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European Mixed Messages

emm_smBy signing the Association Agreement (AA), the European Union (EU) has assumed joint responsibility for ensuring this ambitious deal is not undermined. The AA’s text also underscores the EU’s support for Ukraine’s independence, sovereignty, and territorial integrity. Despite these commitments, the EU has continued to send mixed messages to Ukraine even though a part of its internationally recognized territory has been annexed while Russia continues to incite violence in eastern Ukraine by financing and supplying armed militants.

Although many EU countries continue to deplore and condemn Russia’s actions, rhetoric does not represent a substitute for policy and strategy. Some EU-member states (e.g., Baltic countries, Poland) have expressed their strong support and solidarity with Ukraine while others have remained reluctant to implement hard-hitting sanctions against Russia. In fact, some members continue to take steps that contradict official EU policy. This disunity and diversity of views among EU members not only undermines support for Ukraine but also provides Russia a gap to exploit and leverage EU vulnerabilities.

Meanwhile, mixed messages have illustrated how interests have taken precedence over values while the death toll among Ukrainian servicemen (258+) and civilians (478+) rises. The continued trumping of interests over values was recently evidenced by France’s sale of Mistral-class amphibious assault carriers to Russia, which may be used against Ukraine or even a NATO member at some point in the future. The possibility cannot be entirely ruled out. Even though a state has blatantly violated another state’s sovereignty by annexing a part of its territory, France has chosen to fulfill its contractual obligations worth €1.2 billion (US$1.6 billion) rather than to cancel the contract outright or seek out alternative buyers.

Given the level of economic interdependence between Europe and Russia, one should expect some hesitation and reluctance among EU member countries to implement sanctions. For instance, in 2012 the EU-Russia trading relationship was approximately worth €335 billion  (US$465 billion) annually, which represents roughly 10 percent of EU trade. Comparatively, Canada-Russia total trade is C$2.2 billion (2013) while US-Russia trade stands at US$38 billion (2013). The EU is Russia’s top trading partner for both exports (mineral fuels) and imports (machinery, transport equipment, manufactured goods). For the EU, Russia ranks third overall as it represents the second most important source for imports and fourth most important destination for EU exports.

In regard to EU energy consumption of Russian natural gas, Russia currently provides roughly 30-35% of European energy needs (approximately half of these flows travel through Ukraine). Turning off the tap is simply unrealistic and naïve as alternatives require massive financial outlays to fund capital-intensive infrastructure projects that will take years to complete. Higher transportation costs and increased prices for EU consumers will likely be the result.

Interestingly, many EU pro-sanction hawks hail from countries that import a significant amount of Russian gas. There is no strong link, however, between deeper trading links and a more dovish approach to sanctions. In general, hawks seem to be justifying their stances based on historical and security reasons while doves are concerned about financial and economic uncertainties while they are still trying to recover from the global financial and economic crisis as well as the EU sovereign debt crisis. Not sharing a border with Russia also doesn’t hurt while being a dove.

Hard-hitting sectoral sanctions (often referred to as “third-level” or “stage three” sanctions) are unlikely because they can only be implemented if all EU members unanimously agree. Hence, it appears that the EU’s strongest “deterrent” is really, in fact, a bluff as the EU would suffer economically if genuine sanctions were ever enacted. European countries are clearly not prepared to suffer some pain to their commercial interests. Holding back sectoral sanctions in reserve only implies a “pass” for Crimea and ongoing destabilization efforts.

This reluctance further relegates a country such as Canada to the sidelines, as it is incapable of leading an international sanctions regime without the big players at the table. In reality, Canada’s – mostly rhetorical and symbolic – support for Ukraine will continue to largely fall on the ears of the Canadian electorate rather than influence international actors who actually have a significant economic and political stake at immediate risk. Will the United States unilaterally impose sectoral sanctions against Russia?

Where do EU member states stand on further action against Russia”

Source: Open Europe

 

EU-Energy-Consumption-of-Russian-Natural-Gas

Source: Reuters

 European mixed messages are also apparent when examining the South Stream pipeline project, which aims at transporting Russian natural gas to Southern and Central Europe by circumventing Ukraine through the Black Sea. If and when this project is completed, the South Stream would go through Bulgaria, Serbia, Hungary, Slovenia, Austria, and Italy. The European Commission has concluded that this project would not respect European energy sector competition rules, as the European gas market would become distorted. Given Russian’s annexation of Crimea and continued disregard for its treaty obligations and international law, the EU should be wary about going ahead with this project.

Despite an EU directive to suspend construction at the European landfall point in Bulgaria, the Bulgarian government has reportedly given no official notification to Russia about its suspension. This has further fed suspicions among some that Bulgaria is a Russian ‘Trojan Horse’ within the EU. However, other countries such as Austria, Hungary, and Serbia (EU candidate member) have all publicly declared that they are committed to building their own sections of the pipeline despite EU objections. The Italians have also spoke in favour of the controversial Russian pipeline at a time when Italy currently holds the rotating presidency of the EU Council.

By bypassing Ukraine, the South Stream pipeline would not only result in the loss of transit revenues for Ukraine but it would also marginalize it as Ukraine would become a simple gas consumer. Ukraine’s current leverage would evaporate, which would greatly affect Ukraine’s bargaining position when negotiating with the Russians over gas prices. Ukraine’s reform and stabilization efforts as well as its European integration aspirations would also suffer a set back.

However, it is important to note that the South Stream pipeline saga has taken many twists and turns; its construction is by no means assured as the project serves as an example of conflict between the EU’s supranational structures and European national governments. Will Ukraine remain a transit hub? Will Russia continue to fund cash-strapped EU members? How will the Kremlin’s ties with Eurosceptic political parties influence EU decisions and initiatives in support of Ukraine now that many of these parties gained seats in the recent EU parliamentary elections? These questions warrant greater attention and scrutiny.

Individuals in both Ukraine and Russia have also been squirrelling away corrupt money in European banks and tax havens with relative ease. Money laundering schemes not only help perpetuate corruption in these countries but they also undermine governance and reform initiatives. Corrupt money and stolen assets are useless unless placed, layered, and integrated into the global financial network. This cannot be achieved without complicit individuals and mechanisms facilitating its continuation.

While the EU continues to emphasize the importance of implementing reforms in Ukraine, EU representatives have conveniently ignored the EU’s complicity in helping to prevent reform from taking root. Criticizing Ukraine’s lack of reform while simultaneously accepting dirty money is a double standard, plain and simple. Therefore, it is imperative that the EU better enforce its anti-money laundering rules and regulations so that obstacles to integration can be removed. Windows of opportunity, for example, to transfer corrupt money through Cyprus, the British Virgin Islands, Dutch Antilles, or Londongrad must be closed. The laundry machine must be dismantled. If not, reforms in Ukraine will continue to be undermined so long as the EU continues to avoid seriously clamping down on money laundering.

European disunity and complicity have clearly been exposed as a result of the crisis in Ukraine and Russia’s repeated breaches of international law. However, European mixed messages are nothing new. Following Russia’s invasion of Georgia in August 2008, the EU froze talks with Russia on a “Strategic Partnership” agreement. It was unfrozen a couple months later despite the Russian government’s recognition of Abkhazia and South Ossetia as independent states and Russian troops remaining in these breakaway regions. At the time, the financial crisis was clearly more important for the EU than the crisis in Georgia. The EU must learn from its past mistakes as disunity and complicity will only detract from Ukraine’s progress, transformation, and transition.

By Nick Krawetz

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