The Riga summit of disappointment
(Business New Europe – bne.eu – Ben Aris in Moscow – May 21, 2015)
Several plucky countries of Emerging Europe have put their necks on the block by defying Russian bullying to join its Customs Union, turning instead to the EU and its promise of a better life. But most of these countries are likely to be disappointed, or could even feel betrayed, at the Riga EU summit that kicks off on May 21 in the Latvian capital.
According to draft documents seen by bne IntelliNews, pro-enlargement wording in EU declarations on ties with former Eastern Bloc states is set to hit an all-time low as the EU’s enthusiasm to help out any country that is not a member evaporates. Almost nothing of substance is on offer for Europe’s so-called “Eastern Partners” and Riga could end up being the summit of their disappointment.
None of the would-be EU members took a bigger risk, or paid a higher price, than Ukraine. The Vilnius summit in 2013 was a media circus as then president Viktor Yanukovych kept the bureaucrats from Brussels guessing until the last minute as to whether he would sign off on the long-negotiated free trade and association deal with the EU. His refusal and decision to sign a deal with Russia in December instead led directly to the Euromaidan protests and subsequent civil war in the east that has claimed more than 7,000 lives.
Two years on and the EU has invited its prospective partners to its next regular jamboree where the Eastern Partnership programme on closer ties will be discussed. The programme was launched in 2009 in Prague and was the brainchild of two hawkish foreign ministers who are no longer in their posts: Poland’s Radek Sikorksi and Sweden’s Carl Bildt.
The 2009 summit spoke of “facilitating approximation towards the European Union” for the partners. The next one in Warsaw in 2011 went further, saying EU leaders “acknowledge the European aspirations and the European choice of some partners”. The apex came in the Vilnius text in 2013 that acknowledged, “the European aspirations and the European choice of some partners” and pledged to “support those who seek an ever closer relationship with the EU”. Now several of these countries have defied Russia to the point of fighting a proxy war with their larger neighbour, the Riga summit should have carried the series of declarations through to its logical conclusion; instead, it appears Brussels is turning its back on the region.
Defying Russia comes with a heavy cost. Ukraine has paid in blood, but the other attendees are finding that raising Russia’s ire is an unprofitable experience. Present will be Armenia, Azerbaijan, Belarus, Georgia, Moldova in addition to Ukraine.
Georgia, Moldova and Ukraine have all been locked out of the large and lucrative Russian market by trade barriers and bans on their goods to a greater or lesser extent. Belarus and Armenia have been coaxed and cajoled respectively into joining Russia’s Eurasian Economic Union (EEU). Thanks to its oil and gas wealth, Azerbaijan has so far successful managed to sit on the fence.
Bad economic relations with Russia are a bad idea for countries in the former Soviet bloc. Many of these countries have had to devalue their currencies as a direct result of Russia’s slowdown that has only been aggravated by the trade wars running in the region. And despite all the ‘we want to join the West’ rhetoric, the bulk of the foreign investment into several of these countries remains Russian.
So the Riga summit should be the place where they can turn to their new best friend in Brussels for help. Except very little help will be on offer. As bne IntelliNews reported, “the most striking fact about the Eastern Partnership summit draft conclusions obtained by bne IntelliNews ahead of the gathering is that they leave out any language alluding to the possibility that the EU’s so-called ‘Eastern Partners’ might eventually join the bloc.”
With most of the Continent still in recession and saddled by massive public debt, a serious case of expansion fatigue has set in. Matriculating new members comes with a heavy financial burden – Poland was just granted €8bn of new structural transformation funds per year for the next 10 years alone – that nobody in Brussels is willing or able to pay. That is not to mention the immigration issue as long promised visa-free travel regimes also appear to been removed from the agenda.
Even the trade deal that several of the countries have recently ratified will not produce much new trade, as many restrictions remain in place and will only be removed gradually against proven success at implementing reforms demanded by Brussels.
Worn down by the added hardships, the aspirant countries are starting to get tired and in some cases even a little desperate.
Georgians were vocal at the European Bank for Reconstruction and Development (EBRD) annual meeting held in Tbilisi in May, but have seen little concrete aid in return. For many of these countries just the visa-free regime would be enough to placate their populations, but that seems as far away as ever. “We need a carrot” from the West, Eka Metreveli of the Georgian Foundation for Strategic and International Studies told the Financial Times in Tbilisi. “There’s the feeling that we’re trying, but nothing is happening. And Russia is here.”
Displeasure with the EU’s foot-dragging on the accession issue is widespread amongst the candidate countries. Serbian Prime Minister Aleksandar Vucic complained to Euronews in the same week of “patience fatigue” with the EU: “We invested not only a lot of our time, our full energy, our political strength in today’s processes, we also started the toughest and harshest possible economic reforms in Serbia. We achieved a lot in the dialogue with Kosovo Albanians, then you see that you are not even respected.”
And Turkey, which has been kept on the club’s doorstep for decades, recently seems to be doing a volte face by agreeing to build the so-called Turkish Stream gas pipeline to Europe’s borders that will give Moscow greatly increased clout in the country.
Finally Ukraine is in an increasingly desperate position, yet is only getting aid from the West in dribs and drabs. The economy had contracted by 17.6% in the first quarter of this year compared with a year earlier and it could contract by as much as a “disastrous” 12% this year, former president Viktor Yushchenko said in an interview on May 20. The government recently sharply downgraded its growth forecast to a 7.5% contraction for the full year, worse than last years 6%-plus contraction.
The government has been banking on Western help, but a donor conference supposed to be held on April 28 was called off because EU officials feared the country could remain a “bottomless pit” and say they will reconvene later this year depending on the progress of reforms. At this point the outlook is not good, as Ukraine’s shadow economy has expanded to a record 42% of GDP, according to the Ministry of Economic Trade and Development, rather than shrinking.
The Ukrainian economy is in tatters, but still spending a whopping 5% of GDP on defence that it clearly cannot afford to fight Russian proxies in the Donbas. With the deadline to agree a debt restructuring deal with bondholders in June, the prospects of a major default is now looming large. Kyiv passed a bill on May 19 allowing it to place a moratorium on coupon payments that the Russians said was tantamount to default. One obvious solution to the problem would be to grant Ukraine some debt relief as former US Federal Reserve governor Larry Summers augured in a recent FT editorial, but that is not on the table either.
“The case for debt reduction is as strong as any that I have encountered over the past quarter century. How the issue is resolved will say much about the extent of international commitment to Ukraine and to resisting Russian aggression,” Summers wrote.
The lack of aid and action that Riga is likely to produce means the EU is running the risk of fuelling a pro-Russian backlash in some or all of these countries. Their leaders – and Georgia and Ukraine standout – have promised their people a better life governed by “European values”. However, without significant aid they could fail to deliver. At some point the populations, which are bearing the brunt of the harsh economic reforms being imposed by the IMF and EU, could start to ask themselves if going with Russia was not the better option.
“Most Ukrainians wanted their country to be different by now. Even those who didn’t support the Maidan protest two winters ago were fed up with living in Europe’s most corrupt country. When then-President Viktor Yanukovych fled office after the demonstrations turned bloody in February 2014, the civic activists behind the protest movement hoped to turn their country from a dysfunctional kleptocracy into a rule-of-law democracy worthy of European Union membership,” Lucian Kim, a long-standing eastern European correspondent, said in a blog recently entitled “Why this revolution may be doomed too”.
In Kyiv, protestors have launched an “indefinite rally” in front of the doors of the Rada to demonstrate against the more than tripling of household gas tariffs. Likewise, miners travelled to Kyiv to protest against unpaid wages in May. Some have speculated that another Maidan protest, this time directed against the leaders of the last one, could be in the works. Indeed, the indefinite rally was organized by the Anti-Maidan movement and the union for protection of entrepreneurs
In Georgia, as bne IntelliNews reported, pro-Russian sentiment is already on the rise in the face of the same old grinding hardships. A recent poll by foreign affairs think-tank the National Democratic Institute has shown that Georgian approval of Russia’s EEU membership has doubled in the last year. Armenia and Kyrgyzstan have both already plumped for the EEU despite the fact that both their leaderships made it clear they would have preferred to move closer to Europe, but were realistic enough to realise they wouldn’t get any help from Brussels.
The only good news to come up in the run-up to the Riga summit is that tripartite trade talks between Russia, Ukraine and the EU appear to have started – something that Moscow was demanding for more than a year before the issue came to a head at the Vilnius summit in 2013.
Russian Economy Minister Alexei Ulyukayev was in Brussels on May 18 for talks with EU Trade Commissioner Cecilia Malmstrom and told reporters that he had not raised the issue of postponing implementation of the EU-Ukraine free trade pact from its January 1, 2016 start date, which has already been delayed one at the Kremlin’s insistence.
“Our view is that the time remaining must be used as effectively as possible,” he said of an agreement to continue negotiations on how the accord would be managed to address Moscow’s concerns about its impact on Russian business.
“There were no threats,” Malmstrom told reporters. “It was a very constructive atmosphere.”