A European Future for Ukraine?

Ukraine has celebrated the 21st anniversary of its independence.   After being ruled by the Russian Empire and then the Soviet Union, Kiev’s independent identity is now universally recognized, even by Moscow.  Russian President Vladimir Putin offered his nation’s congratulations.

However, more mundane issues, like the standard of living, dominate Ukrainian public life today.  Even President Viktor Yanukovych admitted that “most citizens have not yet felt” the effect of rising wages.  In response, he argued that “we need to continue our policy” and promote “real economic growth.”

Ukrainians’ best opportunity to achieve long-term growth lies with Europe.  Some of Yanukovych’s critics originally saw him as a Russian tool, but he has surprised even them with his determination to maintain distance from Moscow.

The latest manifestation of Kiev’s look west occurred in mid-August when Ukraine approved a bid for joint exploration in the Black Sea by ExxonMobil and Royal Dutch Shell, in conjunction with Ukraine’s Nadra and Romania’s OMV Petrom.  Kiev chose the two Western firms over Russia’ Lukoil.  Jorge Zukoski, president of the American Chamber of Commerce in Ukraine, explained:  “Bringing in the energy majors is a paradigm shift for Ukraine’s energy security and investment climate.”

Analyst Dennis Sakva of Dragon Capital saw this action directed against Moscow.  He explained:  “the government has clearly realized there will be no easily attainable discounts on gas prices from Gazprom.  So they decided to explore other opportunities to improve their negotiation position.”

Ukrainians also are developing other industries most likely to prosper looking west.  For instance, IT services exports now exceeds $1 billion in revenue.  That is more than generated by the arms trade, a significant benchmark.  But there remains significant room for growth; Ukraine has benefited from the science education emphasized by Soviet schools and is still only the world’s 26th most important outsourcing location.  While Russia is an IT competitor, the U.S. and Europe are Ukraine’s most important customers.

The U.S. and Europe should encourage Ukraine’s economic ties with the West.  Concerned with the prosecution of former Prime Minister Yulia Tymoshenko, the European Union has retreated from engagement.  However, former President Viktor Yushchenko recently complained that the EU is ignoring “the bigger picture.  For 46 million Ukrainians, the benefits of partnership with the EU are much more important than the onflict between” Yanukovych and Tymoshenko.

Indeed, warned Yushchenko,  “the EU’s response to their spat risks becoming disastrously counterproductive.  By stepping back and refusing to engage, the EU is giving every excuse to President Yanukovych to turn his back on the West and forge ever-closer ties with Russia—at the EU’s expense.”

Europeans understandably believe it is important to promote democratic values in Kiev.  However, to do so they should offer more carrots than sticks.   In this case, engagement—encouraging Ukraine like an errant friend—is likely to prove more effective than isolation.

Ukrainians have demonstrated their determination to maintain their hard-won independence.  The West should continue to encourage economic ties that bind.

Image Copyright Shutterstock.com/ ruskpp