CHAPTER 5: THE CRISIS IN UKRAINE AND THE
EU'S RESPONSE
174. In previous chapters we considered some
of the structural causes that led to the decline of the relationship
between the EU and Russia. In this chapter, we turn to the way
those issues came to the fore during the crisis in Ukraine. We
set out a chronology of events, assess the EU's response, and
examine the EU's current support for Ukraine.
The crisis in Ukraine and Crimea
175. In this section, we assess six key phases
in the unfolding of the crisis in Ukraine, outlining at each stage
the Russian and European understanding and interpretation of those
events. We do not seek to relate the entire history of the crisis.
PHASE I: EARLY DISCUSSIONS ON THE
ASSOCIATION AGREEMENT
176. The EU began negotiating an Association
Agreement (AA) with Ukraine in 2007, having started discussing
a Free Trade Agreement in 1994. According to the Government, the
Russians raised no concerns at the time that the negotiations
on the AA began. Mr Neil Crompton, Deputy Political Director,
FCO, informed us that "Russia went through a long period
in which it did not make a major issue of Ukraine's signature"
of the AA. Mr Chris Barton, Director of International Affairs,
Trade Policy and Export Control, Department for Business, Innovation
and Skills, said that discussions on the Deep and Comprehensive
Free Trade Area (DCFTA) were "not a surprise", and that
Russia "had not raised specific concerns about what it would
like to see different in any free trade agreement."[255]
177. Mr Pedro Serrano, Adviser on External Affairs,
Cabinet of the President of the European Council, said that as
late as June 2013, at the summit between the President of the
European Council, the President of the Commission and President
Putin, everything was "totally normal. No one was talking
about DCFTAs, and they were talking even less about Ukraine."[256]
Mr Pierre Vimont, Executive Secretary, European External Action
Service, was also adamant that the EU "never really had any
clear warning, on behalf of the Russians, that this was unacceptable
to them, for many years; it came only at the last moment."[257]
178. Mr Fyodor Lukyanov, Chairman, Council on
Foreign and Defense Policy, and Editor in Chief of Russia in Global
Affairs, in contrast, said that the European Commission "never
showed any interest in discussing" Russia's economic concerns:
"sometimes it was just indifferent, sometimes it said quite
bluntly, 'It is not your business. It is our bilateral business.'"[258]
His Excellency Dr Alexander Yakovenko, Ambassador of the Russian
Federation to the UK, asked whether there was advance discussion
of the AA, told us that "there was none."[259]
According to Mr Dmitry Polyanskiy, Deputy Director, First Department
of CIS Countries, Russian Foreign Ministry, it was only in the
summer of 2013, when the text was published, that the Russians
had sight of the agreement. The detail in the annexes "clearly
showed to [the Russians] that with such an agreement Ukraine would
no longer be able to maintain the same level of relations"
with Russia.[260]
179. From August 2013, Russia undertook a policy
of coercive economic diplomacy aimed at changing the political
calculations of President Yanukovych. Dr Lilia Shevtsova,
Senior Associate, Moscow Center, Carnegie Endowment for International
Peace, said that Russia started the "August trade war with
Ukraine, trying to force the former President Yanukovych to reject
the Association Agreement with Brussels."[261]
His Excellency Andrii Kuzmenko, Ukrainian Acting Ambassador to
the UK, spoke of a "number of different 'wars'a customs
war, a gas war, a milk war, a meat war, cheese war, a chocolate
war", which "the Russians started against Ukraine with
the solemn purpose of pursuing us to postpone and then refuse
European integration."[262]
180. Mr Serrano said that the "first inklings"
of trouble from the Ukrainian side came in September 2013, when
the President indicated that "it would be difficult for him
to sign the DCFTA." Then President Yanukovych suggested "trilateral
meetings with Russia in order to clarify the consequences of the
DCFTA."[263] By
November 2013, Russian hostility had become explicit. Mr Vimont
said that "it was only around the Vilnius summit that the
Russians became very vocal."[264]
"Everything was already done" by then, Mr Jean-Luc Demarty,
Director-General, DG Trade, told us.[265]
181. Mr John Lough, Associate Fellow, Russia
and Eurasia Programme, Chatham House, informed us that Russia
"suddenly woke up" to the challenge, having believed
the AA to be "a totally under-resourced and hopeless initiative
that was being conducted by an organisation with so many divisions
in it."[266] Mr Lukyanov
agreed that Russia was surprised that the signature was imminent,
because the situation in Ukraine"corruption, dysfunction"
and the detention of former Prime Minister Yulia Tymoshenkosuggested
that Ukraine was far from meeting the requisite conditions. However,
when the issue of Tymoshenko's fate was "removed from the
picture and the decision was made that it should be signed anyway",
then "Russia woke up."[267]
EU RESPONSE
182. When Russian hostility became evident the
EU did two things. First, it continued with the AA. Sir Tony Brenton
KCMG, former British Ambassador to Russia and Fellow of Wolfson
College, Cambridge, said that the EU pursued the negotiations
on the AA "with a reasonable level of confidence that they
were going to be brought to a successful conclusion."[268]
Professor Elena Korosteleva, Professor of International Politics,
University of Kent, said that the EU undertook a "moderate
but miscalculated campaign to accelerate or arguably compel Ukraine
to a decision over the AA" at the Vilnius summit in November
2013.[269]
183. Second, the Commission engaged in a consultation
process with Russia on the economic effects of the AA.[270]
Mr Barton explained that when the level of opposition became clear,
the EU was open to discussion with Russia about its concerns.[271]
The Minister for Europe confirmed that "as soon as the Russian
Government expressed serious concerns" about the compatibility
of the DCFTA with their own free trade agreements, a "dialogue
was begun, but Russia left it very late in the day."[272]
184. The Russian view is that even in November
2013 the EU was still not open to dialogue. According to Ambassador
Yakovenko, when Ukraine decided to suspend signature of the Association
Agreement, Russia proposed to hold trilateral discussions with
the EU, Ukraine and Russia "on the impact of the Association
Agreement." However, "these proposals were rejected
by the European Commission."[273]
Mr Polyanskiy also noted that "instead of accepting this
proposal and creating such a mechanism, which it was not too late
to establish at this point, the EU
did everything to facilitate
the power change in Kiev". This was the point where "we
could have avoided everything that is happening right now."[274]
Mr Lukyanov said that it was only now, "after all the
tragedies", that the EU was inviting the Russian side to
discussions.[275]
PHASE II: PRESIDENT YANUKOVYCH SUSPENDS
SIGNATURE OF THE ASSOCIATION AGREEMENTMAIDAN SQUARE PROTESTS
185. In November 2013, President Yanukovych decided
to suspend the signature of the AA. The domestic economic situation
had become very pressing, partly due to Russia's restrictive trade
measures. EU Member States had committed to facilitating an International
Monetary Fund (IMF) loan in the region of $15 billion, but this
was conditional on reforms which would have been difficult to
deliver in the short term. On the other side, Russia offered Ukraine
a $15 billion loan, without specific conditions, which was likely
to be accompanied by the lifting of Russian trade restrictions
and a large gas discount.[276]
186. President Yanukovych's decision not to sign
the AA triggered the protests now referred to as "the Maidan."
These protests took both the EU and Russia by surprise. Events
had begun to take on a momentum of their own which neither side
could predict or control.
187. Mr Serrano told us: "No one foresaw
this. I do not think that Yanukovych foresaw it, I do not think
that the European Union foresaw it, and I do not think that Russia
foresaw it."[277]
Mr Lough agreed that events "simply stunned the Russians."[278]
The Russians, he said, had "misread" the mood in Ukrainian
society and the "degree of civic organisation" on the
Ukrainian streets. Within a short space of time, "Yanukovych
had completely lost control of the situation and the Russians
had given up on him."[279]
Mr Lough said that the EU too "got way out of its depth"
in pushing the Association Agreement, though there had been warning
signs at least two years earlier, when "some people warned
that if Yanukovych carried on looting the country in the way he
was, the lid was just going to blow off in Ukraine."[280]
188. As the protests in Maidan Square continued,
they were viewed with increasing concern in Moscow. The Russian
government's position, as explained by Ambassador Yakovenko, is
that "neo-Nazi and other extremist groupings took the lead
in the 'Euromaidan' movement."[281]
Mr Crompton dismissed this as "very concerted Russian propaganda
to portray the political turbulence in Ukraine as the result
of right-wing activists." In reality the protestors in Maidan
wanted what most people in Europe wanted, which was "the
rule of law, good governance, economic structures and association
with the rest of Europe."[282]
189. Ambassador Yakovenko also claimed that the
public protests were "supported by the EU, a number of its
member states, and the US."[283]
Mr Polyanskiy told us that rather than de-escalate tensions
the EU "did everything to facilitate the power change in
Kiev".[284] The
European Endowment for Democracy (EED) lists 15 Member States,
along with the EU and Switzerland, as its Funding Members.[285]
Alexander Graf Lambsdorff MEP, Chairman of the Executive Committee
of the EED, said that the EED had supported civil society, blogs,
newsletters and radio broadcasting, as well as rapid emergency
relief of people who were injured in the demonstrations.[286]
He was categorical that this was support for a "genuine civil
movement that brought together very heterogeneous actors."[287]
On the other hand, Mr Václav Klaus, former President
of the Czech Republic, strongly recommended that EU Member States
should not "support the Maidan demonstrations in an unconditional
way."[288]
PHASE III: THE FLIGHT OF YANUKOVYCH
190. In late February 2014, a deal was brokered
by the foreign ministers of Poland, Germany and France, President
Yanukovych and some of the representatives of the protestors.
The proposal was to hold early presidential elections, form a
government of national unity and revert to the 1996 constitution,
removing some of the president's power. However, the deal was
rejected by the protestors in Maidan Square. This rejection President
Putin "chose or was persuaded to interpret as instigated
by western states in order to install a compliant government that
would be ready to lobby for NATO membership and perhaps revoke
the basing agreement Russia had in Crimea."[289]
On the night of 21 February 2014, President Yanukovych lost a
vote of no confidence in the Ukrainian Parliament and fled Ukraine.
191. President Yanukovych's flight triggered
the next, more acute stage of the crisis. It radically altered
Russian threat perceptions. Moscow viewed the events as a deliberate
plot against Russia: Ambassador Yakovenko described them as a
"coup", followed by "a civil war, persecution of
dissenters, and deliberate actions to accelerate the destruction
of the traditional ties with Russia."[290]
By February, Sir Tony Brenton explained, the "Russians had
decided that there was a great western plot against them, probably
more American than EU, to displace them from their oldest and
closest friend, Ukraine".[291]
The trope of a western-fomented plot was one that recurred in
Russian political thinking: in the words of Dr Alexander Libman,
Associate of Eastern Europe and Eurasia Division, Stiftung Wissenschaft
und Politik, in the "eyes of the Russian leadership, Euromaidan
is just one more step in the sequence of events, which were initiated
by 'the West'".[292]
192. In the following weeks, a series of events
reinforced Russian perceptions of a government in Kiev hostile
to Russian interests. The Verkhovna Rada (Ukrainian parliament)
took various steps that demonstrated strong anti-Russian sentiment.
First it alarmed many Russian-speaking Ukrainians by seeking to
repeal the 2012 language law allowing Ukrainian regions to make
Russian a second official language.[293]
Then, on 5 March, the Verkhovna Rada secretariat registered draft
legislation which would have reinstated the goal of joining NATO
as Ukrainian national strategy. Acting President Turchynov also
issued a statement that Ukraine was considering changing its non-bloc
status.[294]
193. In particular, Moscow feared that the 2010
Kharkiv Agreements, which had extended the Russian Navy's lease
of Sevastopol as a base for 25 years from 2017 until 2042, would
be renounced. Professor Roy Allison has pointed out that even
in 2010 "President Yanukovych's approval of this extension
was virulently opposed by Ukrainian opposition politicians, suggesting
that efforts may well be made to revise it in the future."[295]
On 1 March 2014, three former Ukrainian Presidents,
Leonid Kravchuk, Leonid Kuchma and Viktor Yushchenko, called on
the new government to renounce the Kharkiv Agreements.[296]
Mr Lukyanov said that President Putin's "real motivation
was national security and the risk that the new rule in Kiev would
very quickly denounce" the agreements of 2010 that prolonged
Russia's base in Crimea for 25 years.[297]
In the event, the language law was withdrawn and the draft legislation
was never formally introduced. The new government in Kiev also
guaranteed to honour all its existing international agreements,
including those covering Russian bases.[298]
PHASE IV: ANNEXATION OF CRIMEA
194. In late February, pro-Russian separatists
seized key buildings in the Crimean capital, Simferopol, and unidentified
gunmen in combat uniforms appeared outside Crimea's main airports.
On 16 March, Crimea voted to secede in a disputed referendum,
and the next day the Crimean parliament declared independence
and formally applied to join the Russian Federation. On 18 March,
President Putin signed a bill to absorb the peninsula into the
Federation.[299]
195. While Ukraine as a whole is significant
to Russia, Crimea, in particular, is of critical strategic importance.
Crimea gives Moscow access to the naval base at Sevastopol and
is home to Russia's Black Sea Fleet. Sevastopol's warm water port,
natural harbour and existing infrastructure make it one of Russia's
most important naval bases, and its geographical configuration
provides a "platform for power projection into the Black
Sea and beyond."[300]
196. In a speech to the Federation Council on
18 March President Putin said:
"We have already heard declarations from
Kiev about Ukraine soon joining NATO. What would this have meant
for Crimea and Sevastopol in the future? It would have meant that
NATO's navy would be right there in this city of Russia's military
glory, and this would create not an illusory but a perfectly real
threat to the whole of southern Russia."[301]
197. In Mr Crompton's view, everyone understood
that Crimea was "of strategic importance to Russia, but there
was no proper discussion about it." He believed that this
"was an issue that Moscow was very capable of pursuing diplomatically
with Kiev but instead it chose to resort to, essentially, military
occupation in a way that we regard as completely unacceptable."[302]
Dr Libman commented that, when acting in support of its security
priorities, the Russian leadership's readiness to compromise was
"very low" and "massively constrained by the lack
of trust."[303]
Sir Tony Brenton and Mr Lough agreed that the annexation of Crimea
had not been foreseen. Mr Lough said that "no one saw this
comingthat the Russians would simply annex Crimea".
Sir Tony Brenton said that "the assumption that 'the Russians
don't like this but they will probably live with it' was reasonably
consistent with the Russia that we thought we had prior to the
Maidan revolution."[304]
198. Russia claimed that at the referendum the
"Crimeans en masse made an unambiguous choice in favour
of independence from Ukraine", and had "voted for the
subsequent re-unification with the Russian Federation."[305]
Mr Polyanskiy said that "people's right to self-determination
is part of the UN charter as well, and this right should
also be respected."[306]
However, the legitimacy of the referendum had been criticised
by the international community and by domestic critics within
Russia. Mr Vladimir Kara-Murza, Co-ordinator, Open Russia, told
us that the referendum "was not recognised by any international
organisations".[307]
199. Other witnesses also listed a series of
Russian contraventions of international law in the course of the
annexation of Crimea, including:
· non-intervention
provisions in the United Nations Charter;
· the
Helsinki Final Act of 1975;
· the
1990 Paris Charter (the tenets of which are that borders of countries
are not rewritten by force and all states enjoy equal security
and equal rights to choose their own alliances);
· the
1997 Treaty of Friendship, Cooperation and Partnership between
Russia and Ukraine (which requires Russia to respect Ukraine's
territorial integrity).[308]
200. In addition, Acting Ambassador Kuzmenko
cited the 1994 Budapest Memorandum on Security Assurances, signed
by the US, UK, and Russia, which provided guarantees on Ukrainian
territorial integrity in exchange for Ukraine relinquishing its
nuclear arsenal. He considered that the Memorandum was still "valid",
and that Russia had "direct obligations under it", even
though it was a declaration rather than a legally binding document.
The Ukrainians would be interested in "upgrading" the
document, and he felt that it could provide "ground for negotiations".[309]
201. Witnesses noted that there was significant
public support in Russia for President Putin's annexation of Crimea.
Mr Alexander Kliment, Director, Emerging Markets Strategy, Eurasia
Group, said that the "Russians absolutely loved" the
message of "Russia finally springing back against years,
decades, and in some sense centuries, of western encroachment
and perfidy".[310]
Mr Lukyanov said that the President's policy enjoyed "very
wide support", and that in fact the President had broadened
his base of support to include the nationalists who "perceive
Russian actions in Crimea and in eastern Ukraine as legitimate
protection of our people endangered by events in Ukraine."[311]
Mr Denis Volkov, Head of Development Department, Levada
Center, added that at the end of the 1990s, about 80% of the Russian
people "thought that Crimea should be with Russia",
suggesting that President Putin had "acted on some existing
expectations." At the moment about 88% of the Russian population
said "that it should be part of Russia".[312]
PHASE V: REBELLION IN EASTERN UKRAINE
AND DOWNING OF MH17
202. A further deterioration of relations between
Russia and the EU and escalation of insecurity took place as a
result of Russian intervention in eastern Ukraine and the downing
of the Malaysian airliner MH17. From late February, demonstrations
by pro-Russian groups took place in the Donbas region (oblasts[313]
of Donetsk and Luhansk) of Ukraine. Acting Ambassador Kuzmenko
told us that the separatists in the Donetsk and Luhansk oblasts
were "inspired, fed, paid and equipped by the Russians."[314]
203. On 17 July, a Malaysian airliner (MH17)
was brought down near Torez, a town in eastern Ukraine 50 km from
the Russian border. All 298 people on board were killed. The victims
came from a number of countries and included nationals from the
Netherlands, Malaysia, Australia, Indonesia, the UK, Germany,
Belgium, the Philippines, Canada and New Zealand. The circumstances
surrounding the downing of MH17 are still unclear and an international
investigation is planned, but it has been hampered by continued
fighting in the region, while Russian and separatist officials
have also been accused of obstruction. Some have accused Russia
of being responsible, either directly or by supplying to separatists
the BUK missile system that is believed to have brought down the
plane. Russia, for its part, has argued that the plane was shot
down by a Ukrainian fighter.[315]
204. At the end of August 2014, when the Ukrainian
government was beginning to regain the initiative in eastern Ukraine,
"the Russians sent their regular troops. It was the feet
of Russian soldiers directly on Ukrainian territory."[316]
Mr Crompton confirmed that after the shooting down of MH17 there
was "then a sharp deterioration of the situation on the ground,
which led to the incursion of regular Russian troops into eastern
Ukraine".[317]
Mr Polyanskiy, on the other hand, denied that there was any "real
proof" that there were Russian troops in eastern Ukraine.[318]
205. The tragedy of the downing of flight MH17
hardened the political position of EU Member States on Russia.
In the words of Mr Crompton, the plane crash "very much changed
the politics of Russia within European Governments."[319]
Mr Lough added that it had increased the "level of impatience
and frustration on the part of a number of leading European countries."[320]
PHASE VI: MINSK PROTOCOL
206. On 5 September 2014 the Minsk Protocol was
signed between Ukraine, Russia and representatives of the 'People's
Republic of Donetsk' and the 'People's Republic of Luhansk',[321]
setting out the terms of a ceasefire and a political process.
The Protocol set out 12 steps, including a ceasefire monitored
by the Organization for Security and Co-operation in Europe (OSCE);
mutual withdrawal of troops and heavy weapons; border monitoring
by the OSCE; decentralisation of power in Ukraine and provisions
for local governance in Donetsk and Luhansk; hostage release and
prisoner exchange; inclusive national dialogue; and humanitarian
and economic measures to be adopted in the Donbas region.[322]
207. The Minsk Protocol remains the basis for
any move towards peace. The Minister for Europe told us that what
was needed was a de-escalation of the situation starting with
the full implementation of the Minsk agreements.[323]
Mr Serrano said that the European Council would want "to
ensure that the aggression stops in eastern Ukraine, that Ukrainian
law is respected in eastern Ukraine, and that a political process
is launched in eastern Ukraine." What was needed, he added,
was "not only Russian words but concrete action to ensure
that its border with Ukraine is not used to transfer arms and
fighters into Ukraine, and that the ceasefire is respected. Russia
is a key player in ensuring that this happens."[324]
From a German viewpoint, Dr Hans-Dieter Lucas, Political
Director, Federal Foreign Office of the Federal Republic of Germany,
agreed that the Minsk Protocol remained the basis on which a political
process could be built.[325]
208. However, all our witnesses agreed that the
Minsk Protocol was not being implemented and that the situation
was getting worse.[326]
The onus had been on the Russian side to act by withdrawing support
for the separatists and controlling the flow of arms and fighters
across its border, but Acting Ambassador Kuzmenko said that the
promise of a Russian withdrawal was "far from being implemented".[327]
The Minister pointed to a continuing "flow of people and
material crossing from Russia to reinforce the separatists in
Donetsk and Luhansk."[328]
Mr Vimont said that the EU would welcome the opportunity to begin
the political process, but that it was "difficult to do that
as long as we see that even the agreements that have been reached
are not being implemented properly."[329]
209. Dr Libman feared that finding a sustainable
solution to the Ukrainian crisis in the near future was "unlikely
to be feasible", and said that the immediate priority should
be to "concentrate on managing the crisis, i.e., preventing
it from escalation, searching for opportunities of dialogue and,
above all, preventing the military conflict."[330]
Recurring themes
210. Two significant factors emerge from the
summary of key events above:
· Lack
of political oversight; and
· The
pivotal and exceptional nature of Ukraine.
LACK OF POLITICAL OVERSIGHT
211. An element of 'sleep-walking' was evident
in the lead-up to the crisis. Sir Tony Brenton said that
during the negotiation on the AA, any awareness of Russian hostility
was not felt "at a high enough political level in the EU
for people who really understand Russia actually to be asked how
tough the Russian reaction was likely to be."[331]
There was, he told us, "a lack of
simple thinking
about how the Russians were behaving at that stage."[332]
He added that the EU knew that the Russians "did not like
what was happening," but assumed "Ukraine could simply
ride over that."[333]
Mr Lough put it to us that the "EU did indeed underestimate
the determination of the Russians to ensure that Yanukovych would
not sign" the Association Agreement.[334]
212. Assistant Professor Serena Giusti, Scuola
Superiore Sant'Anna, saw the EU's post-Maidan policy as "technocratic",
taken forward by EU institutions which "acted in the vacuum
of politics." She believed that the "EU's governments
remained either unresponsive or divided on a common strategy,"
that the EU response was driven by "inertia rather than from
an accurate analysis of the situation", and that the EU "failed
to come up with a strategy for Ukraine".[335]
213. At the same time, Mr Demarty reminded us
that the decision to take forward the trade agreement with Ukraine
"was not something decided by obscure trade officials; it
was an initiative that was taken with the unanimity of member
states at a meta-political level." As Director-General for
Trade he had "implemented the strategy that [had] been fixed"
at the political level.[336]
214. Mr Lukyanov said that a similar absence
of political oversight may have been present on the Russian side,
"because the Russian state apparatus never was very functional".[337]
Sir Tony Brenton added that there was "no evidence that the
Russians really took to a high level the extent to which the EU
was pursuing this".[338]
Despite this, Mr Lukyanov was clear that the deliberate exclusion
of Russia by the EU was chiefly to blame: "The lack of co-ordination
on the Russian side was in place, but I would not believe that
the European Union was really interested in discussing things
with Russia."[339]
CONCLUSIONS
215. An element of 'sleep-walking' was evident
in the run-up to the crisis in Ukraine, and important analytical
mistakes were made by the EU. Officials in Brussels as well as
Member States' embassies all participate in the EU foreign policy
process, but all seem to have missed the warning signs. The EU
and Member States lacked good intelligence-gathering capacity
on the ground. The lack of an integrated and co-ordinated foreign
policy was also evident.
216. Collectively, the EU overestimated the
intention of the Ukrainian leadership to sign an Association Agreement,
appeared unaware of the public mood in Ukraine and, above all,
underestimated the depth of Russian hostility towards the Association
Agreement. While each of these factors was understood separately,
Member States, the European External Action Service and the Commission
did not connect the dots.
217. The Russians, on their side, were taken
by surprise and misjudged the determination of Member States to
sign the Association Agreement. When Russian hostility became
explicit, the EU had a very small window of opportunity to act.
By that stage, events began to take on a momentum of their own.
THE PIVOTAL AND EXCEPTIONAL NATURE
OF UKRAINE
218. We heard that Ukraine, and in particular
Crimea, holds particular strategic, economic and historic importance
to Russia. For many Russians, losing Ukraine would be to lose
not only a part of the former Russian (as opposed to Soviet) empire,
but a country that has played a key role in shaping their history,
religion and identity.[340]
219. Mr Kliment told us it was "impossible
to overstate the extent to which not only the Russian elite but
the Russian population at large view Ukraine as part of Russia's
sphere of influencehistorically, economically, culturally
and even religiously."[341]
Mr Lukyanov pointed out that Ukraine was (before the crisis) "very
important for the Russian economy", as well as being important
to Russia strategically.[342]
220. Mr Klaus said that such views were long-standing
and widely held: "Russia would have behaved very similarly
in the Ukrainian crisis or conflict with any Russian President."
In this respect he believed that President Putin's actions were
"not anti-Russianit is very Russian in this respect.
I do not think it is rational to try to make any sort of schism
between Russia and Putin on Ukraine."[343]
221. Mr Klaus also urged us to consider internal
factors within Ukraine. In his view, Ukraine was an inherently
unstable entity, weakened by decades of political faction.[344]
He believed that Ukraine was a "heterogeneous, divided country,
and that an attempt to forcefully and artificially change its
geopolitical orientation would inevitably result in its break-up,
if not its destruction."[345]
222. Mr Crompton, on the other hand, argued that
Ukraine was "not the only country to have emerged from the
post-Soviet orbit that did not really exist as an independent
state, so it is not unique in that respect."[346]
Mr Mikhail Kasyanov, former Prime Minister of Russia and co-leader
of the Republican Party of People's Freedom (PARNAS party), added
that none of the arguments regarding religious divisions or history
were pertinent to the state of Ukraine today.[347]
223. In fact, Graf Lambsdorff and Mr Kasyanov
said that what had weakened Ukraine was the failure of its leaders
to undertake economic and political reforms, rather than any inherent
instabilityin Graf Lambsdorff's words, Ukraine had "not
realised its great potential" due to "endemic corruption
and a dysfunctional political system".[348]
Writing in November 2013, in an article titled 'The Basket Case',
Mr Anders Aslund argued that for years "the Ukrainian government
has pursued a disastrous economic policy, rendering a serious
financial crisis possible or even likely."[349]
The ruling elite, having engaged in "predatory rule",
had found IMF reforms detrimental to their personal enrichment.
The International Crisis Group concluded that the "crisis
in Ukraine is the logical legacy of twenty years of mismanagement
and massive corruption".[350]
Russia's economic interests
224. Ukraine, we heard, was a very important
economic partner for Russia.[351]
It would have been the pivotal country in the Eurasian Economic
Union. One of the ostensible reasons for the Russian intervention
was that Ukraine's signature of an EU Association Agreement (AA),
which contained a Deep and Comprehensive Free Trade Area (DCFTA),
would have had a negative impact on the Russian economy, as well
as being incompatible with Ukraine's regional agreements. President
Putin has stated that Russia:
"Believed it was indeed unreasonable to
sign that agreement because it would have a grave impact on the
economy, including the Russian economy. We have 390 economic agreements
with Ukraine and Ukraine is a member of the free trade zone within
the CIS (Commonwealth of Independent States). And we wouldn't
be able to continue this economic relationship with Ukraine as
a member of the free trade zone."[352]
225. In contrast, Professor Sergei
Guriev, Professor of Economics, Sciences Po, Paris, advised us
that "Russia's statement that a free trade area between Russia
and Ukraine is not compatible with the DCFTA is false." There
was "nothing wrong with being a member of free trade areas
with different partners."[353]
Mr Vimont agreed that there was "no incompatibility between
the DCFTA that we were pushing forward with the kind of trade
agreement that Ukraine could have with Russia."[354]
Mr Polyanskiy qualified the Russian position, saying that what
would not have been possible was for "Ukraine to sign an
Association Agreement and preserve its current situation as a
privileged partner."[355]
226. Two particular Russian economic concerns
were the surging or dumping of products into the Russian market,
and alignment of regulatory standards.
227. Mr Kliment told us that the Russians feared
that Ukraine's signature of the DCFTA would create a conduit for
competitive European goods to "flood the Russian market and
to damage the interests of Russian producers," who were not
able to compete with European producers.[356]
Mr Polyanskiy focused on potential dumping: export quotas offered
to Ukraine were "very smalleven laughable", while
there were "no limitations for EU products entering Ukraine."
As a result, Ukrainian products which could not enter the EU market
because of EU regulatory standards or because of limited quotas
would be dumped onto the Russian market.[357]
228. Mr Demarty, on the other hand, took the
view that if a product was not competitive in the domestic market
then it was unlikely to be competitive in the Russian market.
In the case of surging of exports or dumping of products by Ukrainian
companies, the terms of the CIS free-trade agreement permitted
"the use of safeguarding measures and anti-dumping procedures,
just as is the case today."[358]
229. With regard to regulatory standards, Mr
Polyanskiy explained that the provisions of the DCFTA which would
involve Ukraine adopting EU technical and regulatory standards
were particularly threatening. They meant that when Ukraine introduced
EU technical regulations, it would no longer be able to "export
many products of the steel industry, for example, or railroad
vans to Russia, because they will not meet Russian technical regulations
or customs union technical regulations."[359]
Mr Kliment explained that Russians feared that the "shift
in Ukraine to European standards and regulationstechnical
standards, phytosanitary standards, the whole run of itwould
in fact make goods produced in Ukraine incompatible with supply
chains for Russian firms and Russian sectors that rely on Ukraine
for key economic inputs."[360]
230. At the same time, Mr Kliment could see no
reason why producers in Ukraine who depended on Russian markets
or supplied Russian markets "could not continue to produce
goods that meet Russian specifications separate from those that
meet EU specifications."[361]
Mr Demarty suggested that the DCFTA foresaw "progressive
timetables" for the implementation of new requirements, which
could be adjusted and extended if necessary.[362]
231. Considering the ease with which these arguments
could be addressed, Mr Demarty thought it likely that Russian
concerns were "more political than really commercial".
Mr Luc Pierre Devigne, Head of Unit, Directorate General for Trade,
also believed it was "very unlikely" that there were
genuine commercial concerns, as Russian trade with Ukraine was
mostly composed of raw materials rather than manufactured goods.[363]
The Minister for Europe dismissed Russian economic concerns as
"more a pretext than a genuine concern".[364]
232. According to Mr Demarty, the unstated economic
rationale for Russian commercial concerns was that the DCFTA implied
the gradual development of a level playing field in the Ukrainian
market, on which EU and Russian products would compete on equal
terms. For Russia this would be "a source of loss",
because at the moment it had free access to the Ukrainian market
while most EU goods were paying duties.[365]
Professor Guriev agreed that for "certain interest groups
in Russia, Ukraine joining the DCFTA would represent a problem".
More competition from European goods in Ukraine, and Europe being
a destination for exports from Ukraine, created "competition
and therefore a cost."[366]
CONCLUSION
233. It is clear that Russian concerns about
the impact of EU trade agreements, while having an economic basis,
were also politically driven, while in seeking to address Russian
concerns, the Commission was putting forward free-market liberal
economic arguments. Both sides were to some extent talking past
each other. The absence of Member States' political oversight
during this process is glaring.
The EU's response to the crisis
MEMBER STATE UNITY
234. As the crisis escalated in the summer of
2014, EU Member States forged a united position. Having previously
only applied asset freezes and visa bans, on 31 July 2014 the
European Council agreed 'stage three sanctions', comprising restrictions
and bans in three key areas: finance, military and dual use products,
and high-tech energy exports.[367]
235. Mr Crompton informed us that securing agreement
to these significant sectoral sanctions "was very easy."[368]
Mr Kasyanov pointed out that, in contrast to the "back to
business as usual" approach that followed the Russo-Georgian
war in 2008, this time the West and EU had behaved differently:
"There is a transatlantic unity and strong positioning, and
a principled attitude to the policies that Mr Putin is pursuing
now."[369] In
his view President Putin "was shocked" by the united
position and strong attitude. However, this united position was
then undermined by disagreement on the sanctions policy among
Member States, which "was viewed by Mr Putin as weakness.
After the socalled Normandy meetings, which Mr Putin was
pleased with, he decided to go further with the escalation."[370]
236. Mr Vimont accepted that Member States had
their reservations, but said that they had agreed that "unity
had to prevail above some of their reservations."[371]
Mr Serrano agreed that the EU had a "very clear position
towards Russia and very clear interests", namely ensuring
that Russia played a constructive role in solving the crisis in
Ukraine. He believed that this policy would be "pushed forward
and maintained without hesitation."[372]
EU SANCTIONS POLICY
237. Associate Professor Tomila Lankina, London
School of Economics and Political Science, said that the objective
of EU sanctions had been "to constrain Russian support for
separatist forces in Eastern Ukraine in the ongoing conflict,
while also preventing the repetition of a similar scenario elsewhere
in the post-Soviet space in the future."[373]
Mr Crompton viewed sanctions both as a useful deterrent, designed
to "change the cost-benefit equation" of actions in
the neighbourhood, and also as an instrument to bring President
Putin to the negotiating table.[374]
Below, we assess the impact that the sanctions have had on Russia
against these objectives.
Effect of sanctions in Russia
238. Sanctions have compounded the damage done
to the Russian economy by two other factors: falling oil revenues,
on which the government budget is very dependent, and an unreconstructed
economic structure. Russia has been haemorrhaging capital. Mr
Barton, giving evidence on 9 September 2014, told us that the
rouble had sunk to a "record 16 year low against the dollar"
and that the ratings agency Fitch had estimated that sanctions
had caused Russia's reserves to "fall from about $470 billion
to $450 billion" by the end of 2014.[375]
In November 2014, Russian Finance Minister Anton Siluanov said
that Russian capital outflows may reach $130 billion in 2014.[376]
239. In December, the Minister for Europe confirmed
that sanctions were an "additional burden on top of the grievous
structural weaknesses that Russia already faces", which had
been laid bare by the collapse of global crude oil prices. The
"tangible impact upon Russia" had been that the rouble
had hit historic lows, headline inflation outstripped wage inflation
for the first time in five years, growth forecasts had been revised
downwards to near zero for the current and next quarter, and borrowing
costs had spiralled as Russia was locked out of western financial
markets.[377]
240. By October 2014, witnesses had begun to
estimate a two to three year crunch period for the Russian economy.
Professor Guriev said that the sanctions had worsened the economic
difficulties for the Russian budget caused by falling oil prices.
The price of oil would hit Russian public finances and this effect
would be "strongly reinforced by the sanctions." Oil
prices in the range of $80 or $85 directly implied that the Russian
government would face "significant problems three years down
the road."[378]
In November, Mr Kasyanov too thought that if oil prices stayed
as they were President Putin had "two years to decide what
to do."[379] We
note that, by January 2015, crude oil prices had further fallen
to under $50 per barrel, with implications for the timeline suggested
by our witnesses.
241. It was less clear whether the sanctions
were having a political impact in Ukraine. On 24 July 2014, commenting
on the asset freezes and visa bans, Sir Tony Brenton judged not.
He said that sanctions were "not having any political effect
at all."[380]
By September, after the imposition of three-tier economic sanctions,
Mr Crompton believed that sanctions had an impact on President
Putin's calculations: "Every time the EU has applied sanctions
over the past few months, on the day before Russia has made some
diplomatic gesture in an effort to avoid further sanctions".[381]
Professor Guriev agreed that sanctions had driven a change
in the President's political calculations in eastern Ukraine.
The ceasefire and Russia's willingness to moderate its support
for separatists in eastern Ukraine were evidence of sanctions
working. He put it to us that President Putin "does understand
the numbers", which is why Donetsk and Luhansk "even
after holding a referendum, have not become part of Russia."[382]
242. In contrast, we heard that sanctions had
not so far changed President Putin's calculations in Crimea. Professor
Guriev said that Russia was not going to give back Crimea "any
time soon."[383]
According to Dr Tom Casier, Jean Monnet Chair, Senior Lecturer
in International Relations, University of Kent, the Russian government
was trapped by its own nationalist rhetoric. The Russians would
be "willing to hurt themselves
for the simple reason
that Putin and the elite have identified their position so much
with power and Russian pride that it will be very hard to force
them, by sanctions or whatever, to step back."[384]
243. Dr Libman argued that the Russian leadership
divided issues into first-order priorities, such as national security
(where it pursued its policies with determination and rigour),
and second-order issues, such as the economy and domestic issues
(where the Russian leadership was flexible and able to compromise).
Even major economic difficulties did not move the Russian leadership
on first-order security issues.[385]
244. As for whether sanctions would bring the
Russian government to the negotiating table, in September 2014
Mr Crompton said that sanctions had actively targeted the group
of oligarchs and senior businessmen surrounding the Kremlin, and
that there was "quite a lot of evidence" that that group
of people were "very concerned."[386]
In December, the Minister for Europe was frank that sanctions
were not yet bringing about a change in President Putin's actions
regarding Ukraine, but he pointed to "dissension within the
Russian elite", and "very senior people inside the Russian
system" who believed that the President was taking Russia
in the wrong direction.[387]
245. In addition, some witnesses drew our attention
to the unintended consequences of sanctions. Professor Guriev
said that as the Russian economy stuttered, the Russian government
would "have to come up with certainprobably non-economicsolutions
to convince Russians
that they are suffering economically
for a good cause." In his view, "we should expect more
propaganda, more repression and maybe even further foreign policy
adventures." He added that the Russian government was using
sanctions to "call Russians to rally around the flag."[388]
246. Sectoral sanctions were also driving the
Russian economy towards more protectionism. Mr Kliment told us
that in response to the threat of increased sanctions, Russia
had taken a number of steps that prepared the economy to become
"more autarchic rather than more open to western trade and
European norms."[389]
Dr Libman predicted that the Russian economy would "enter
a lengthy period of stagnation and lose its chances to modernise."[390]
Sir Tony Brenton viewed the ending of European Bank for Reconstruction
and Development (EBRD) funding streams to Russia as one of the
"more ludicrous sanctions", as it would end support
for small private enterprises in Russia, which were "exactly
the component in Russian society that we want to develop if we
are thinking about Russia post-Putin."[391]
Impact of sanctions in the EU
247. Sanctions on Russia have also imposed economic
hardship on EU countries. The Confederation of British Industry
(CBI) drew our attention to trading statements from publicly listed
companies that cited geopolitical tensions in Ukraine and Russia
as a contributing factor to downgrading performance forecasts
for 2015.[392] Professor
Guriev pointed out that in the fragile state of the EU economy,
while sanctions against Russia and counter-sanctions by Russia
had not had a dramatic effect, they had "had a negative effect
on European growth perspectives."[393]
248. Ms Shona Riach, Director, International
Finance, Her Majesty's Treasury, acknowledged the impact of sanctions
on the Eurozone, but added that the biggest risk to the European
economy was "the geopolitical threat and the threat from
the situation in Ukraine, rather than specifically the impact
of the sanctions." It followed that "not to do anything
and not to take action would have had greater costs associated
with it."[394]
249. The CBI informed us that Russian 'retaliatory'
sanctions, such as banning the import of agricultural goods from
the EU, had a significant direct impact on EU countries, particularly
in Eastern Europe. The stockpiling of some agricultural products
in EU countries as a result of the Russian import ban had put
a downward pressure on commodity prices across the EU as a whole.[395]
Mr Barton told us that the total value of the EU food exports
that were affected was "about £4.5 billion, which will
mainly affect Lithuania, Poland and Germany."[396]
250. The economic impact of sanctions on the
UK has been limited. Overall, CBI members believed that the sanctions
had so far "been carefully designed to limit the impact on
British companies while maximising the impact on the Russian economy."
According to the CBI, the impact of Russian retaliatory sanctions
on the agricultural sector had also been limited. The UK exported
a relatively small amount of agricultural products to Russiain
2013 the UK's largest agricultural exports to Russia were £5.4
million of cheese and £1.4 million of poultry meataccounting
for less than 1% of the UK's total cheese and poultry trade. However,
the stockpiling of agricultural products in EU countries, and
downward pressure on commodity prices across the EU, had caused
a consequent impact on British companies and suppliers exposed
to these commodity markets.[397]
251. There has been a more severe impact on the
German economy. Open Europe informed us that German trade with
Russian had declined significantly between August 2013 and August
2014exports had fallen 26% and imports 19%.[398]
Russia currently takes 3% of Germany's exports. The decline in
German-Russia trade has contributed to a broader fall in German
exports. In the second quarter of the current financial year the
German economy shrank by 0.2%. Economists expected it to contract
again in the third quarter, meaning that the economy would technically
be in recession.[399]
The future of the sanctions policy
252. The EU's asset-freezes and travel bans on
individuals are due to be reviewed by the EU in March and April
2015, while the sectoral sanctions come up for renewal in July
2015.
253. We understood from our conversations in
Berlin and in Brussels that there was growing frustration that
the EU's offer of dialogue was not being reciprocated by Russia.
In particular, we sensed the growing impatience and disappointment
in Germany. Dr Lucas told us that, in light of the slow progress
on Crimea, the Federal Foreign Office was considering whether
tougher sanctions should be developed. The opinion of Dr Markus
Kerber, Director General, Federation of German Industries, was
that some Member States tended to be of the view that if Russia's
behaviour had not worsened then the sanctions should be lifted.
The German position was that if Russia's behaviour had not improved,
then the sanctions should continue.[400]
254. Ms Riach noted that at both UK and EU levels
thought was being given to how sanctions could be tightened further.
The financial sanctions had "a number of exemptions within
them", and the first thing that could be done "would
be to look at tightening that up as far as possible."[401]
Other witnesses drew attention to the possibility of targeting
the Russian government more closely. Mr Ian Bond CVO, Director
of Foreign Policy, Centre for European Reform, suggested that
the EU had been "very gentle so far", and that the majority
of those sanctioned so far were "utterly unknown figures
in local politics in Crimea or relatively middle-ranking military
officers." The EU had not done what the US had done, which
was "to target those who are closest to Putin, which is likely
to be more effective as a short-term measure."[402]
255. Mr Kara-Murza too suggested that the EU
should target individuals close to President Putin. Such a step
would have enormous political significance for the President and
his entourage. In his view there was "nothing or very little
that the Putin regime fears more than targeted personal sanctions
imposed by the European Union and North Americaby the West
in generalon the people in Putin's inner circle."[403]
Mr Kasyanov agreed that there could be space to increase sanctions
to named individuals, including members of parliament nominated
by President Putin.[404]
256. Mr Kara-Murza also suggested that the generic
term "sanctions against Russia" resonated badly among
the Russian public: "It allows Mr Putin to portray these
individual sanctions as being directed not against his oligarchs
and his officials, but against the whole of Russian society."
He said that it was "really crucial to choose the language
carefully and to talk not about 'sanctions on Russia,' but about
sanctions on the regime, on the corrupt officials, on the human
rights abusers, on the aggressors and so forth." The shorthand
was "easier to say", but it was "very important
to say those few extra words and not play into Mr Putin's propaganda."[405]
257. In the long term, Dr Lucas argued that sanctions
needed to be part of an overall strategy, in which the EU would
be closely aligned with the US.[406]
Mr Barton assured us that there had deliberately been a "very
close alignment" between what the EU and the US were doing,
and that there was agreement that this approach should be maintained.[407]
The Minister informed us that the Prime Minister had "personally
worked very hard" to ensure that the EU and US sanctions
regimes were as consistent as possible.[408]
CONCLUSIONS
258. We welcome Member States uniting around
an ambitious package of sanctions on Russia.
259. Sanctions need to be part of an overall
strategy of diplomacy and a political process, including intensive
dialogue on Crimea. This strategy is not yet in place.
260. The Russian government is under severe
pressure. Internal economic problems, including the falling price
of oil, have been worsened by the EU sanctions regime, and are
likely to have a very serious impact on the viability of the current
government. However, the EU is in danger of having offered President
Putin a tool for fomenting further nationalist and anti-EU sentiment.
261. There is no evidence that sanctions have
caused President Putin to shift his stance on Crimea, where Russia
has direct and vital security interests through the Sevastopol
naval base.
262. While EU and US sanctions have been broadly
aligned, the US has been prepared to target individuals close
to the Russian government. If there is no progress on the Minsk
Protocol and the situation in eastern Ukraine continues to deteriorate,
the EU should find ways of targeting individuals close to President
Putin and consider broadening sectoral sanctions into the Russian
financial sector.
263. In the long-term, three-tier sanctions
are detrimental to the EU's interests as well as to Russia's.
While they could be renewed in the short term, the prospect of
the progressive removal of sanctions should be part of the EU's
negotiating position. Genuine progress by Russia in delivering
the ceasefire in eastern Ukraine should be the basis for ratcheting
down sanctions.
EU support for Ukraine
POLITICAL SUPPORT FOR UKRAINE
264. Member States have united around strong
political messages, which support the territorial integrity of
Ukraine and denounce the annexation of Crimea. On 20 March 2014,
the European Council concluded:
"The European Union remains committed to
uphold the sovereignty and territorial integrity of Ukraine. The
European Council does not recognise the illegal referendum in
Crimea, which is in clear violation of the Ukrainian Constitution.
It strongly condemns the illegal annexation of Crimea and Sevastopol
to the Russian Federation and will not recognise it."[409]
265. Acting Ambassador Kuzmenko urged the EU
not to "leave Ukraine to deal with Russia alone." This
was because Ukraine was not fighting "just for the territorial
integrity or sovereignty of Ukraine but for the European values
We are the only European country that has paid such a price
just for its declared decision to become a future European state."[410]
Mr Crompton told us that the UK regarded the "annexation
of Crimea as illegal" and would "maintain a position
of principled support for Ukraine's sovereignty and territorial
integrity."[411]
266. Nevertheless, witnesses feared that the
possibility of resolving the annexation of Crimea in the short-term
was remote. Mr Crompton admitted that "we do not know how
this will end." There was no possibility of getting a resolution
through the United Nations Security Council, because of the Russian
veto.[412] Dr Casier
said that losing Crimea would be "unacceptable and non-negotiable
for Russia." Dr Marat Terterov, Executive Director and Co-Founder,
Brussels Energy Club, also considered it impossible that Russia
would accept Crimea being a state distinct from Russia.[413]
267. It was suggested that the EU could adopt
a tactical and pragmatic approach to the annexation of Crimea,
in effect shelving the issue for the long-term. Dr Casier
pointed out that while with the annexation of Crimea "one
of the most important European taboos" had been broken, namely
the annexation of part of another country, it would "be very
hard to do anything about the situation." He had heard it
said in diplomatic circles that it was "already very much
accepted as a done deed, a fait accompli."[414]
He envisaged a scenario whereby EU Member States would "continue
business as usual with Russia and just keep mentioning in all
sorts of documents" that they did not accept the annexation
of Crimea.[415] Mr
Josef Janning, Senior Policy Fellow, European Council on Foreign
Relations, judged that the Ukrainians were likely to make a pragmatic
and tactical calculation to "solve the problems already on
the table", such as energy in the winter and restarting the
economy, while leaving the status of Crimea for a later date.
If that were the case, the EU "could take that position too
without speaking much about it".[416]
268. Mr Janning noted that one option could be
to resolve the region's political status with the help of an internationally
mediated referendum, but that this would only be possible once
relations between Ukraine and Russia had reached a calmer equilibrium.[417]
Mr Kasyanov cautioned that it would have to be a "referendum
organised in normal circumstances in the normal way", but
said that to hold such a referendum would be to accept the order
created by the Russians in violation of international assurances.[418]
CONCLUSIONS
269. The Minsk Protocol is not being implemented,
violence is escalating and with it the risk of a de facto
annexation of part of Ukraine. A ceasefire, however desirable,
is not in itself a permanent solution: the dismemberment of a
sovereign independent state is not acceptable.
270. There appears to be tacit acceptance
within European and Ukrainian political circles that the priority
is to move towards a political process in eastern Ukraine, leaving
resolution of the status of Crimea to the medium or long term.
We support this ordering of priorities: a political process with
Russia on eastern Ukraine is urgent.
271. However, the territorial integrity of
Ukraine should not be jeopardised by any tactical steps taken
as part of the peace process. As part of the peace process, an
international dialogue could be convened to discuss the final
status of Crimea. Here the signatories of the Budapest Memorandum,
including the UK, could play a useful role.
272. The possibility of another referendum
on Crimea, under international mediation, is one option. We recognise
that there is a danger that any such referendum would be coloured
by Russia's domination of the political and media landscape in
Crimea. It is critical that there should be an open and honest
debate, and that citizens should vote without fear of reprisal.
Nevertheless, this option should remain on the table.
ECONOMIC SUPPORT FOR UKRAINE
273. The conflict itself, along with the loss
of revenue from industrial production and resources in eastern
Ukraine, have imposed a debilitating cost on the Ukrainian economy.
Lord Livingston of Parkhead, Minister of State for Trade and Investment,
informed us that in September, "the European Bank for Reconstruction
and Development (EBRD) predicted Ukrainian GDP would contract
by 9% in 2014. In October, the World Bank predicted a contraction
of 8%, while the IMF predicted a contraction of 6.5%".[419]
In November 2014, Mr Bond wrote that inflation was expected to
rise to 11.8% this year and that the value of the Ukrainian currency
had fallen by almost 50% in 2014.[420]
In January 2015, The Economist estimated that, factoring
debt repayments and gas import bills into the equation, Ukraine
would probably need $20 billion in external support to survive
2015.[421]
274. Professor Guriev told us that the EU had
committed 11.5 billion to Ukraine, which was "something
like 6% or 7% of Ukrainian GDP".[422]
Mr Crompton, speaking in September 2014, also drew attention
to a significant IMF programme, "a £17 billion package
in all, of which I believe £4.6 billion has been disbursed."
The Government "believe that is enough but that is under
review."[423]
275. On the other hand, Dr Libman doubted that
any realistic external funding would be enough to "rescue
Ukraine", while accepting that the EU "could provide
help in designing and implementing economic reforms, improving
quality of bureaucracy etc."[424]
Professor Guriev urged that if the EU wanted "an independent,
democratic and prosperous Ukraine
the EU should prepare
to think about further programmes of support in Ukraine."[425]
276. The Minister for Europe, in December 2014,
informed us that thanks to Russian intervention Donbas industrial
production was not delivering the expected figures, and that the
IMF was therefore reviewing the level of financing. He would not
be surprised if there was "a need to add to the financing
package that was agreed earlier in the year." He did not
want to speculate on what the IMF would report, but said that
the Government recognised that support for Ukraine would have
to be for the long term. Beyond the moral case for supporting
Ukraine, the Minister noted that a wealthy Ukraine could provide
"marvellous investment opportunities for the agricultural
and food processing sector, for retailing and for energy investment".[426]
277. On 21 January 2015, the IMF indicated that
there would be a new bailout package for Ukraine. It will be an
"extended-fund facility", which means that the IMF will
be able to lend more money to Ukraine for a longer period. However,
while it may be more generous, it will not necessarily lead to
quick, up-front disbursements. The Economist judged that
the new bail-out would not help Ukraine solve its external debt
owed to Russia.[427]
278. When the Minister wrote to us in January,
significant sums of EU funding had not yet reached Ukraine. The
Minister informed us that since March 2014 the EU had disbursed
"1.36bn of the 1.61bn in macro-financial assistance
committed to Ukraine", and that the Commission had funded
three bilateral programmes under the ENP instrument: a 355
million 'state-building' general budget support programme (of
which 250 million had been disbursed), to support the process
of stabilisation; a 10 million civil society programme designed
to enhance civil society's ability to promote the reforms required
under the 'state-building' programme; and a 55 million regional
development sectoral budget support programme to support Ukraine's
Decentralisation and Regional Policy reforms.[428]
279. The AA and the DCFTA were also seen as a
"key element" of the EU's support for Ukraine. Mr Barton
informed us that the DCFTA was "potentially a very significant
step in terms of its immediate impacts", with the tariff
reductions providing an estimated boost to the economy of over
$1 billion a year. In the long-term, the adoption of the
acquis would "play a very important role in helping
Ukraine develop in a positive direction."[429]
However, the implementation of the DCFTA has been postponed until
January 2016, and there are still ongoing discussions on its implementation.
Acting Ambassador Kuzmenko saw the trilateral process, involving
Russia, Ukraine and the EU, as "a very good instrument to
explain to the Russians that the majority of their negative expectations,
worries and concerns about the Association Agreement are groundless."[430]
280. Fighting corruption was also highlighted
as a priority area. Mr Crompton said that "everyone recognises
that [corruption] is a huge problem in Ukraine, including the
Ukrainians". The AA could be a "powerful tool and leverage"
to combat it. Mr Hugo Shorter, Head of EU Directorate (External),
FCO, noted that the AA contained provisions "to help Ukraine
strengthen the rule of law and attack the problem of corruption."[431]
Acting Ambassador Kuzmenko assured us that the Ukrainian government
was committed to combating corruption, with important steps being
taken such as the adoption of anti-corruption laws and a law on
lustration, which helped "to clean up the Government and
local authorities."[432]
281. The Minister for Europe wrote that "combating
corruption was one of the earliest demands of the Maidan protestors."
He set out the steps taken by the UK to aid Ukraine to fight corruption,
which included hosting the Ukraine Asset Recovery Forum in London
in April 2014, in order to help recover assets stolen by the former
Ukrainian regime; a £0.5 million investment in supporting
ongoing asset recovery investigations; and, in August, the launching
by the UK of a two-year £4.3 million programme to provide
rapid technical assistance to the Ukrainian Government.[433]
CONCLUSIONS AND RECOMMENDATIONS
282. Ukraine's reconstruction will require
significantly more resources than have already been committed.
We recommend that the United Kingdom should convene urgently an
international donor conference for Ukraine.
283. The disbursement of funds should be predicated
on tough economic and political conditionality. This crisis is
an opportunity for Ukraine to undertake difficult and much needed
reforms. The EU, by holding the Ukrainian government to its commitments,
has a role to play.
284. The Association Agreement will only be
a key element of support for Ukraine if the EU upholds its political
conditionality. The area which we judge to be of particular importance
to the future of Ukraine is in tackling corruption, also a key
demand of the Maidan protestors.
285. Member States, again, must play a role
in monitoring and evaluating the implementation of conditionality
attached to the disbursement of funds. We recommend that the UK
Government should review its own internal mechanisms for monitoring
Commission programmes, in order to maintain this political oversight.
286. Building a Ukraine that is economically
successful and secure in its energy supply will need Russian co-operation.
The trilateral process, whereby the EU, Russia and Ukraine are
engaging in discussions about the impact of the EU-Ukraine Deep
and Comprehensive Free Trade Area, could be a useful template
to discuss the broader Ukraine-Russia economic relationship.
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Q53 Back
283
Written evidence (RUS0019) Back
284
Q245 Back
285
European Endowment for Democracy, 'About EED': https://www.democracyendowment.eu/about-eed/
[accessed 2 February 2015] Back
286
Q124 Back
287
Q128 Back
288
Q213 Back
289
Roy Allison, 'Russian 'deniable' intervention in Ukraine: how
and why Russia broke the rules', International Affairs,
vol. 90:6 (2014), pp 1255-1297: http://onlinelibrary.wiley.com/doi/10.1111/1468-2346.12170/pdf
[accessed 2 February 2015] Back
290
Written evidence (RUS0019) Back
291
Q31 Back
292
Written evidence (RUS0015) Back
293
'Russian 'deniable' intervention in Ukraine: how and why Russia
broke the rules', page 1262 Back
294
Ibid., page 1272 Back
295
Ibid., page 1278 Back
296
'Kravchuk, Kuchma and Yuschenko call to denounce Kharkiv Pact',
Kyiv Post, (3 March 2014): http://www.kyivpost.com/content/ukraine/media-kravchuk-kuchma-and-yuschenko-call-to-denounce-kharkiv-pact-338252.html
[accessed 2 February 2015] Back
297
Q177 Back
298
'Russian 'deniable' intervention in Ukraine: how and why Russia
broke the rules', page 1263 Back
299
'The Ukraine Crisis Timeline', Centre for Strategic and International
Studies website: http://csis.org/ukraine/index.htm and International
Crisis Group website: http://www.crisisgroup.org/en/publication-type/crisiswatch/crisiswatch-database.aspx?CountryIDs=
%7b8864A71C-2EC4-456D-A9BC-5E7190244489%7d#results
[accessed 2 February 2015] Back
300
'Russian 'deniable' intervention in Ukraine: how and why Russia
broke the rules', page 1280 and Paul N Schwartz, 'Crimea's Strategic
Value to Russia', Centre for Strategic and International Studies
(18 March 2014): http://csis.org/blog/crimeas-strategic-value-russia
[accessed 2 February 2015]. In fact, Roy Allison goes further
to argue that the Russians viewed the retaking of the Sevastopol
base as an opportunity to rebuild it as a platform for power projection.
Back
301
Vladimir Putin, speech to State Duma deputies and Federation Council
members (18 March 2014): http://eng.kremlin.ru/news/6889 [accessed
2 February 2015] Back
302
Q57 Back
303
Written evidence (RUS0015) Back
304
Q37 Back
305
Written evidence from His Excellency Dr Alexander Yakovenko (RUS0019) Back
306
Q246 Back
307
Q98 Back
308
Q76 (Acting Ambassador Kuzmenko), Q256 (Rt Hon David
Lidington, Minister for Europe) and Q38 (John Lough) Back
309
Q76 Back
310
Q27 Back
311
Q170 Back
312
Q192 Back
313
Administrative divisions Back
314
Q67 Back
315
International Crisis Group website: http://www.crisisgroup.org/en/Search%20Results.aspx?
keywords=ukraine,
'MH17 crash: Pressure grows on Russia over crash inquiry', BBC
News (20 July 2014): http://www.bbc.co.uk/news/world-europe-28388136
and 'Germany blames pro-Russian
rebels for MH17 passenger plane crash-Spiegel', Reuters (19
October 2014): http://www.reuters.com/article/2014/
10/19/ukraine-crisis-mh17-germany-idUSL6N0SE0AX20141019
[accessed 2 February 2015] Back
316
Q67 (Acting Ambassador Kuzmenko) Back
317
Q52 Back
318
Q251 Back
319
Q60 Back
320
Q29 Back
321
The self-proclaimed People's Republic of Luhansk and People's
Republic of Donetsk have declared themselves independent republics.
They have held referendums and elections which have been declared
illegal by the EU. The leaders are listed by the EU under its
Ukraine restrictive measures. Back
322
In the weeks that followed the signing of the Minsk Protocol there
were frequent violations of the ceasefire. Talks continued in
Minsk and a follow-up to the Minsk Protocol was agreed on 19 September.
These two memorandums are collectively known as the Minsk Agreements. Back
323
Q257 Back
324
Q165 Back
325
Appendix 5: Evidence taken during visit to Berlin Back
326
As at 21 January 2015, the United Nations estimated that more
than 5,000 people had been killed and over 10,000 had been wounded
in the conflict in Ukraine since mid-April 2014. The United Nations
Office of the High Commissioner for Human Rights added that the
real figure could be "considerably higher". 'Death toll
in Ukraine conflict exceeds 5,000, may be 'considerably higher'-UN',
UN News Centre (23 January 2015): http://www.un.org/apps/news/story.asp?NewsID=49882
[accessed 2 February 2015] Back
327
QQ67, 76 Back
328
Q257 Back
329
Q164 Back
330
Written evidence (RUS0015) Back
331
Q37 Back
332
Q31 Back
333
Q37 Back
334
Ibid. Back
335
Written evidence (RUS0007) Back
336
Q153 Back
337
Q172 Back
338
Q31 Back
339
Q172 Back
340
Kiev was the capital of the first Slav state, Kyivan Rus (10th-11th
centuries). Crimea only became part of Ukraine in 1954 when Nikita
Khrushchev gifted it to Ukraine. Ukraine achieved independence
in 1991 with the dissolution of the Soviet Union (Rodric Braithwaite,
'Russia, Ukraine and the West', RUSI Journal, vol. 159
no. 2 (April/May 2014), pp 62-65) Back
341
Q21 Back
342
Q174 Back
343
Q218 Back
344
QQ210, 212 Back
345
Q210 Back
346
Q53 Back
347
Q238 Back
348
Q130 (Graf Lambsdorff) and Q238 (Mikhail Kasyanov) Back
349
Anders Aslund, 'The Basket Case', Foreign Policy (26 November
2013): http://foreignpolicy.com/2013/
11/26/the-basket-case/
[accessed 29 January 2015] Back
350
'Ukraine: Running out of Time', International Crisis Group,
Europe Report no. 231 (14 May 2014), page 26: http://www.crisisgroup.org/en/regions/europe/ukraine/231-ukraine-running-out-of-time.aspx
[accessed 29 January 2015] Back
351
Q183 (Ambassador Gachechiladze) and written evidence from
Ambassador Yakovenko (RUS0019) Back
352
'Vladimir Putin's interview with Radio Europe 1 and TF1 TV channel'
(3 June 2014): http://eng.kremlin.ru/transcripts/22441 [accessed
29 January 2015] Back
353
Q81 Back
354
Q162 Back
355
Q243 Back
356
Q21 Back
357
Q245 Back
358
Q134 Back
359
Q245 Back
360
Q21 Back
361
Ibid. Back
362
Q134 Back
363
Q141 Back
364
Q254 Back
365
Q134 Back
366
Q81 Back
367
Council Decision 2014/512/CFSP of 31 July 2014 concerning restrictive
measures in view of Russia's actions destabilising the situation
in Ukraine (31 July 2014): http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2014.229.01.0013.01.ENG
[accessed 2 February 2015] Back
368
Q60 Back
369
Q220 Back
370
Q221 Back
371
Q161 Back
372
Q165 Back
373
Written evidence (RUS0001) Back
374
Q59 Back
375
Q58 Back
376
'Russia sees higher capital outflows with ruble near record level',
Bloomberg (17 November 2014): http://www.bloomberg.com/news/articles/2014-11-17/russia-sees-higher-capital-outflows-with-ruble-near-record-level
[accessed 2 February 2015] Back
377
Q256 Back
378
Q77 Back
379
Q222 Back
380
Q44 Back
381
Q59 Back
382
QQ85, 77 Back
383
Q77 Back
384
Q116 Back
385
Written evidence (RUS0015) Back
386
Q59 Back
387
Q256 Back
388
Q77 Back
389
Q22 Back
390
Written evidence (RUS0015) Back
391
Q50 Back
392
Written evidence (RUS0010) Back
393
Q78 Back
394
Q90 Back
395
Written evidence (RUS0010) Back
396
Q58 Back
397
Written evidence (RUS0010) Back
398
Written evidence (RUS0013) Back
399
'Why the German economy is in a rut', The Economist (21
October 2014): http://www.economist.com/
blogs/economist-explains/2014/10/economist-explains-14
[accessed 2 February 2015] Back
400
Appendix 5: Evidence taken during visit to Berlin Back
401
Q96 Back
402
Q12 Back
403
Q98 Back
404
Q230 Back
405
Q102 Back
406
Appendix 5: Evidence taken during visit to Berlin Back
407
Q60 Back
408
Q256 Back
409
European Council 20/21 March 2014, Council Conclusions (21 March
2014): http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/ec/141749.pdf
[accessed 2 February 2015] Back
410
Q75 Back
411
Q56 Back
412
Ibid. Back
413
Q115 Back
414
Q112 Back
415
Q115. We note that there are precedents for this: for example,
the EU and Member States maintain diplomatic and economic relations
with China, despite not recognising its occupation of Tibet. Back
416
Q115 Back
417
Ibid. Back
418
Q239 Back
419
Letter from Lord Livingston of Parkhead, Minister of State, Department
for Business, Innovation and Skills to Lord Boswell of Aynho,
Chairman of the European Union Select Committee, 5 January 2015 Back
420
Quoted in Ian Bond, 'Ukraine after the elections: Democracy and
the barrel of a gun', Centre for European Reform (27 November
2014): http://www.cer.org.uk/publications/archive/bulletin-article/2014/ukraine-after-elections-democracy-and-barrel-gun
[accessed 2 February 2015] Back
421
'Ukraine and the IMF, Bigger and better', The Economist
(22 January 2015): http://www.economist.com/
news/finance-and-economics/21640374-new-bail-out-will-be-no-panacea-bigger-and-better
[accessed 2 February 2015] Back
422
Q78 Back
423
Q55 Back
424
Written evidence (RUS0015) Back
425
Q78 Back
426
Q254 Back
427
'Ukraine and the IMF, Bigger and better' Back
428
Written evidence (RUS0020). In January 2015, the Commission proposed
providing a further 1.8 billion of macro-financial assistance
to Ukraine in the form of long-term loans. 'Proposal for a Decision
of the European Parliament and of the Council providing macro-financial
assistance to Ukraine', COM (2015) 5 Final (8
January 2015): http://ec.europa.eu/economy_finance/eu_borrower/documents/
council_parliament_proposal_ukraine_en.pdf
[accessed 2 February 2015] Back
429
Q55 Back
430
Q69 Back
431
Q55 Back
432
Q74 Back
433
Written evidence (RUS0002) Back
|