![Uniformed troops believed to be Russian stand guard outside a Ukrainian military base in Crimea. Is there a peaceful resolution to this crisis? [Credit: Business Insider]](https://i0.wp.com/www.dougsbriefcase.com/blog/wp-content/uploads/2014/03/Credit-business-insider.jpg)
Uniformed troops believed to be Russian stand guard outside a Ukrainian military base in Crimea. Is there a peaceful resolution to this crisis? [Credit: Business Insider]
The author of this calumny, Oleh Tyahnybok, is a leader of Ukraine’s Svoboda (“freedom”) party, who in December 2012 was named Person of the Year by readers of the country’s leading news magazine, Korrespondent.
Such are the complexities that lurk not far beneath the surface in the ongoing crisis over Russia’s incursion into Crimea.
Tyahnybok stands by his comments made in 2004 and 2005 when his party was tiny and insignificant. “All I said then, I can also repeat now,” he told the Kyiv Post in 2012. “Moreover, this speech is relevant even today.”
Svoboda is no longer tiny and insignificant. It is now the country’s fourth largest party and has fared well In the transitional government that last month supplanted Viktor Yanukovich. Party members hold four senior posts, including Deputy Prime Minister and Prosecutor General.
In our continued efforts to back the Kiev government, we understandably avert our eyes from some of its worst elements, along with the electoral irregularities that prompted the Organization for Cooperation and Security in Europe (OCSE) to characterize the 2012 elections that produced the current Parliament as “a step backwards compared with recent national elections.” We prefer to cast this as a morality play pitting the good (pro-Western) people of Ukraine against the evil Vladimir Putin. If only it were that simple.
And that easily reversed. Putin has taken a military action to which we will not respond militarily, despite our Secretary of State’s testosterone-addled rhetoric in the days immediately following the Russian incursion.
President Obama has made some progress on economic sanctions. The EU has agreed to impose travel restrictions and asset freezes on a still-to-be-named list of Russians believed to be “responsible for actions which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine.” But the Europeans are unlikely to approve sweeping sanctions since they have 170 billion euro ($238 billion) directly invested in Russia. The value of trade between the EU and Russia is estimated at 355 billion euro ($497 billion), 10 times more than US trade with Russia.
With military options off the table and economic sanctions holding limited value, diplomatic options, which many will find weak and distasteful, will at some point be the only real alternative. If properly constructed, they could allow all sides to step honorably back from what could deteriorate into a bloody conflict. A well-conceived diplomatic solution could actually bring stability to a volatile Ukraine.
Ukraine is a basket case because of two mutually reinforcing problems: ethnic tensions that have rendered it ungovernable and an economy in freefall.
The ethnic tensions are by now familiar. They have fueled the rise of extremist parties like Svoboda and raised the specter of a potential civil war between the largely Russian-speaking population of the east and the largely Ukrainian-speaking population of the west. Putin has justified his seizure of Crimea as protecting ethnic Russians from violence, a transparent lie but a complaint commonly heard from both sides in Ukraine.
The extent of the country’s economic troubles is perhaps less well understood. The government needs to roll over $25 billion in debt this year and its central bank holds only $12 billion in foreign currency reserves. Its own currency, the hryvnia, has lost 25 percent of its value since mid-January, making its debt load – half of which is in foreign currencies — that much more onerous. Like other developing countries, Ukraine has been hit by the US Federal Reserve’s decision to taper asset purchases, which has exacerbated the flight of foreign capital. The government is paying as much as 15 percent interest for short-term borrowing. It is $1.5 billion behind in its payments to Russia for natural gas, on which it is highly dependent. Ukraine appears to be edging toward default, as even its interim President has acknowledged.
In the past, Ukraine has dealt with economic crises by playing Western powers off against Russia. Last year, for example, the EU pressed Ukraine to accept an IMF aid package, which Russia urged it to reject. In November, Yanukovich rebuffed the EU and accepted Putin’s offer to buy $15 billion in Ukraine government bonds and provide natural gas at a discount.
But Russian aid didn’t pull Ukraine back from the brink. Instead, it alarmed many of its pro-Western citizens, inciting more fervent demonstrations in Kiev. Those demonstrations ultimately toppled the Yanukovich regime amid a continued economic slide.
The new government in Kiev is counting on assistance from Europe and America to allow it to stay afloat. The hope that the US will ship dollars to Ukraine will almost certainly disappoint. The House last week overwhelmingly agreed to a bill that would impose economic sanctions on Russia but which provided just $1 billion in loan guarantees for Ukraine. Senate Foreign Relations Committee Chairman Robert Menendez (D‑NJ) has included a provision in his Ukraine aid package that would make it easier for the IMF to extend aid to troubled countries, but that would make little difference to Ukraine. Congress is happy to approve economic sanctions against Russia but won’t do much to provide economic aid to Ukraine.
The IMF is offering $15 billion, but that is not likely to be enough. And IMF assistance always comes with strings — requirements of economic reforms, spending cuts and tax increases — that recipient nations often find intolerable. The IMF offered Ukraine $15 billion in 2010, but the aid was frozen in 2012 when the Yanukovich government refused to fulfill conditions that the agency had imposed.
Russia is willing to help if Ukraine assembles a government to its liking, but it is limited by its own flagging and corrupt economy, the ruble’s fall, and low energy prices.
The current crisis aside, Ukraine’s economic woes seem to be more than it or any of its benefactors can bear. And that may open the opportunity for a peaceful way out.
Since neither Russia nor the West can afford to bail out Ukraine, perhaps the only remaining solution is for the two sides to work together to resolve the economic crisis. A structured default, as occurred in Greece and Cyprus, in which holders of Ukrainian government debt take write-downs, would both ease the government’s burdens and exact some pain on its Russian and European creditors.
That, in turn, would make it in the interests of all parties to seek political equilibrium in Ukraine. If European and Russian investors (including the Russian government itself) take a beating on Ukrainian bonds, they will have good reason to try to avoid further losses by supporting political normalcy. Ukrainians themselves might come to accept that their access to capital markets will depend to a large extent on their ability to persuade foreign investors that their government will stop its repeated lurching between pro-Western and pro-Russian orientations. A stable government broadly representative of all ethnic groups and interests would be the surest – and perhaps the only – means of attracting needed capital.
But how, specifically, might the current crisis be resolved? Putin has continued to insist that Ukraine return to the February 21 agreement, which allowed Yanukovich to continue on as President until new elections later in the year. At this point, one can only imagine how deeply Putin must despise Yanukovich, whose regime he sought to rescue. When Yanukovich last month failed to put down demonstrations and fled Kiev, one would assume he irrevocably lost Putin’s support.
It wouldn’t be a big concession for Putin to call for a return to the February 21 agreement with someone other than Yanukovich serving as its temporary leader. Similarly, the West should be willing to ask interim President Oleksandr Turchynov to step aside. The EU and Russians could then insist that the government name a new interim prime minister and a cabinet that adequately represents all factions.
It would seem to be in everyone’s interests to assure that future elections are conducted fairly and, more importantly, that the losing side accept the results and not appeal to its outside allies for money. Above all, Russia and the EU must continue to press the new government to undertake economic reform as a condition for continued assistance.
What about Crimea? Putin’s hold on the peninsula is firm and the West will do nothing that is likely to change that, even if the Crimeans vote to separate from Ukraine at a plebiscite scheduled for Sunday.
Crimea’s incorporation into Russia, though, could backfire on Putin by excluding a reliably pro-Russian constituency from the coming elections. Since Putin would want to maximize the number of Ukraine deputies sympathetic to Russia, removing Crimean voters from the ballot box would in that respect harm his interests. Without Crimea, a newly elected Kiev government would almost certainly be unfriendly to the Kremlin.
This might motivate Putin to consider some mediating position – for example, the deployment of peacekeepers to Crimea under international supervision to prevent ethnic violence, along with international recognition of Russia’s lease on ports in the city of Sebastopol.
Above all, East and West would have to agree on a bailout package that would put both on the hook for defaults and continued assistance. That would give the two sides a common interest in preserving Ukraine’s political stability.
A resolution along these lines requires a level of cooperation between East and West that seems improbable. It nevertheless makes sense, as David Hendrickson and former Bush national security adviser Thomas Graham have noted. Both have argued for a “concert solution,” in which outside powers agree to cooperate in promoting Ukraine’s stability. Henry Kissinger also has advocated for an approach that encourages reconciliation between East and West and between Ukraine’s major factions.
Instead of competing for the allegiance of an erratic and bankrupt Ukraine, East and West should cooperate in pushing for political stability and economic reform.
That would mark a big change in policy for Russia and the West. For years, they have enabled Ukraine’s instability, helping bring it to the brink of civil war and economic collapse. So long as ethnic factions within Ukraine can appeal to their respective allies in Europe or Russia for handouts, they have little motivation to accept adverse election results or take responsibility for repairing their own economy. The allure of free money from foreign patrons raises unrealistic hope on the part of Ukrainians that someone else will pay their bills and supply them with cheap energy.
Russia, Europe and the US have fed this self-destructive dynamic for more than two decades. They can reverse it, but only if they cease competing over Ukraine and instead cooperate to resolve its financial crisis and promote its political stability.