With the fate of Crimea sealed, we can now begin to think about the long term implications this has for the rest of Ukraine. It is currently unknown how far Putin will go. There is still a large Russian military buildup on the border of Eastern Ukraine and Putin has supported destabilization efforts within Eastern Ukraine. One can only hope that Putin will be content with his Crimea land grab and most assume that his desire is not to invade the rest of Ukraine, but to increase control and influence. What is next for Ukraine? Significant steps have already been taken to help Ukraine integrate with the West. The EU recently signed an association agreement with Ukraine, lowering trade barriers worth some 500 million a year, and has already offered 15 billion USD in aid. Now that the IMF has signed off on an 18 billion dollar loan program, Ukraine has secured some 27 billion, mostly over the next two years. Negotiations are ongoing on ways in which the EU can help strengthen Ukraine's energy security. These are only the first steps of a long and painful integration process. Most likely this is a process that will be difficult to complete Ukraine will not be able to complete.
There are two potential stumbling blocks to Ukraine’s western integration. The first is the willingness of the West to integrate Ukraine. Ukrainian officials are happy to receive the 27 billion in aid, even though it is not quite the 35 billion they were aiming for. Ordinary citizens will be less happy. Like Greece, the loans will have a negative impact on growth in the short term. The vast majority of these loans are for the next two years, after which another large bailout will be needed to keep their economy going. Will the West have the political will and the economic strength to offer the loans? With Euro skepticism at an all-time high there will be a limit to what the EU can offer Ukraine in terms political integration. The Eurozone’s continued troubles mean that there will also be limits to the EU’s ability and desire to financially assist Ukraine beyond the two year deal.
The second and more challenging stumbling block to Ukraine’s Western integration is the desire of Ukrainians to integrate in the face of harsh reforms. The IMF loan also meant a steep reduction in gas subsidies. This coupled with higher gas prices from Russia will mean that consumers will be paying at least 50% more for gas. In 2014 the economy will decrease anywhere from 3-5% of GDP with 12-14 percent inflation. It could be worse depending on whether Russia imposes any economic sanctions in addition to raising the price of gas. Eastern Ukraine has the most to lose from the economic reforms. Eastern Ukraine’s exports are oriented to the Russian market, and heavy industry is more dependent on Russian gas. Together this would make many industries non-competitive in European markets. Closing down noncompetitive industries would increase unemployment, furthering the plight of citizens in the East.
Ukraine’s demographics suggest that the population’s ability to stomach difficult reforms will be limited. Despite the loss of 2.3 million mostly Russian voters in the Crimea, millions of Russian speakers still reside in Eastern Ukraine. This means that elections could still be competitive in the future between a pro-Western and a pro-Russian candidate. While a Western candidate will certainly win the elections in May, it is only a matter of time when a majority of citizens tire of the reforms. It could be as soon as the upcoming winter when millions are unable to pay their heating bill. With no long term prospect of EU membership and more harsh austerity in the short term many will wonder if there is a better way forward. When they do Putin will be waiting with another aid deal and an offer to decrease the price of gas. Just as the Orange revolution came to an end in 2010 with the election of Yanukovych, Ukraine’s attempts to integration with the West will not end before they are finished. When or how that happens remains to be seen. One thing that is sure is that as long as great powers are playing a geopolitical game Ukraine will forever be stuck in the middle.
