Ukraine turmoil poses difficult questions for EU

The events of the last 10 days in Ukraine have raised uncomfortable questions for the European Union, particularly regarding its relationship with neighbouring states.

The EU’s negotiations with Ukraine over the last five years meant it was inevitable it would be embroiled in the crisis. The EU’s immediate response as reports began to emerge of the violence was swift.

The deal struck by the foreign ministers of France, Germany and Poland at an all- night meeting with Victor Yanukovich may have been superseded by events on Saturday, but it succeeded in bringing some calm to the chaos, sending a strong message that an outside force was at least taking an interest in, if not fully in control of, events.

Similarly, the decision to hold an emergency meeting of foreign ministers in Brussels a week ago was important symbolically, even if the vote to impose sanctions now appears pitifully inadequate, with Yanukovich’s whereabouts unknown.

The EU has been drawn into the centre of the complex political and economic picture that is emerging from Kiev. Of immediate concern is the country’s economic situation.

With almost $13 billion (€9.5 billion) of debt due for repayment this year, the country is hovering close to default. Soaring bond yields mean it cannot borrow at sustainable rates, the currency has tumbled, and foreign currency reserves are depleting, even if the ousting of Yanukovich and prospect of a bailout package from the West was greeted by a rally in bond markets.

(Franklin Templeton and its top investor Michael Hasenstab, who bought up to 10 per cent of Irish Government debt during the Irish bailout, is among the biggest holders of Ukraine's sovereign bonds.)

Aid package
EU economics commissioner Olli Rehn's declaration at the G20 summit in Sydney last week that the EU was prepared to offer an aid package immediately pushed the financial responsibility on to Brussels' shoulders, leaving officials fielding questions all week on what such a package would involve. EU foreign policy chief Catherine Ashton deflected questions on the issue at her press conference in Kiev on Monday.

An arrangement with the IMF is the most likely prospect. The Washington-based fund has twice offered the country loan packages since 2008, but stopped the process over Ukraine's failure to implement reforms. Concern about the adequacy of an IMF package, which can takes months to negotiate, has prompted Ukraine to consider bilateral loans from Poland and the US.

European Commission chief José Manuel Barroso also called on Russia, which has halted its promised aid programme to Ukraine, to help.

Another bailout
In effect the EU now has another bailout on its hands, something that is likely to garner little support from EU citizens. Ukraine's urgent need for cash means the EU is also obliged to respond financially.

The crisis has also raised questions about the EU’s neighbourhood policy. Conceived at a time when it was undergoing a wave of enlargement a decade ago, its aim was to create a “ring of countries” that would become more integrated without necessarily becoming members.

The EU’s eastern partnership policy – which specifically looks at the post-Soviet countries to the east and southern Caucuses – aims to strengthen the ties between the former Soviet republics and the EU.

But the collapse of the association agreement with Ukraine has raised questions about Europe’s strategy on the east, particularly its failure to offer eastern partners the prospect of membership.

A similar move by Armenia in September to back out of an agreement because of Russian pressure should have been a wake-up call for EU diplomats, many believe.

Privately, officials in Brussels closely involved in the negotiations with Ukraine suspect the EU was too ambivalent about the process, with member states divided between those such as Poland, Lithuania and Sweden who favour complete integration with Ukraine, and others who are more cautious. “The message was too ambiguous. We should have been clearer about what exactly was on offer,” says one diplomat.

EU leaders now face the prospect of Yulia Tymoshenko’s attendance at next week’s European People’s Party summit in Dublin. Many are uncomfortable with the idea of aligning themselves with the former prime minister, a controversial figure. It may be that Ukraine will be the main story at the Dublin congress, not the EPP’s selection of a candidate for commission president.