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Ukraine's Nightmare: Far from Over

January 31, 2014 Topic: AutocracyCivil SocietyDemocracySociety Region: Ukraine

Ukraine's Nightmare: Far from Over

A look at the obstacles that will remain, even if Yanukovych falls.

No matter how events play out in Kyiv in the coming days, the crisis in Ukraine points to three fundamental issues that sloganeering about democracy, a "European choice" or torpedoing Putin's Eurasian dream does little to address. If tomorrow Viktor Yanukovych were to resign the presidency of Ukraine (he has now taken "sick leave"), depart the country into exile, and turn control over to opposition politicians, Ukraine's nightmare would be far from over.

In December, speaking at a roundtable on Ukraine at the Center for the National Interest, former U.S. ambassador Steven Pifer suggested that the formation of a government of national unity might create the political will needed for Ukrainians to get through the crisis and to take the painful measures needed to implement an association agreement with the European Union. Belatedly, Yanukovych finally took this advice, when his prime minister Mykola Azarov resigned and key cabinet positions were offered to leading figures in the opposition. Not surprisingly, however, this offer was rejected. This highlights the first of the three issues: whoever holds power in Ukraine must therefore take direct responsibility for the state of the economy. And the news is not good. The currency continues to depreciate; business confidence in the country's political stability (and thus a willingness to continue to invest) has been shaken; and Standard and Poor's has downgraded the country's ratings and assigns a negative outlook to Ukraine's economic prospects.

Some of the measures needed to restore Ukraine to economic health would include slashing government spending and pushing to raise tariffs on energy—which would both prove highly unpopular throughout the country. In addition, even if the majority of Ukrainians have European aspirations, the livelihood of many Ukrainians is directly tied to industries and sectors that either trade with Russia or which depend on access to Russian inputs (starting with energy). How the opposition might somehow miraculously navigate the difficulties of ratifying the EU accession agreement over Russian objections without triggering Russian economic sanctions and retaliation—a maneuver Yanukovych was seemingly unable to achieve—is not at all clear. The resumption of checks at the Russian-Ukrainian border—which has slowed trade—also seems to be a deliberate signal that Ukraine's recovery would remain dependent on keeping a good relationship with Russia. Even without further disruptions, Ukraine's growth is already predicted to be an anemic 1.8 percent in 2014—so a renewed trade spat with Russia could plunge the economy into worse straits.

Significantly, Russia has only, so far, purchased some $3 billion in Ukrainian bonds (out of the commitment to put $15 billion forward) to help Ukraine bridge its short-term liquidity problems. Despite a promise at the EU-Russia Summit that Russia would honor its full pledge, Moscow has now suspended further disbursements of its financial rescue package for Ukraine, pending the formation of a new government. Moreover, if the opposition repudiates the deal Yanukovych reached with Russia in December, or otherwise indicates that it might not honor the bonds already issued to Russia's National Welfare Fund, the Russian side would most likely stop the further disbursement of any additional funds, putting Ukraine in serious risk of defaulting on its obligations and further cratering the economy. And Ukraine, by the end of March, will need to assemble some $3.8 billion in external financing.

Moreover, Ukraine's leverage vis-a-vis Russia in terms of energy transshipment has eroded. In contrast to 2004, when over 80 percent of Russia's natural gas exports to Europe passed through Ukraine, today the figure is less than 50 percent. If the opposition were to come to power and repudiate Yanukovych's agreements with Russia (including the provision for discounts on imports of Russian energy), Russia could reduce some of its gas shipments to Ukraine (and increase supplies via alternate routes like the Nordstream line, which directly connects Russia to Germany) without risking the wrath of Western European customers who would be shielded from the impact of a Russia-Ukraine spat.

The second reality concerns both the nature of the opposition and its degree of control over the protestors. Yanukovych has faced a formidable troika in Vitali Klitschko (the head of UDAR), Oleh Tyahnybok (the leader of the Svoboda party) and Arseniy Yatsenyuk (who has taken over the helm of the Fatherland party from the imprisoned former prime minister Yuliya Tymoshenko). Yet these three groups do not share a common political or economic program other than opposition to Yanukovych and a rejection of closer ties with Russia. A coalition government would be potentially very unstable. In addition, recent developments in Kyiv suggests that the demonstrators and protestors are becoming radicalized and less responsive to the direction of the opposition leadership. Would a political compromise that leaves Yanukovych in power to finish out his term of office, for instance, be acceptable to the foot soldiers of the EuroMaidan? Given the protestors' desire for a clean sweep versus the politicians' understandable lack of enthusiasm for being handed control of Ukraine in its current economic state (with a preference for Yanukovych to continue to be held responsible for the situation so as to destroy any chance he may have for reelection in 2015), the only outcome that might work is the promise of immediate Western aid and assistance should the opposition come to power to help mitigate any of the measures Russia might employ.

This, however, touches on the third reality. European political leaders are quick to offer moral support but are in no position to offer the concrete economic assistance Ukraine needs and that the opposition, should it come to power, would require in order to stave off a short-term economic crisis. One reason why S&P downgraded Ukraine was their assessment that Ukraine would not be able to pay its debts if the "expected financial support from Russia is not realized and no alternative funding sources can be found." Polish Prime Minister Donald Tusk is lobbying other European capitals to put together a more comprehensive aid package for Ukraine, but the expectations of some European leaders that Russia can be persuaded to let Ukraine go through with its EU association agreement while continuing to offer Ukraine a financial bailout and lower prices for natural gas seem quite fanciful.

The history of the recent crisis in Ukraine is one of miscalculations: the EU's belief that Russia would not oppose Ukraine signing an association agreement; Yanukovych believing that he could repudiate the agreement with no political cost (which sparked the EuroMaidan protests in the first place) and then assuming that he could use the crisis to strengthen his government's power—which revitalized protests that had begun to lose some of their enthusiasm). The risk now is that the opposition will fall prey to miscalculations—particularly about how easily or quickly Ukraine can recover from crisis should they force Yanukovych from power.

Nikolas K. Gvosdev, a contributing editor at The National Interest, is a professor of national-security studies at the U.S. Naval War College. The views expressed are entirely his own.

Image: Wikimedia Commons/Mstyslav Chernov. CC BY-SA 3.0.