Ukraine's Yanukovich vetoes last-minute EU push to save trade deal

Fri Nov 29, 2013 4:45am EST

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* EU, Russia in tug of war over Ukraine, former Soviet republics

* Ukraine turns to Moscow, cites dire economic straits

* Future of EU trade deal with Kiev uncertain

By Justyna Pawlak and Adrian Croft

VILNIUS, Nov 29 (Reuters) - Ukrainian President Viktor Yanukovich has vetoed last-minute attempts by the European Union to rescue a trade deal that could have been signed at a summit on Friday and would have signalled a historic shift away from Russia.

Under pressure from Moscow, Yanukovich abandoned plans last week to sign the agreement in favour of closer ties with his country's former Soviet master, dealing a blow to EU efforts to build closer relations with its eastern neighbours.

Despite the surprise turnaround, the EU has sought to change Kiev's mind, spelling out possible economic incentives in talks in Vilnius with Ukrainian government and central bank officials.

As EU leaders gathered for a summit with six countries in eastern Europe and southern Caucasus on Thursday, officials from the EU and Ukraine tried to work out a compromise that could allow Yanukovich to sign the trade deal in the near future.

EU diplomats told Reuters a preliminary understanding was reached on Thursday in the Lithuanian capital Vilnius in talks before Friday's summit but Yanukovich failed to sign off on it.

"I see this as a defeat for Ukraine," Lithuanian President Dalia Grybauskaite said. "The current choice of the Ukrainian leadership means putting limits on the Ukrainian people's chances of achieving a better life."

German Chancellor Angela Merkel and French President Francois Hollande both pinned responsibility for the breakdown of the talks on Yanukovich but said the door to closer ties with Europe remained open for Kiev.

Yanukovich said on Friday Ukraine still intended to sign an agreement with the European Union in the future but the country needed a financial aid package, which would ease its move closer to the bloc. He has called an earlier offer of 600 million euros ($800 million) "humiliating".

At Thursday's meeting, he detailed Ukraine's economic woes, citing high prices Ukraine has to pay for Russian gas.

Merkel said Europe would provide natural gas in future to Ukraine, which is dependent on Russia for its energy supplies, if Ukraine wanted it - although Europe's current ability to do so for long periods is limited.

Yanukovich's decision to walk away from the EU deal has sparked days of protests by thousands in the Ukrainian capital.

'COWARD' CHANT

A silence fell over a crowd of about 400 people in Kiev's Independence Square when news was announced from Vilnius that Ukraine had not signed the agreement. Demonstrators then began chanting "Coward! Coward!" - a reference to Yanukovich.

"I have no words," said Yuri Litonchenko, 29, wiping away tears. "I wanted our country to get out from under the thumb of the people running the country."

Friday's meeting is meant to underscore Europe's desire to build its influence in eastern Europe and the southern Caucasus.

The goal of the project, the Eastern Partnership, was to reel in Ukraine, a country of 46 million people, but that will most probably not happen for more than a year, diplomats said.

Instead, the EU initialled political association agreements with two other former Soviet republics, Georgia and Moldova, putting them on track to sign formally in around a year. A visa agreement with Azerbaijan was also signed.

Also attending were Belarus and Armenia, though there seems little prospect of their moving closer to the EU. Belarus is a member of the Russia-led customs union, which Armenia has also opted to join.

Ukraine, with its rich mineral resources, large land mass bordering four EU member states and annual output of more than $300 billion, is an attractive trading partner to both Moscow and Brussels.

However, its government has heavy financing needs in the coming 18 months and must find more than $17 billion next year to meet gas bills and debt repayments.

Russia, keen to maintain its grip over former Soviet republics considered to be its traditional sphere of influence, wants Kiev to join a Moscow-led trade bloc and put pressure on Yanukovich not to sign the alliance with the European Union.

Yanukovich spurned an EU offer, outlined in Thursday's lower-level talks, of technical help to meet conditions for IMF help, and suggestions that new EU aid money - beyond the 600 million euros already promised - could be put on the table if Ukraine met some requirements.

Among its conditions for a deal, the EU had asked that Ukraine tackle the issue of "selective justice", an implicit demand that it address the fate of jailed former Prime Minister Yulia Tymoshenko, Yanukovich's rival. She declared a hunger strike on Monday over the failure to sign the agreement.

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