Ukraine opts for Russian bailout instead of EU treaty

18.12.13 @ 09:29

  1. By Andrew Rettman
  2. Andrew email

BRUSSELS - Ukrainian leader Viktor Yanukovych has opted for a no-strings-attached Russian bailout instead of the EU alternative.

  • Official Kremlin photo of Yanukovych (pictured left) and Putin meeting (Photo: kremlin.ru)

He made the agreement at a meeting with Russian President Vladimir Putin in Moscow on Tuesday (17 December).

Under the accord, Putin promised to use money from Russia's National Welfare Fund to buy $15 billion of distressed Ukrainian bonds. He also promised to cut gas prices from $400 or so per thousand cubic metres to $269 until 2019, saving Ukraine up to $2 billion a year.

He described Ukraine as a "strategic partner and ally."

"I want to bring to your attention the fact that it is not connected with any conditions, not connected with the increase, decrease or freezing of any social standards, pensions, subsidies or salaries," he said.

"I also want to calm everyone down: Today we did not discuss the question of Ukraine’s accession to the Customs Union," he added.

Yanukovych said: "Ukraine's trade with Russia makes it impossible for us to act in any other way … There is no alternative to this."

The alternative was to sign an EU association and free trade pact, triggering International Monetary Fund (IMF) support and top-up EU assistance.

But the EU-IMF package came with tough conditions: to increase domestic gas prices; modernise Ukrainian industry; relax his grip on judges; and free political opponents.

Yanukovych's Party of the Regions said in a statement the same day the EU pact is not dead: "Ukraine remains faithful to its strategic Euro-integration course."

Some EU politicians said the same.

Lithuania's foreign minister, Linas Linkevicius, told press in Brussels after visiting Kiev: "I was told clearly that not one single agreement of the 14 [accords signed in Moscow] would go against any commitments toward EU association, [there is] nothing on Customs Union, no withdrawal from the European Energy Community."

But speaking privately, EU diplomats say the Putin deal has killed hope Yanukovych might sign.

"For sure, it means no signature in the foreseeable future," one EU source told this website.

"We saw it coming. The question now is what Yanukovych will do with all those people who are still on the streets of Kiev," the source added.

The immediate reaction in the pro-EU protest camp was calm.

Opposition leader Vitali Klitschko told people on the barricades in Kiev's maidan square that Yanukovych "has given up Ukraine's national interests, given up independence." The protesters chanted "shame" and vowed to stay in place.

Ukrainian pop star Ruslana also gave a free concert later in the evening.

Meanwhile, few in Brussels believe the Russian deal is as good as it sounds.

The EU source told this website that Russia has in the past pledged cheap loans to Belarus and Ukraine, without paying a cent.

The source added that even if Yanukovych did not promise to join the Customs Union, he likely promised to sell Ukrainian state assets to Russian oligarchs at knock-down prices. "We have a saying in eastern Europe: You only get free cheese in a mousetrap," the source said.

For their part, EU leaders plan to make a short statement on Ukraine at a summit in Brussels on Friday.

Giving a foretaste of what they might say, Germany's new foreign minister, Frank-Walter Steinmeier, told the Bundestag on Tuesday: "It is utterly scandalous how Russia used Ukraine's economic plight for its own ends, also in order to prevent the signing of the association agreement with the EU."

According to the Reuters news agency, he cut a paragraph from the original draft of the speech.

"We [the EU] presented a financial and economic aid package that lay far behind what was necessary to keep Ukraine competitive and permanently tie it economically to Europe," the redacted text said.

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