The EU, Russia and the Ukraine crisis: What are the limits of Europe?

Following a speech to both Houses of the Russian Parliament this morning, Vladimir Putin has signed a Treaty that will see Crimea and City of Sevastopol joining the Russian Federation. Western leaders have warned the move would have “additional and far-reaching consequences”, on top of the targeted sanctions agreed by EU foreign ministers on 21 Russian and Ukrainian individuals yesterday.

What could these additional measures involve? And how far can the EU go? We have just published a new briefing addressing these questions. We have looked at what tools the EU has available to force Russia to back down in Crimea, including the effectiveness of the various sanctions it could deploy.

Our assessment is that, in the short term, the most effective economic measures could be a combination of targeted sanctions on individuals and business interests and potentially limiting sales to Russia of products on which they are externally reliant – such as machinery, chemicals and medical products. While Moscow can employ rogue tactics in the short-term which Europe can’t match, in any prolonged economic stand-off, the odds are in the EU’s favour.

You can read our new briefing here. These are our key findings:

• Additional targeted individual sanctions or a potential arms embargo, would be hard to agree amongst the EU’s 28 member states and their impact remains unclear, though there may be some scope for a group of EU states to move ahead with some additional sanctions if it’s not possible to get agreement at the level of all 28. 

• Still, cleverly targeted sanctions on individuals and business interests could hurt Russia. Between 2008 and 2013, $421bn worth of private sector money – equivalent to 20% of Russian GDP – has flown out of the country, while Russia’s Net International Investment Position (NIIP) remains strongly positive. This suggests that there are sizeable amounts of Russian money invested abroad on which sanctions could be imposed, causing significant problems for high-ranking individuals and businesses. That said, the routing of this money through offshore centres makes it very difficult to track (click on the graphs to enlarge).

• Therefore, the most effective economic measures could be a combination of targeted sanctions on influential individuals close to the top of the regime, business interests, specific firms wielding power in Ukraine (such as Gazprom) and potentially limiting sales to Russia of products on which they are externally reliant – such as machinery, chemicals and medical products (click on the graphs to enlarge). 

• Sweeping energy sanctions would hit Russia the hardest but due to the EU’s dependence on Russian gas – in some countries as much as 100% of gas imports are Russian – this option is politically unlikely and could prove prohibitively expensive for the EU. 

• Such decisions should not be taken lightly and Russia has an array of retaliatory options, including leveraging energy market power to secure favourable bilateral deals with other countries, applying tit-for-tat sanctions or, in extremis, wielding its hard power. 

• However, whilst Moscow can use such rogue tactics in the short-term, which the EU, for various reasons can’t, in any prolonged stand-off the odds favour the EU, due to Russia’s disastrous demographic trends and relatively undiversified economy. For all these reasons, a negotiated settlement still remains the most likely option. 

• Fundamentally, while this is a conflict driven by Moscow, it illustrates the EU’s “all or nothing” approach to its neighbourhood is no longer viable in the 21st Century. If the EU is to extend its influence further, it must be prepared to offer an alternative model of enlargement or association, lowering the political hurdles on the path to Europe. 

Follow us on Twitter @OpenEurope for all the latest updates on the Ukraine crisis.

The stand-off in Kiev shows the EU's greatest weakness – and its greatest strength

Our Director Mats Persson writes on his Telegraph blog:

A deal between the EU and Ukraine involving a "deep and comprehensive" free trade area, finally seems to have the hit the wall, after weeks trying to reach an agreement.

Ukrainian president Viktor Yanukovich is now looking increasingly likely to sign a deal to join the Russian backed customs union instead. As the Russian deal is a customs union it is incompatible with Ukraine signing an individual agreement with the EU. Any further negotiations with Ukraine will therefore need to be jointly negotiated with Russia – something unlikely to prove easy.

Kiev (or its President) has chosen Russian over EU integration.

Ukraine is a big country and market, with 45 million people and substantial resources. It’s also a geopolitical hot spot, it looks both east and west, parts speak Ukrainian and are historically linked to existing EU members, Lithuania, Hungary, Austria and Poland. Other parts speak Russian and historically look to Moscow.

There are two ways of looking at this:

The EU’s “soft power” foreign policy – luring countries in by offering them gradual access to or membership of the EU’s zone of stability and trade – has hit its limits. EU enlargement as a foreign policy tool – betting on others voluntarily imitating the EU – worked as long as it could offer a haven to post-dictatorship countries in the Mediterranean and Eastern Europe, but without confronting the geopolitical orbit of hard power. With Ukraine, it has come up against precisely that in the form of Russia. Moscow offered its neighbour a binary choice: us or them. In a region still responding more to the whip than the carrot, the EU’s soft power proved highly limited. No amount of tweeting from constructivist-inclined EU foreign ministers will change that.

However, there’s a second way to look at it. The hundreds of thousands of pro-European protesters taking to Kiev’s streets show that, in fact, EU soft power is alive and well. Or at least, people in the EU’s neighbourhood still have a desire to join the club in some form. Therefore, and paradoxically, the stand-off between the EU and Russia over Ukraine simultaneously illustrates the EU’s greatest weakness and its greatest strength.

One final thought: I very much doubt that the protesters lining Kiev’s streets are voicing their support for the country joining the European Economic and Social Committee, or are particularly keen on plans to ban national flags (such as their own) from packs of meat, enforce quotas in boardrooms or prohibit refillable olive oil jugs in restaurants. They want to join a European club, broadly defined.

Those who press for more EU integration and increasingly want to make the EU an extension of the single currency should be aware that they’re also creating more hurdles for newcomers to join such a club. So far the “widening” of the EU has also led to “deepening”. With countries like Ukraine and Turkey in the game, that simply cannot continue. Scaling back the EU’s rulebook and allowing for differing levels of integration would lower the barrier to entry and therefore allow Europe to continue to use enlargement as a foreign policy tool.

The EU should want Ukraine and Turkey in but this won't happen as long as "ever closer union" is the mantra. A new flexible model of membership is needed. It is also one that may help to some existing members feel more at home in the club.