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Telegraph
November 24, 2013
It is the first major defeat for the EU in its eastward march since the fall of Communism. While the region’s geo-politics remain fluid, the upset may prove as fateful as the move by the Kossack chief Bohdan Khmelnytsky to turn his back on the West and accept Tsarist suzerainty in the 1640s.
“Ukraine’s government suddenly bowed deeply to the Kremlin. The politics of brutal pressure evidently work,” said Sweden’s foreign minister Karl Bildt.
Ukraine’s prime minister, Mykola Azarov, told Ukraine’s parliament that the country has been forced to cancel its trade and pre-accession deal with the EU because Russian sanctions are strangling the economy, “pushing Ukraine to the brink of a huge social crisis.”
The accord was due to be signed at the EU’s Vilnius summit next week. The volte-face stunned EU officials, torn between fury over Ukraine’s conduct and deep alarm over what has happened. Kiev said it acted in the “national security interest”. It has emerged that President Viktor Yanukovych flew secretly to Moscow two weeks ago to see Mr Putin.
The pro-Kremlin outlet Russia Today said Ukraine had wisely stepped back from the EU “horror show” and accepted the real worth of Russian ties rather than hot air from Brussels. Ukraine had dodged a “death spiral” by protecting its eastern trade flows.
Mr Putin has been tightening the screws for months, blocking shipments of goods and targeting heavy industry in the eastern region that depends on the Russian market.
A freeze on imports of railway carriages has hit 80pc of Ukraine’s carriage output. Another victim is Roshen chocolate, owned by Petro Poroshenko, a champion of the EU cause in Ukraine’s parliament. Roshen sales in Russia have been banned for “toxic impurities”.
The guerrilla warfare tactics have pushed Ukraine to the brink of financial collapse. Foreign reserves have fallen by 30pc this year to $20.6bn (£12.7bn).
This is just 2.3 months of imports, far below the “safe” cover level of six months. The economy contracted 1.5pc in the third quarter, pushing bad loans in the banking system have to 30pc. Total foreign debt has reached 77pc of GDP.
The country has to roll over or repay $10.8bn in foreign debt by the end of 2014, an almost impossible task given that capital markets are effectively closed.
The government has been trying to play off Russia against the EU and International Monetary Fund, but the strategy has blown up in their faces. The IMF suspended a $15bn stand-by credit in 2011 for non-compliance, and has continued to demand radical reforms before any more money is released.
