Did Ukraine just pick Russia over the EU?

It looks like Russia now has the upper hand in its tug of war with the European Union over Ukraine's future.

Ukraine's government announced today that it is suspending its preparations to sign an association agreement with the European Union, just hours after the Ukrainian parliament rejected the draft of a law that would have allowed jailed opposition leader Yulia Tymoshenko to travel to Germany for medical treatment.

The EU has demanded the release of Mrs. Tymoshenko – who was handed a seven-year prison sentence two years ago for abuse of power during her tenure as prime minister, which many in Europe regard as a politically motivated verdict – as a prerequisite to Ukraine signing an Association Agreement that could pave the way for its future EU membership.

But Russia opposes Ukraine establishing closer ties with Europe, as the Kremlin urges, and even threatens, the post-Soviet country to instead shun the West and join its eastern customs union.

The deadline for Tymoshenko's release was an EU summit in Vilnius, Lithuania, at the end of next week, where Ukraine would sign the EU agreement if it met all of the EU conditions. But the government's decision to suspend preparations for the summit – which it said was made in order to study prospects for expanding trade with Russia and ensuring "parity" in its ties with the EU, the Associated Press reports – puts the agreement in jeopardy. An agreement might be possible at a later date, however.

Both East and West have put the ball squarely in Ukraine's court to decide its future, but observers fault the EU for conditioning the agreement on the release of Tymoshenko and engaging in a kind of brinkmanship that they say is better suited to the power struggles of a generation ago.

“In a modern world of globalization we are speaking in terms of the Cold War of the 20th century,” says Ewald Böhlke, who heads the Berthold Beitz Center for Russia, Ukraine, Belarus and Central Asia within the German Council on Foreign Relations.

Europe's offer

Ukrainian President Viktor Yanukovych has refused to pardon Ms. Tymoshenko, which is what the EU wanted, but agreed to sign a law that would allow her to travel to Germany for medical treatment provided she agrees to return and complete her prison sentence. But the parliament, replete with his allies, has rejected six versions of a draft of a law that would allow that to happen – the latest today.

The EU agreement would align Ukraine with Europe and drive future economic development according to the dynamics of the world's most modern, democratic and prosperous economic bloc. Despite the ongoing EU economic crisis, polls show that a majority of Ukrainians favor the European option. A poll this November by the firm GfK showed that 45 percent of Ukrainians support integration with Europe, compared to 15 percent who'd prefer integration with Russia.

Despite chronic troubles in the post-Soviet country, corruption chief among them, Europe has much to gain geopolitically from moving closer to Ukraine. With the US turning away from Europe and Moscow looking to make its customs union into a counterweight to the EU, Ukraine would help bulwark the EU against a "more openly geostrategic" Russia, says Roderick Parkes, head of the EU program at the Polish Institute of International Affairs in Warsaw.

But the EU has made the prospects of the deal with Ukraine unpalatable to some, such as Germany, which has demanded more conditions. German Chancellor Angela Merkel, speaking to the German parliament this week, promised “opportunities and real solidarity” to Ukraine if it signed the agreement, but only if “credible steps” were taken.

"The EU is saying 'make up your mind,' in a way that pushes them toward Russia,” says Dr. Parkes. “Russia is then being very aggressive... saying 'if you want security guarantees from the country that is the biggest security threat in the region, align with me.'”

And Dr. Böhlke says the EU insistence on releasing Tymoshenko has been a mistake. The deal creates a nearly untenable political choice for the current president, as she could disrupt his bid for re-election in 2015. Her story is part of the past of Ukraine, he says, not part of the future that the EU wants.

Russia's counter

The Russian deal, which President Vladimir Putin has been pressuring Kiev to accept, would bring Ukraine immediate benefits such as heavy discounts on Russian energy prices, a continuation of the relatively open border between the two countries, and the profitable restoration of some Soviet-era industrial synergies.

But it would also chain Ukraine to its historic oppressor, and make it a key part of a Moscow-led economic bloc that intends to transform itself into a semi-political alliance to be called the Eurasian Economic Union by 2015, when the core members – Russia, Belarus, and Kazakhstan – are expected to be joined by Armenia, Kyrgyzstan, and Tajikistan.

Since Ukraine was the breadbasket and industrial heart of the former Soviet Union, Russia very much wants it to be part of that union. Besides holding out carrots, Mr. Putin has also given Ukraine a taste of the stick, warning that Ukraine's huge trade with Russia will suffer if it goes with the EU. In recent months, Russia has imposed a ban on Ukrainian chocolate imports and threatened to make Kiev pay in advance for its Russian gas imports.

“Russia views Ukrainian-European economic integration as a serious challenge, a threat to the plan of restoring Russian grandeur during Putin's third term," says Vadim Karasyov, director of the independent Institute of Global Strategies in Kiev. "Moscow has rolled out the whole arsenal of sticks and carrots.” 

He says that President Yanukovych, who's tried to maintain a delicate balancing act between the EU and Russia, may have been swayed by Russian lobbying. “The intensity of Russian pressure has surprised our leaders. Early in the process, Yanukovych appeared resolute about signing with the EU, but after several meetings with Putin he's sounding very hesitant and indecisive.”

Sober second thoughts?

Vladimir Zharikhin, deputy director of the Kremlin-funded Institute of the Commonwealth of Independent States in Moscow, says today's voting demonstrates sober second thoughts in Kiev about what Ukraine was getting into with the EU deal. "This is not just about Tymoshenko, or even economics, but there is a whole knot of other problems," he says.

Yanukovych and his advisers probably thought they could pursue free trade with the EU while maintaining Ukraine's positions within the giant Russian market, which remains Ukraine's single biggest trading partner, he says.

"Reality proves to be different. The EU insists on its own conditions, and will not offer Ukraine any compensations for its losses in the East. Russia's reaction came as a surprise; Yanukovych at first described Russia's stance as 'insulting' to Ukraine, but now he sees that Russia's apprehensions have real reasons behind them. It's not just Putin's caprice, but a real big and complex economic conundrum."

"Yanukovych also may have thought that the EU's insistence on Tymoshenko's release was just rhetoric, easy to overcome," Mr. Zharikhin adds. "Now he sees it's a serious and non-negotiable demand. But he's not ready to release her. Who knows how things are going to develop now? Let's wait and see."

Without pressure from the EU or Russia, taking a decisive path would be difficult for Ukrainian leaders, says Mikhail Pogrebinsky, director of the Kiev Center for Political and Conflict Studies, because of Ukraine's historic split between the pro-Russian east and the pro-Western west.

The current logjam might be ideal for Yanukovych. "Authorities [can] say they wanted it but the opposition was too rigid," Mr. Pogrebinsky says. "Yanukovych has no big desire to sign the association agreement with the EU anyway. Perhaps the Europeans will just postpone the deal until conditions are more suitable, and Yanukovych will be happy with this result."