Analysis: Russia's phantom pain to hurt Ukraine in EU pact
PARIS (Reuters) - When Russian Foreign Minister Yevgeny Primakov was trying to warn former Soviet satellite Poland against joining the U.S.-led NATO military alliance in the 1990s, he laced gallows humor with veiled menace.
"We know we can't stop you joining NATO. And you know that we know that we can't stop you joining NATO," the late Polish Foreign Minister Bronislaw Geremek quoted Primakov as telling him. "Just don't expect us to enjoy it."
As Moscow has tried to dissuade former Soviet republic Ukraine from signing a far-reaching trade and cooperation agreement with the European Union this month, there has been less humor but plenty of menace.
"My assumption is that my country will make it very expensive," said Sergei Karaganov, head of Russia's Council for Foreign and Defense Policy think-tank and a former adviser to President Vladimir Putin.
More than two decades after the collapse of the Soviet Union, Russia is still suffering from phantom pain in its amputated limbs. It aches each time a former Soviet republic takes a step towards integration with the West.
The pain is greatest in Ukraine, a country of 46 million with a $330 billion economy, which voted for independence from Moscow in 1991 but which many Russians regard as the historic cradle of their own nation.
Putin managed to prevent Ukraine and Georgia joining the path to NATO membership in 2008, when German and French opposition coupled with Ukrainian public hostility thwarted U.S. President George W. Bush's drive to expand the Atlantic alliance to Moscow's southwestern borders.
Western negotiators said at the time the diplomatic understanding was that Russia would not object if those countries built closer civilian economic ties with the EU.
However, Moscow's Cold War hackles have been raised again now that Ukraine, Georgia and Moldova are preparing to seal association agreements with the 28-nation bloc at an Eastern Partnership summit in Vilnius, Lithuania, on November 28-29.
"Unfortunately in Russia, this is seen only in geopolitical terms, as an attempt by the European Union to flex its geopolitical muscles," Karaganov told Reuters.
The Kremlin has used trade sanctions and the threat of disruption to energy supplies to try to strong-arm countries it calls its "near abroad" into joining a Russian-led Eurasian customs union instead of opening up to the EU's single market.
In Machiavelli's words, Putin seems to think it is better to be feared than loved.
Armenia, geographically isolated in the South Caucasus, buckled to trade pressure and agreed in September to join the union formed by Russia, Belarus and Kazakhstan in 2010.
But elsewhere, Europe's "soft power" of economic and political attraction is set to outgun Russian hardball tactics such as halting Moldovan wine and Ukrainian chocolate imports and threatening to cut Kiev's gas supplies in winter again.
Senior EU officials fully expect Moscow to put at least some of its threats into practice - for a while at least - if, as seems likely, Ukrainian President Viktor Yanukovich signs the agreement in Vilnius.
That could force the Europeans to provide emergency gas supplies and possibly standby financing with the International Monetary Fund, although Yanukovich has so far balked at the conditions for IMF credit.
After Russian monopoly Gazprom twice turned the taps off on Kiev in payment disputes in 2006 and 2009, European energy firms have braved Moscow's ire by adapting pipelines that carry Russian gas to the west so they can reverse the flow and pump gas to Ukraine from Poland, Hungary and Slovakia.
Some analysts say Gazprom, whose pricing power and grip on the European market have been eroded by falling demand and the U.S. shale gas boom, can ill afford a long cut-off to Ukraine.
Yet the EU seems just as poorly prepared to take more responsibility for an economically dysfunctional partner riddled with corruption and political feuds that is struggling to service its debts.
The association accord provides for 1 billion euros in aid over seven years, tied to reforms. But Kiev would need far more to endure a prolonged commercial war with Moscow.
Ukraine ranks an abysmal 144th out of 175 nations in the annual Corruption Perceptions Index compiled by the independent watchdog Transparency International (TI). That puts it level with Syria, Congo Brazzaville and Bangladesh, and worse than Pakistan, Nigeria, Iran and Russia itself.
Little has improved since TI wrote in a report last year: "Corruption in Ukraine is a systemic problem existing across the board and at all levels of public administration. Both petty and grand scale corruption are flourishing."
Kiev stalled last week on signing a deal with the European Bank for Reconstruction and Development to create an ombudsman to help fight corruption and improving the investment climate for foreign businesses. Failure to sign could cost Ukraine hundreds of millions of dollars in lost EBRD funding.
"Basically we don't see any positive change in our country. The situation is as bad as in previous years," Oleksii Khmara, executive director of TI Ukraine, told Reuters in an interview.
"There is less petty administrative corruption because of the extension of e-government, but we have more problems in grand political corruption than two years ago."
Khmara sees the EU agreement as a great opportunity to clean up Ukraine because Kiev will be required to adopt large swathes of the EU's rulebook, including bringing procurement by opaque state-owned enterprises under legal scrutiny.
But how effective the deal proves in practice is uncertain as it holds out no prospect of EU membership, at the insistence of west European countries such as France where "enlargement fatigue" is rife.
Whether the EU-Ukraine deal is signed at all now hinges on Yanukovich's willingness to release from jail his main political opponent, former Prime Minister Yulia Tymoshenko, and let her travel to Germany for medical treatment.
EU envoys have made 26 visits to Kiev to negotiate terms for her release, so far in vain. Some European officials are counting on Ukraine's business oligarchs, unlikely allies but who have a strong interest in access to the EU market, to push Yanukovich into letting his rival go at the last minute.
DAVOS, Switzerland - Central banks have done their best to rescue the world economy by printing money and politicians must now act fast to enact structural reforms and pro-investment policies to boost growth, central bankers said on Saturday.