What is at Stake in Ukraine

8/12/2019 What is at Stake in Ukraine

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EUROPE POLICY PAPER 1/2014

WHAT IS AT STAKE IN UKRAINE

Europe and the United States Need to Do What it Takes to Protect the

Right of the Eastern Partnership Countries to Choose their FutureDANIELA SCHWARZER AND CONSTANZE STELZENMLLER


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On the cover: Ukrainian protestors continue to protest on Kyivs Independence Square on December 6, 2013. jon11/

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W S U

E U S N D W T P R

E P C C F

E P P

M

By Daniela Schwarzer and Constanze Stelzenmller1

1 Daniela Schwarzer is the Director of GMFs Europe Program. Constanze Stelzenmller is a Senior Transatlantic Fellowand the Director of GMFs Transatlantic Trends. Both are based in Berlin.

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

A Flawed Balancing Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

The Stakes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Short-Term Responses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

The Medium Term: Two Scenarios. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15


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W S U 1

E S

1The Issue

Russias annexation of Crimea and its efforts

to destabilize the transitional government

in Kyiv have re-framed the relationship

between Europe and Russia in Europes eastern

neighborhood from an uneasy geopolitical

balancing into full-on systemic conflict. The

competition over Ukraine also puts the rest of

the eastern neighborhood at significant risk. The

EU together with the United States must now do

what it takes to protect Ukraines right to choose

its future path. The Europeans will have to pay

a price for Ukraines transformation, and someEU member states will be more vulnerable than

others to pressure from Russia. But the cost of not

countering Russian attempts to destabilize Ukraine

would be even higher. Germany will be a key player,

given its economic and political power in the EU,

its geographical location, and its special ties with

Russia.

Policy Priorities

The immediate task is to stabilize the transition in

Ukraine. This will mean incentives and support

for Ukraine; effective, targeted sanctions against

Russia; and protection for vulnerable states in the

neighborhood and in the EU. For the medium-

to-long term, the West should prepare for two

possible scenarios for its relationship with Russia:

a de-escalation scenario, and a Cold War II. In

both cases, the EU should overhaul its Eastern

Partnership policy, providing much stronger

political and economic backing for democratic

transformation and association with the West.In the latter scenario, the EU should reduce its

own vulnerability to Russian action and increase

its capacity to project soft and hard power in the

region. The external threat has the potential to give

decisive momentum to European integration, e.g.

in the areas of energy and defense.

The external threat

the potential to give

decisive momentum

European integratio


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W S U 3

A F B A

2

The crisis in Ukrain

a watershed mome

for Europe, and for

European Union. Th

annexation of Crim

has reframed the E

Russia relationship

The crisis in Ukraine is a watershed momentfor Europe, and for the European Union.

The annexation of the Crimean peninsula

by Russia after Ukrainian President Viktor

Yanukovych was ousted by the Euromaidan

movement, and Moscows efforts to destabilize the

transitional government in Kyiv, have re-framed the

relationship between Europe and Russia from an

uneasy balancing of regional interests to a systemic

competition between peaceful democracies and an

aggressive authoritarian power.

The EU and its Eastern Neighborhood

The EUs attempts at establishing a policy

framework for its eastern periphery after the

breakup of the Soviet Union have had mixed

success at best. Seen in retrospect, the integration

of ten former Warsaw Pact countries into

NATO and then into the EU was a strategic and

transformational achievement. Slovakia, Slovenia,

Estonia, and Latvia have even joined the eurozone.

Still, it must be acknowledged that the necessary

adaptation processes were often painful, even

before they were exacerbated by the global financial

crisis; and for a few countries such as Romania

and Bulgaria, political and economic stability still

remains a goal to be achieved.

The EUs subsequent efforts to define its

relationship with the six remaining countries of

its eastern periphery have been far more fraught.

In an attempt to balance legitimate European and

Russian interests in the region, a membership

perspective was deliberately excluded. Deprived of

this incentive, the EU has struggled to encourage

economic and political transformation in its eastern

neighborhood.

The European Neighborhood Policy (ENP),

launched after the 2004 EU enlargement, was

soon widely criticized, in particular because it

lumped together without a persuasive overall

policy framework or sufficient funding Europes southern andeastern neighborhoods,

encompassing very disparate countries ranging

from Algeria to Ukraine.1In an attempt to make

the approach more coherent through greater

regionalization, the states of the southern

neighborhood were regrouped in the Union for the

Mediterranean 2007, pushed by Frances President

Nicolas Sarkozy. Its counterpart, the Eastern

Partnership (EaP), was initiated by Poland and

Sweden (with German backing), and came into

force in 2009.

The Eastern Partnerships objective was to stabilize

the six post-Soviet states on the EUs eastern

border (Armenia, Azerbaijan, Georgia, Moldova,

Belarus, and Ukraine) politically and economically

by promoting free trade agreements, visa

liberalization, and strategic partnership agreements,

as well as regional cooperation and institution-

building. The Eastern Partnership Civil Society

Forum, meanwhile, monitors efforts at building

democratic governance.

Although the Eastern Partnership was an

improvement on the ENP, it failed to differentiate

appropriately between the six EaP countries and

their specific domestic and geostrategic situations.

As the Ukrainian case illustrates, the association

agreement approach puts too great a burden

on countries with fragile and dysfunctional

political economies. Without a clear membership

perspective, incentives for adaptation remained

low. Moreover, the EU failed to use its Common

Foreign and Security Policy (CFSP) as a framework

for engaging with the six EaP countries on regional

security issues. It did not provide sufficient andsustained support for civil society actors, or

effective instruments and political backing from

1 The ENP included Algeria, Morocco, Egypt, Israel, Jordan,Lebanon, Libya, the Palestinian Authority, Syria, and Tunisia inthe south, and Armenia, Azerbaijan, Belarus, Georgia, Moldova,and Ukraine in the east.


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T G M F U S4

The EUs balancing

pproach assumed that

stability would be good

for the entire region,

including Russia.

Brussels for promoting democratic transformation.Its initial funding of only 600 million over four

years was half-hearted.

But there were partial successes, too. The

association negotiations with Moldova advanced

well, as did those with Georgia. And the EU has

been willing to learn from its mistakes: it has

undertaken a review of the Eastern Partnerships

comparatively weak performance, and in 2011

agreed on a new European Neighborhood

Instrument (ENI), which will be in effect from 2014

to 2020. With a substantially higher budget of 15.4billion, the ENI attempts to remedy some of the

EaPs flaws by providing incentives and rewarding

best performers, as well as offering funds in a faster

and more flexible manner.2

Russia: Countering the EU

The EUs balancing approach in its eastern

neighborhood was based on the assumption

that promoting economic stabilization and good

governance on the lines of the European model

would be beneficial to the entire region, including

Russia. It was certainly not set up to pursue anaggressive expansion of European influence to the

detriment of Russia. In fact, a majority of the EUs

members were against offering an EU or NATO

membership perspective to the EaP states as a

matter of principle, so as not to antagonize Russia.

Moscow, however, saw EU policies toward the

six post-Soviet states as an attempt to create a

European sphere of influence that was deliberately

designed to undermine Russian interests; in other

words, as a zero-sum game set up by the EU. In

response, it began to systematically counter thepotential transformative impact of the Eastern

Partnership. In 2008, Russian forces occupied

and annexed the Georgian provinces of Abkhazia

2 ENI applies to the southern and eastern neighborhoods.European Commission, Memo 11/878,December 7, 2011.

and South Ossetia, effectively ending Georgiasplans to join NATO (and, by implication, those of

Ukraine). Moscow has continued to foment the

frozen conflicts (Transnistria, Nagorno-Karabakh,

Abkhazia, and South Ossetia) in the region. It

has deployed gas embargos and import boycotts

against pro-EU governments in Moldova and

Georgia; it likewise countered the EUs offer of an

association agreement to Armenia by pressuring it

to join Russian President Vladimir Putins planned

Eurasian Union3instead. In Ukraine, too, Moscow

tried to deter Yanukovych from the association

agreement with the EU. But when Yanukovychsuccumbed and announced that Ukraine would

join the Eurasian Union instead, that was the

last straw, which precipitated his ouster by the

Euromaidan movement.

Ukraine: The Tipping Point

Neither the frozen conflicts, nor the Russo-

Georgian war of 2008, nor even the brutal

repression of popular protests in Belarus in 2010,

were able to pit the European Union directly

against Russia. Nor was the pressure Russia brought

down on governments in Moldova and Georgia

seeking association agreements with the EU (with

encouragement from Germany) important enough

to fundamentally affect Moscows relations with

Brussels and Berlin.

Ukraine is an entirely different matter, as it is

located squarely on the Eurasian continents West-

East fault line, with a population of 46 million,

a sizable ethnic Russian minority,4and a history

3 The Eurasian Union is a customs union that is plannedto enter into force in 2015, and to include Russia, Belarus,

Kazakhstan, and now Armenia.4 Ethnic Russians make up about 17 percent of Ukrainespopulation, but Russian is widely spoken. Ethnic Ukrainiansand ethnic Russians have lived together in Ukraine peaceably formore than half a century, and speak or at least understand eachothers languages. See Mykola Riabchuk, Ukraine, not readyfor divorce, TheNew York Times,March 5, 2014; and ChrystiaFreeland, Russia has already lost the war, TheNew York Times,March 7, 2014.
http://europa.eu/rapid/press-release_MEMO-11-878_en.htm?locale=frhttp://www.nytimes.com/2014/03/06/opinion/ukraine-not-ready-for-divorce.html?hp&rref=opinion&action=click&module=Search&region=searchResults%230&version=&url=http%3A%2F%2Fquery.nytimes.com%2Fsearch%2Fsitesearch%2F%3Faction%3Dclick%26region%3DMasthead%26pgtype%3DHomepage%26module%3DSearchSubmit%26contentCollection%3DHomepage%26t%3Dqry845%23%2Fmykola+riabchukhttp://www.nytimes.com/2014/03/06/opinion/ukraine-not-ready-for-divorce.html?hp&rref=opinion&action=click&module=Search&region=searchResults%230&version=&url=http%3A%2F%2Fquery.nytimes.com%2Fsearch%2Fsitesearch%2F%3Faction%3Dclick%26region%3DMasthead%26pgtype%3DHomepage%26module%3DSearchSubmit%26contentCollection%3DHomepage%26t%3Dqry845%23%2Fmykola+riabchukhttp://www.nytimes.com/2014/03/09/opinion/sunday/how-russia-has-already-lost-the-war.html?ref=opinion&_r=0http://www.nytimes.com/2014/03/09/opinion/sunday/how-russia-has-already-lost-the-war.html?ref=opinion&_r=0http://www.nytimes.com/2014/03/06/opinion/ukraine-not-ready-for-divorce.html?hp&rref=opinion&action=click&module=Search&region=searchResults%230&version=&url=http%3A%2F%2Fquery.nytimes.com%2Fsearch%2Fsitesearch%2F%3Faction%3Dclick%26region%3DMasthead%26pgtype%3DHomepage%26module%3DSearchSubmit%26contentCollection%3DHomepage%26t%3Dqry845%23%2Fmykola+riabchukhttp://www.nytimes.com/2014/03/06/opinion/ukraine-not-ready-for-divorce.html?hp&rref=opinion&action=click&module=Search&region=searchResults%230&version=&url=http%3A%2F%2Fquery.nytimes.com%2Fsearch%2Fsitesearch%2F%3Faction%3Dclick%26region%3DMasthead%26pgtype%3DHomepage%26module%3DSearchSubmit%26contentCollection%3DHomepage%26t%3Dqry845%23%2Fmykola+riabchukhttp://europa.eu/rapid/press-release_MEMO-11-878_en.htm?locale=fr


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W S U 5

Ukraine is Russias

main asset in its cl

to be an European

power, rather than

Asian one.

profoundly rooted in both Europe and Russia. Forall these reasons, the country was always destined

to be the potential tipping point in the uneasy

regional balance of interests between the EU and

the Russian Federation.

Contrary to the assertions of conspiracy theorists in

the Kremlin and elsewhere, the EU held back from

encouraging Ukraine on a westward course for a

long time. European policymakers were nervously

aware of the significance Ukraine holds for Russia.

They were also put off by the sheer magnitude of

the countrys economic and political problems, itsdysfunctionality, poverty, and endemic corruption.

It was Yanukovych, not EU leaders, who sought the

association agreement with the EU for his country

a ploy that was at least as much about keeping

Putin at bay as about rapprochement with the West.

And he abandoned the EU in favor of the Eurasian

Union at least as much because of the burdens

imposed by the EU as because of the incentives and

pressure deployed by Putin. Finally, the EU never

perceived the association agreement as excluding

economic ties with Russia. It was Putins proposal

of a Eurasian Union that forced Ukraine to choosebetween the two.

The reasons for Russias intransigence are many.

Ukraines strategic importance not least for

pipelines transporting Russian gas, Moscows most

vital source of leverage with Europe makes it

Russias main asset in its claim to be an European

power, rather than an Asian one. Moreover,

Ukraine is the Kremlins key to influence in the

other Eastern Partnership countries, as well as in

the Central Asian countries whose allegiance it

needs for the Eurasian Union. It is also crucial forRussias claim to respect as a major power, on a par

with the EU, the United States, and others.

Even more fundamentally, the specter of

Ukrainian society opting for the European model

of modernization is a debilitating blow to the

ideological framing Putin has given to his attemptsto reestablish Russian power: in Ukraine, reducing

the social tensions in a complex country to a

battle of symbols about the past;5and in Russia,

alignment with Russias imperial past, set against

a counter-narrative of Europe and the West as

post-modern, decaying, and decadent cultures. In

this context, Putins occupation of Crimea is not

realpolitik,it is kulturkampf.6

Western Diplomacy, Interests, and Challenges

The illegal occupation and annexation of Crimea

by Russia, combined with blatant propagandaand bullying of the new transitional government

in Kyiv, require a firm and coordinated Western

response. Compromise with Russia may still be

possible but not at the price of a settlement

that sacrifices fundamental values of the EU,

such as national sovereignty, the inviolability

of borders, democratic self-determination, the

protection of ethnic minorities, and the right of

countries to choose their alliances as well as their

future development path. Indeed, Europe and the

United States must now do what it takes to protect

Ukraines right to choose its future path if

necessary, by standing up to Russia.

The Europeans will have to pay a price for Ukraines

choice; and some EU member states will be more

vulnerable than others to pressure from Russia.

Moreover, the conflict over Ukraine puts at risk

not just the rest of the eastern neighborhood, but

Russia itself.

Still, the cost of inaction or failure would be even

higher. So the struggle that lies ahead will decide

not just the future of Ukraine, its neighbors, andRussia, but also that of Europe and possibly of

the transatlantic alliance.

5 Timothy Snyder, Fascism, Russia, and Ukraine,The New YorkReview of Books,March 20, 2014.6 Ivan Krastev, What does Russia want and why?Prospect,March 4, 2014.
http://www.nybooks.com/articles/archives/2014/mar/20/fascism-russia-and-ukraine/http://www.prospectmagazine.co.uk/politics/what-does-russia-want-and-why/#.UyBdePl5M_Yhttp://www.prospectmagazine.co.uk/politics/what-does-russia-want-and-why/#.UyBdePl5M_Yhttp://www.nybooks.com/articles/archives/2014/mar/20/fascism-russia-and-ukraine/


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W S U 7

The test posed

by Ukraine is of a

magnitude Europe

not seen in more th

20 years.

Europe

Ukraines choice of a pro-European path raises

opportunities and challenges for realists and

idealists in Europe alike. In either case, the

test is of a magnitude Europe has not seen in more

than 20 years.

From a realist perspective, the transformation

of Ukraine would be a boon to the EU: it would

encourage the other five states in the EUs eastern

neighborhood to follow a similar path toward

good governance, stabilizing the entire region,

and boosting trade as well as security. This, inturn, might encourage reform-minded elements

in Russia. Conversely, its failure would jeopardize

the pro-European governments of Moldova and

Georgia, discourage civil societies elsewhere, and

lead to protracted instability and conflict east-

wards of the EU. The consequences for Europe

would likely include a rise in outflows of migrants

and refugees, the sex trade, arms, and narcotics, as

well as cybercrime, resulting in the EU having to

massively fortify its eastern borders. Ukraine could

become a huge festering sore on Europes frontiers,

capable of undermining the political health of theentire region, including the eastern reaches of the

EU itself. Accepting this course of events would

also mean recognition of Putins claim of a Russian

sphere of influence in the entire arc from Belarus

to the Caucasus in effect, accepting a new Iron

Curtain from the Baltic to the Black Sea.

For idealists, at a time when Europeans have been

doubting the legitimacy and viability of their

integrationist approach for the modern age, the

lesson from the Euromaidan uprising is blunt. The

West as a community of free democracies retainsits aspirational power; Europe, despite its flaws,

remains a model for its neighbors. Responding to

the Ukrainian uprising is a challenge for European

foreign and security policy the greatest in over

two decades. But, as Europes reaction to the fall

of the Berlin Wall and the Yugoslav Wars shows,Europeans can come together in times of crisis. On

the other hand, if the EU and its member states fail

to react adequately, this could be a fatal blow for

the credibility not just of its neighborhood policies,

but of the EU as a foreign policy actor on the global

stage.

The European Unions high representative for

foreign and security policy, Catherine Ashton, has

been deeply engaged in nuclear negotiations with

Iran, while Ukrainian crisis management has been

mostly in the hands of the EUs major memberstates notably the Weimar Triangle, despite

the overthrow of the transition deal brokered in

February by its three foreign ministers (Laurent

Fabius of France, Frank Walter Steinmeier of

Germany, and Radosaw Sikorski of Poland).

Russias actions have made resolve and unity in

Europe run high. Nonetheless, many European

countries face quite specific challenges and costs for

standing up to Moscow.

In France, President Franois Hollande has sided

with Washington (and initially against Berlin)

on the need for harsher sanctions against Russia.

France is less vulnerable to Russian economic

pressure, but it is engaged in what is currently

Europes biggest (1.2 billion) arms sale to Russia.

And it is concerned that escalating or protracted

tension in the east might draw political and

financial resources away from the EUs southern

neighborhood and from the task of repairing and

integrating a Europe marked by deep divides in the

wake of the global financial crisis. These fears are

shared by other southern EU member states that

remain at risk in economic terms, such as Italy,Spain, Portugal, Greece, or Bulgaria. It is further

compounded by the fact that several of these

T S

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T G M F U S8

periphery states are highly dependent on Russian

energy imports.7

The United Kingdoms position is similarly

ambiguous. Its prime minister, David Cameron,

and foreign minister, William Hague, have been

vocal on the need for a strong response to Russias

actions. But Britain was burned by the experience

of a prolonged and damaging freeze in U.K.-

Russian relations after the the killing of the former

KGB-spy Litvinenko in London. It has been carefulnot to demand any sanctions that would damage

the U.K.s standing as a major haven for Russian

capital and wealthy Russian expats, as well

as their children attending British schools and

universities.

In contrast, Poland and the three Baltic states

of Estonia, Latvia, and Lithuania (supported by

Sweden) have left no uncertainty as to where

they stand on Ukraine, and on Russia. Historical

connections, geographic proximity, and size give

them a major stake in the success of Ukrainespolitical transformation and make them highly

vulnerable to its failure. They joined NATO and

the European Union precisely because of what

7 Arno Behrens, Julian Wieczorkiewicz, Is Europe vulnerable toRussian gas cuts?CEPS commentary, March 12, 2014.

they perceive as an enduring threat from Moscow.

All four have substantially modernized their

economies, after difficult adaptation processes

to EU member status, and the Baltic republics

having undergone additional painful austerity

programs in the course of the global financial crisis

But the impact of any further destabilization of

the situation in Ukraine for example, though

outflows of refugees will hit them first. At the

same time, they are also existentially dependent on

Russian gas: Poland imported more than 50 percent

of its domestic gas consumption from Russia,

whereas for the three Baltic countries the rate was

100 percent (see Figure 1).

Germany is Europes pivotal power in the Ukrainian

crisis. The reasons: its economic strength and

potential political clout; key German leaders

who have recently declared they want to shift the

countrys strategic posture from self-restraint to

one of greater responsibility;8its geographical

location; its historic special relationship with

Russia; and its newly close bonds with Poland and

the Baltic states. Of all the EU member states, it has

8 Germanys president, Joachim Gauck, called for a new Germanforeign policy at the Munich Security Conference on February5, closely echoed by Foreign Minister Frank Walter Steinmeier,and Defense Minister Ursula von der Leyen. The speeches canbe found here.

Figure 1: Share of Russian gas in total EU-28 consumption (aggregated 2012 data, in bcm)

Source: Behrens/Wieczorkiewicz (2014, p. 3), based on data from BP (2013), EIA (2013 and 2014)

0

10

20

30

40

50

60

70

80

90

ES PT DK UK EI CY MT NL FR IT RO LU HR DE BE HU AU PL EL SI SK CZ BG EE FI LV LT SE

Annual gas consumption

Russian gas imports
http://www.ceps.be/book/europe-vulnerable-russian-gas-cutshttp://www.ceps.be/book/europe-vulnerable-russian-gas-cutshttps://www.securityconference.de/en/activities/munich-security-conference/msc-2014/reden/https://www.securityconference.de/en/activities/munich-security-conference/msc-2014/reden/http://www.ceps.be/book/europe-vulnerable-russian-gas-cutshttp://www.ceps.be/book/europe-vulnerable-russian-gas-cuts


10/19

W S U 9

the greatest stake in its successful resolution. What

is at stake is not only the economic and political

stability in Germanys neighborhood, but Berlins

foreign policy credibility, which has suffered over

the last few years. After German reunification in

1989, the German Question focused for 20 years on

Berlins willingness to use force particularly in

the genocidal wars of the Balkans. The 21stcentury

version of the German Question is: will Germany

use its considerable political and economic power

to stand up to Russia?

For now, the answer appears to be yes. Berlins

relationship with Moscow had already cooled in

the wake of the 2008 Russo-Georgian war. Both

Chancellor Angela Merkel and Foreign Minister

Steinmeier have few, if any, illusions about Vladimir

Putin. Still, Berlin (and Steinmeier in particular)

initially preferred diplomacy and engagement,

and resisted harder institutional and economic

sanctions. Russias obduracy, however, has angered

many policymakers, and stiffened the German

governments resolve.9

Yet Germany too would have to pay a price for

worsened relations with Russia. Its dependency

on Russia has often been overstated. With a shareof less than four percent of total German exports

(see Figure 2), Russia only occupies 11thplace in

the ranking of Germanys bilateral trade partners,

9 Angela Merkel, Appeal to Russias Political Reason, Govern-ment Statement on Ukraine, March 13, 2014.

Figure 2: EU member states exports to Russia (as share of total exports)

Source: Own calculations based on Eurostat (2014)

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

AT BE BG CY CZ DE DK EE ES FI FR UK EL HR HU IE IT LT LU LV MT NL PL PT RO SE SI SK
http://www.bundeskanzlerin.de/Content/EN/Artikel/2014/03/2014-03-13-regierungserklaerung-merkel-ukraine.htmlhttp://www.bundeskanzlerin.de/Content/EN/Artikel/2014/03/2014-03-13-regierungserklaerung-merkel-ukraine.html


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T G M F U S10

What will Russian

ooperation elsewhere

look like if the U.S.

concedes parts of

Europe to Russia?

after Belgium and Poland. And while 35 percentof Germanys natural gas imports come from

Russia, Moscow has never managed to turn that

into political leverage. According to German

industry, however, 6,200 German companies work

in Russia, accounting for 300,000 jobs.10On the

other hand, respondents in a recent German survey

express deep distrust of the Russian president,

with majorities wanting a tougher line on Russia,

and more help for Ukraine.11But it is not only

Ukraine that will need support, or other EaP

countries seeking association with the EU, such

as Moldova and Georgia. The Southern Europeancrisis economies, as well as those EU member

states most vulnerable to Russian pressure, or a

break down of trade with Russia (see Figure 2),

may need economic and political help as well.

Germany, which is currently still the economic

power house of the EU and the largest guarantor to

crisis-stricken euro area member states, will have to

shoulder a substantial share of these costs. The case

of Ukraine can become a severe test for Germanys

willingness to engage itself financially for the EU

in this case for the EUs ability to stand up for the

rights and freedom of other countries.

The United States

In the United States, President Barack Obama has

been focused on the rise of an assertive China,

and preoccupied with recalibrating his countrys

strategic posture by matching its policies to

resources depleted by two wars. After a failed

reset attempt with Russia, his administration

has chosen to engage with Moscow coolly and

selectively. It has also and rightly asked

10 Ostausschuss der Deutschen Wirtschaft, Ostausschuss warntvor Wirtschaftskonflikt,press statement, March 5, 2014.

11 Eighty-one percent of respondents agree that Putin willuse any means to pursue Russian interests; 58 percent say theEU and Germany should support Ukraine; 56 percent say theGerman government should oppose Russia with more deter-mination. See Infratest Dimap, ARD Deutschlandtrend,March2014.

Europe to take on greater security responsibilitiesin its own neighborhood. Finally, the United States

is far less vulnerable to economic pressure than

Europe, because its bilateral trade with Russia is

much smaller (see Figure 3), and because of its

huge domestic shale gas reserves.

Yet the United States cannot afford to let Europe

be weakened and undermined by Russia. That

would deprive the United States of its key ally and

source of leverage in the region, and hollow out the

transatlantic alliance, as well as NATO, putting an

end to the notion of the West as a community ofdemocracies based on a shared belief in universal

human rights and freedoms, and constitutional

governance. Nor can the United States accept a

Russia that changes European borders by force,

and stakes a unilateral claim to dominance in its

western neighborhood by dint of bullying and

military intimidation.

The United States needs Russia, of course, for

diplomacy and conflict management in Iran, Syria,

Afghanistan, and the Middle East. Some warn12tha

the price for the United States standing up to Russia

in Europes east may be a freeze in cooperation on

other issues of even greater concern. But what will

Russian cooperation elsewhere look like if the

United States concedes parts of Europe to Russia?

Russia

Of all the actors in Europes east, Russia probably

has the greatest stake of all in the outcome of the

Ukrainian crisis. The best-case scenario for Ukraine

and its neighbors a successful stabilization

and transformation is likely to be a worst-case

scenario for Russias president. If Moscow does notachieve its goal of destabilizing the new transitional

government in Kyiv, that is likely to be the

beginning of the end for Putin and his regime. The

12 See John Mearsheimer, Getting Ukraine Wrong, TheNewYork Times,March 13, 2014.
http://www.ost-ausschuss.de/ost-ausschuss-warnt-vor-wirtschaftskonflikthttp://www.ost-ausschuss.de/ost-ausschuss-warnt-vor-wirtschaftskonflikthttp://www.infratest-dimap.de/umfragen-analysen/bundesweit/ard-deutschlandtrend/2014/maerz/http://www.nytimes.com/2014/03/14/opinion/getting-ukraine-wrong.htmlhttp://www.nytimes.com/2014/03/14/opinion/getting-ukraine-wrong.htmlhttp://www.infratest-dimap.de/umfragen-analysen/bundesweit/ard-deutschlandtrend/2014/maerz/http://www.ost-ausschuss.de/ost-ausschuss-warnt-vor-wirtschaftskonflikthttp://www.ost-ausschuss.de/ost-ausschuss-warnt-vor-wirtschaftskonflikt


12/19

W S U 11

possible outcomes and consequences of a power

shift in Russia are at this point incalculable. They

present an enormous opportunity for Russian civil

society, but an even greater likelihood of massivedisruptions for the region, and for the EU.

If Putin has his way, and the failure of the Orange

Revolution in 2004 repeats itself, the authority of

his regime will be cemented, and any transfor-

mation of Russia itself will be postponed for

decades. However, that is no guarantee of stability

either. Successive governments in Moscow have

failed egregiously to diversify the countrys

economy, to wean the government budget off its

dependency on rents from fossil energy extraction,

to repair its crumbling infrastructure, and to put an

end to rampant and pervasive corruption, up to the

highest levels of government. Already now, without

severe sanctions in place, the Ukraine crisis is

taking its toll on Russia economically: the ruble has

plummeted and so has the Moscow stock market.

The effects on the real economy are considerable:

Russian companies rely strongly on Western banks,

and the decline of the ruble pushes up their debt

service and refinancing costs for foreign currency

denominated debt. At the same time, borrowingon the markets is becoming more expensive.

Companies with reduced market capitalization

due to the sharp decline of the Russian stock

market face considerably higher borrowing costs.

In the context of a looming emerging market

crisis, investors are likely to show a great degree

of prudence with regard to Russia, Ukraine, and

neighboring states.

A hardening of the Russian regimes authority,

combined with a walling-off from Europe and the

West, is unlikely to turn this situation around; if

anything, it may speed up the downward decline

into a self-reinforcing vicious spiral. This could

mean the end of the Russian social contract,

under which Russians gave unquestioning support

to the regime, and in return got security and non-

interference by the government in their private

Figure 3: Russias main trading partners (share of total Russian trade)

Source: Eurostat (2014)

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%


13/19

T G M F U S12

lives. It would exacerbate the ongoing flight ofcapital and the frustrated middle class. With time,

Russia could become a failing state. This, compared

with eventual trade sanctions of Russias main

trading partner, the EU (see Figure 3), may in fact

considerably damage Russian economic prospects

with severe risks for political and social stability in

the country.


14/19

W S U 13

Reforming Ukraine

will cost billions, las

generation, and req

a concerted effort b

the West.

The immediate challenge for Europe andthe United States after the annexation

of Crimea is threefold: stabilizing the

Ukrainian transition, deterring Russia from further

destabilizing Ukraine, and shoring up the region.

Stabilize Ukraine

The task of reforming Ukraines deeply

dysfunctional economy, helping it to combat

endemic corruption and to build decent institutions

that can provide good governance to the country,

will cost billions, last a generation, and require the

combined efforts of all the forums, institutions,and instruments the West possesses: the EU, the

IMF, and the OSCE, as well as NATO and Europes

political foundations and NGOs. That makes it all

the more important that the West should get its

messaging right at home and abroad. It should

signal swiftly and in no uncertain terms that it

understands the magnitude of the challenge that

Ukraine presents, that it will do what it takes to

protect Ukraines chosen path and that it will

prevent it from straying. It needs to persuade

worried or reluctant domestic publics in Europe

and the United States that this is worth doing, and

that inaction would be disastrous. Not least, it

should counter Putins narrative by making it clear

to Russians everywhere that the West is not Russias

enemy, or engaged on aggressive expansionism.

Prime Minister Arseniy Yatseniuks transitional

government in Kyiv has mostly been behaving

with moderation and restraint. It has set a date for

elections on May 25, formed a cabinet that includes

some of the more nationalist factions (thus giving

them responsibility for the transformation), focused

on institution-building, and resisted temptation to

react to Russian provocations in kind.

Europe, in response, should continue to combine

vigilance with support for all moderate political

forces in Ukraine. It should insist that the Yatseniuk

government must be broadly inclusive in regionaland ethnic terms, and that it must apply European

standards in the protection of minority rights

especially those of ethnic Russians. It may be

necessary for the transitional government to give

nationalists and extremists a stake in the outcome

of Ukraines transformation, but it must not let

them take it hostage. Kyiv must establish some sort

of control over the streets. Finally, it must continue

to resist provocation the mobilization of the

armed forces in response to the occupation of

Crimea is a disquieting sign of jittery nerves.

The EU has so far rewarded Kyivs prudence. It

has offered trade concessions, 11 billion in aid,

and a swift signature of the political chapters of

the Association Agreement. The International

Monetary Fund has meanwhile started working on

a rescue package with Ukraine. But the EU should

now start deploying its entire transformational

instrumentarium, including bilateral cooperation

(on national, regional, or local levels) to exchange

best practices and expertise.13

Deter Russia

The annexation of Crimea as a Russian

protectorate, and the prospect of further instability

in other parts of Ukraine, is already breathing

a new sense of purpose into NATO, which has

deployed Awacs surveillance planes to its eastern

borders, at the same time that the United States has

sent F-16s to Poland. Still, Western policymakers

currently do not want military action. But that gives

economic sanctions against Russia such as the

asset freezes and visa bans following the annexation

of Crimea real meaning. Sanctions work, as the

Iranian example shows. And their psychological

impact is at least as significant as their impact on

13 The twinning approach used by the European Commis-sion ahead of the 2004 EU enlargement is an example of a verysuccessful approach. See http://ec.europa.eu/enlargement/tenders/twinning/index_en.htm.

S-T R

4
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15/19

T G M F U S14

the actual mobility of Russians and their access tothe assets they have stored abroad. Moscow does

possess options for retaliation that might be painful

for some countries in Europe. But these too are

limited: due to a mild winter, Europes current gas

reserves are unusually large; and Russia, too, is

dependent on its trade and energy revenues from

Europe.

If the situation in Crimea or the rest of Ukraine

escalates, further sanctions may become

necessary. Economic sanctions could be widened

and extended to the top leadership in Moscow.Europe and the United States should also consider

excluding Russia from the G8, and cancel bilateral

meetings such as the German-Russian summit

planned for April.

The Obama administration should continue to

coordinate shoulder to shoulder with Europe on

the diplomatic effort against Russia. At the same

time, it will have to make allowances for Europeans

greater vulnerability to sanctions and escalation.

So it should resist calls by some in the United

States for faster and more punitive action, for a

more demonstrative show of military strength,

or for fast-tracking EaP countries into NATO.

Future Russian behavior may make a harsher

Western response inevitable. But for now, strategicpatience, flexibility, and balance are required from

Washington as well as close coordination with

Europe.

and Reassure the Region

Pro-European countries in the Eastern Partnership,

such as Moldova and Georgia, will need special

support; the same is true of some of the more

vulnerable and exposed new EU member states,

like Slovakia or Bulgaria. Visits by top European

and U.S. leaders such as the recent trips to

Poland and the Baltics by Merkel and Steinmeier show an understanding that the eastern European

member states need reassurance. Yet there is much

to be done beyond that. The EU needs to make

clear that its commitment to signing association

agreements with Chisinau and Tbilisi is rock-

solid, and that it is willing to counter Russian

intimidation with increased economic and political

support both in the EU and beyond it. Washington,

again, could help by coordinating messages and

financial support with the EU, as well as military

support in the context of NATO. It should also set

in motion policy changes to help Europeans reduce

their dependence on Russian fossil energy.

The U.S. will have

to make allowances

for Europes greater

vulnerability to

sanctions and

escalation.


16/19

W S U 15

Western policy in the medium termdepends on Russias next steps. Will it

decide to de-escalate, or escalate?

Scenario I: Russia De-Escalates

If Russia de-escalates, Crimea might remain

under Russian influence for the time being. But

Moscow would decide not to expand its influence

in Ukraines east and south, given the costliness of

such an effort and the sanctions this would entail

on the side of the EU and the United States. In

this case, it might be possible to establish a contact

group that would ensure protection of ethnicminorities in Crimea and the rest of Ukraine, access

to Crimea and Ukraine for OSCE monitors, and a

gradual rollback of sanctions.

Nonetheless, even in this scenario, Russias

actions would broadly reshape Europes policies,

domestically as well as externally. The EU should

reset its Eastern Neighborhood Policy, and

develop stronger tools and incentives to encourage

stability and transformation to the east of the

EU. That would mean tailoring its policies much

more to the specific political, socio-economic,and administrative situation of each country.

Ambitions, concrete objectives, and timelines:

all these would be lightened, so as to prevent

the overburdening that happened in the case

of Ukraine. Enlargement methodology (fine-

tuned action plans and progress reports) should

only be used with those countries that have a

declared interest and a high chance of developing

close relations with the EU without this causing

internal destabilization or frustration.14The EU,

for its part, should be able and willing to adapt

its neighborhood programs flexibly to rapidly

changing environments. Mobility has become a

highly sensitive issue in Europe because of large

recent movements of labor and welfare migration

14 Stefan Lehne, Time to reset the European NeighborhoodPolicy, Carnegie Europe Paper, February 4, 2014.

within the EU, as well as inflows of refugees.But there can be no successful transformation

of Europes eastern neighborhood without some

visa liberalization; one key option is mobility

partnerships, access for a countrys citizens to

the EU in exchange for cooperation in combating

illegal immigration.

The most sensitive issue of all is whether any

country in the EUs eastern neighborhood should

be granted a membership perspective, given how

the economic crisis has reinforced enlargement

fatigue across Europe. On the other hand, thecountervailing trend toward differentiated

integration with a more deeply integrated euro

area and a looser periphery may make it easier in

the future to frame policies by which neighboring

countries could be brought very close to the EU

but remain at a level just below full membership.

Scenario II: Russia Escalates

If Russia decides to escalate further, for example

by expanding its influence in Ukraines south and

east, or by attempting to destabilize the transitional

government in Kyiv and refusing to negotiate witheither the United States, the EU, or Kyiv, the fronts

between the West and Russia will harden, locking

the standoff into a Cold War II for many years to

come.15

Escalation by Moscow should result in a

fundamental rethink of European external affairs

in general, and the EU-Russia relationship in

particular: from foreign, security, and defense

policies to energy and neighborhood policies. New

security concerns should also lead Central and

Eastern European member states to rethink theirattitude to European integration, and to joining the

euro as steps toward further hardening the EUs

core, and reducing Europes vulnerability.

15 See Dmitri Trenin, Welcome to Cold War II, Foreign Policy,March 4, 2014.

T M T: T S

5

Escalation by Mosc

should result in a

fundamental rethin

of European extern

affairs.
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17/19

T G M F U S16

European leaders should seize the political marginof maneuver resulting from a severe external crisis

in order to strengthen the EU internally, and most

particularly its foreign and security policy. The

member states should engage in a review of the

EUs common defense and security policy, in order

to strengthen joint capabilities and effectiveness

all coordinated with NATO. Joint EU-NATO

border and regional security exercises should

become a regular feature.

Faced with a hardened territorial standoff between

Russia and Europe, an EU membership perspectivefor Ukraine and possibly Moldova and Georgia

would become a possibility, as would fast-tracking

NATO membership. Association policies for the

other EaP countries should be reinforced. Sweden

and Finland, currently members of the EU but not

of NATO, should reconsider alliance membership;

meanwhile, Denmark might review its opt-out out

of CSDP. Closer intelligence cooperation between

Europe and the United States with regard to

Russia would be desirable, perhaps enabling them

to overcome the current U.S. National Security

Agency standoff. The EU would also do well tostrengthen its internal strategic foresight and

planning capability.

The EU and its member states should also do

more to reduce their dependence on oil and

gas imports from Russia with help from the

United States. EU imports of natural gas as the

cleanest fossil fuel have risen in the last decade

as a consequence of the EU energy policys

emphasis on environmental objectives and open

markets. The strategic consequences of this import

dependency, notably from Russia, have beenpointed out for years.16At the same time, external

dependency varies strongly across EU member

states. Relaunching the internal energy market

16 See for instance Eurostat: Panorama of energy, Energy statis-tics to support EU policies and institutions, 2009.

(which, contrary to Brussels rhetoric, is far frombeing accomplished in 2014) would be a first step.

If the barriers to cross-border energy trade were

abolished and storage capacities improved, member

states could help each other out swiftly in cases of

scarcity, and would reduce dependency on external

supplies.17The EU should also build strategic gas

reserves for Ukraine and other EaP countries,

which could benefit the Central and Eastern

European countries as well.

In addition to creating a truly European energy

supply structure, the EU should invest more inthe strengthening of alternative energies in order

to reduce import shares in total consumption.

But energy self-sufficiency for the EU and its

neighborhood is a very long-term goal; so external

suppliers should be reviewed at the same time. If

the conflict with Russia continues, the construction

of the South Stream Pipeline, which directly

transports Russian gas into the EU, should be

abandoned for relationships with other supplying

countries in the EUs neighborhood.

At the same time, the EU and the United States

should invest all possible effort to reach out to

Russias civil society and opposition politicians

particularly the younger ones. That would leave

the door open for the next generation of Russian

leaders to find a face-saving exit from the standoff

created by Putin.

Two Visions of Modernity

Whichever way the conflict with Russia over

Ukraine turns, only two months before the change

of leadership in the EU, it has proved once more

how important European unity and resolve are

17 Oliver Geden and Susanne Drge, Integration dereuropischen Energiemrkte: Notwendige Voraussetzung freine effektive Energieauenpolitik, SWP-Studie S13, May 2010.The key task the EU would have to tackle is the regulationof network access, as this de facto remains controlled by thestrongest players in national markets, and the strengthening ofso-called interconnectors, which link national gas networks.

Europeans must do

more to reduce their

dependence on oil and

as imports from Russia

with help from the

United States.
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W S U 17

when faced with an aggressive external challenge.Capitals remain important, as the first response

to the Ukraine crisis by the foreign ministers

of Germany, France, and Poland showed. But

subsequent events made it clear that a few big

states alone cannot bring the EU together and

lead it for the long term. And for the EU to act

as one effectively, it needs joint strategic analysis,

a common position, and the closest possible

coordination.

This crisis is an opportunity for the EU to

strengthen itself internally, and to enhanceits capacity to project soft and hard power in

its neighborhood. An impending test of its

determination will be the nomination of the next

high representative, following Catherine Ashtons

departure after the next European elections. The

events in Ukraine should urge the member states

to choose a candidate who has the political clout

and experience to get member states to close

ranks in times of crisis, and to bridge conflicting

national positions. He or she should also be able

to ensure that the internal analytical and strategic

capacity of the office is improved. All this couldhelp to substantially strengthen the EUs external

representation.

Likewise, the crisis is an opening to review andreinforce not just EU-NATO relations, but the

transatlantic alliance in general. It proves the

strategic relevance of the Transatlantic Trade and

Investment Partnership trade negotiations, and the

need for overcoming the current impasse about

intelligence competition. Finally, it is a powerful

argument for Europe and the United States to

do more together to keep the international order

peaceful and free because Russia, and other

powers like it, will not.

What the world is now witnessing in Ukraine is apolitical struggle between two different visions of

modernity, good governance, and a decent society.

It is an echo, 20 years later, of what happened

in 1989 and thereafter in many Warsaw Pact

countries. They are now mostly members of the

European Union and of NATO, living proof that

history is not destiny. There is no reason why it

could not happen now in Ukraine, in Russia and

elsewhere. The choice is for Ukrainians, Russians,

and others to make. But Europe and the United

States should be there to help.

The EU must enhan

its capacity to proje

soft and hard powe

its neighborhood.


19/19

O F F I C E S

W B P BB A B W T

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