumstances, Ukraine desperately needs to update its national economy, revive its industry and create effective state institutions. There is a long way to go, and Kiev is at the very beginning of it.

The main economic problem of contemporary Ukraine is its size. The country is too large for any foreign state to take responsibility for providing substantial help and implementing the necessary reforms.

Nowadays the people of Ukraine and its leadership need to make an urgent and titanic effort to revive the destroyed economy, restore broken economic ties and create new channels for trade and investment cooperation. So far the effort is not there, and the change is limited to the severance of economic relations with Russia and the imitation of reforms.

The opinion of the author may not necessarily reflect the position of Russia Direct or its staff.