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Now the chill is in the air – what next?

September 26, 2014

As the “freeze” in eastern Ukraine begins to set in – and the current situation, whilst not entirely agreed, certainly has a severe preparatory chill in the air – a shift from military to political and economic warfare is likely from The Kremlin – with regard to the areas in eastern Ukraine de facto now under its control, to Ukraine as a nation, and also to the EU and its member states individually.

As expected, and outlined in this entry of last week, The Kremlin now expects a complete freeze of the DCFTA between the EU and Ukraine – including any preparatory work prior to the 31 December 2015 delayed implementation date.  It is naturally no surprise to anybody who can think like The Kremlin and read agreements with a Kremlin mindset.  There are truly no prizes for knowing how The Kremlin will interpret agreements.

Crimea is annexed, eastern Ukraine now has a de facto frozen conflict under the control – and undoubtedly, to one degree or another, soon to be dependent upon The Kremlin.  The DCFTA though ratified and legally binding on the parties,  it also expects to be frozen without any preparatory work to be done by Ukraine, lest either billions of dollars worth of trade restrictions be implemented and/or military action resume if The Kremlin sees otherwise.

In the immediate term it appears Kremlin blackmail, castration of international law and bullying has won the day.  Ukraine is a hostage and the EU helpless or hapless or both.

Longer term of course, the sanctions in existence are going to bite, and bite hard, as long as the sanctioning parties remain solidly behind them.  Even non-sanctioning nations like China are being careful not to fall foul of them indirectly.

The frozen conflict strategy relies on Ukraine – and Moldova and Georgia in their cases – not to surrender their sovereign claims to those territories outside of their control.  The moment they do so, those frozen territories lose all strategic worth to The Kremlin.  They immediately cease to be a lever in respective capitals.

It is perhaps why in the case of Ukraine, no form of recognition has been forthcoming from The Kremlin for its de facto controlled regions in The Donbas and Luhansk as was the case with Ossetia, Transnistria and Abkhazia – and also why Crimea was immediately annexed, having a perceived genuinely strategic purpose for The Kremlin.  Notably the negotiation documents thus far have np mention of “People’s Republics”, including the signature blocks of those negotiating.  There may be a fear within The Kremlin that Ukraine at some future time would say it was prepared to leave the eastern regions behind to allow the rest of the nation to head toward Europe.  Thus any documented recognition or acknowledgement could prove to be a bad idea.  Ukraine cannot leave The Donbas and Luhansk behind if everybody states they are de jure part of Ukraine, including The Kremlin.

In the meantime, the de-Russification of personnel in positions of prominence continues in the eastern regions – this time it is Vladimir Antuyfeeva that is replaced within the administration.  His work generating a puppet Ukrainian dominated administration seemingly done – officially and overtly at least.  Indeed the self-imposed Donetsk administration has called elections for 2nd November – instead of December as the Ukrainian leadership had suggested.  A continued Russification via easily obtainable Russian passports is likely to continue should there be a need to “protect Russians” once more, or indeed hold yet another “referendum” that would produce more believable results based on the “Russian-ness” of the region.

(As an aside, whatever political and administrative structure Mr Antuyfeeva has left in place, is not, and will not, cope easily with the guaranteed (and now well armed) criminal turf war for supremacy that will inevitably occur in what will be a rule of law void.)

The Kremlin DCFTA interpretation also expects Ukraine to adhere to its blackmail.  Maybe it will – or maybe it will make an economically painful decision call The Kremlin bluff and live with the consequences.  If that be the case, then it is a decision for the next RADA that takes office post 26th October.  The time between now and whenever any such decision is made to press ahead with DCFTA preparatory legislation would be wisely used preparing for further military conflict and preparing Ukrainian business and population alike for very aggressive Kremlin action politically, economically and militarily.  Hardships there would be, and those hardships need to be spelled out without any sugarcoating to the Ukrainian nation.

It seems very unlikely that any new RADA will delay passing any DCFTA related legislation until 31st December 2015.  It is also unlikely that The Kremlin will allow 31st December 2015 to arrive without inflicting serous pain on Ukraine if it feels there will be no change in Ukrainian direction.

Whether any new parliament will wait to see if The Kremlin decides to literally make Ukraine freeze during the winter as a political spark to begin any such legislative work, or if by some small miracle the gas flows during the winter, any such legislative work would wait until the Spring, time will tell.  An eager new parliament seems unlikely to wait in calling The Kremlin bluff, and few will be surprised to see DCFTA preparatory legislation and reforms passed as soon as possible.

But what if Ukraine does decide to leave matters as late as possible, giving the impression of bending to The Kremlin will?

Perhaps there are other ways to prepare Ukrainian business for the DCFTA prior to the passing any legislative changes that would in turn set off The Kremlin symmetrical and asymmetrical response.  Something more “voluntary” for the business community pending legislative changes?

Teams of “EU Standards” advisors, together with the EU Member State trade representatives that loiter in dark corners of embassies in Kyiv, heading out and advising, mentoring and perhaps even certificating Ukrainian businesses to EU standards over the next 15 months – without any legislative changes occurring to set off The Kremlin’s attempted justification for what would come next, is a possibility – Utopian and remote as it is.

After all, Ukraine already trades with the EU and thus many businesses already meet EU standards.  There will be many other business that meet such standards but are not certificated, or that are almost at a point of meeting such standards and simply need a little advice or help to get over the finishing line.

If that “EU meddling” possibility is deemed too provocative by those with less than robust spines, perhaps a look to the ISO certifications that are compatible with EU standards and take that route where possible.

EU industry sector “Idiot’s Guides” to reaching EU standards mailed shotted, download-able, road showed, freely available in every town, city and oblast administration buildings.

In short, preparatory work that is not in itself governmental legislation, but the choice of business owners and captains of Ukrainian industry should they want to make it – underpinned by an understanding that come 31st December 2015, the delayed EU-Ukraine DCFTA comes into force regardless of preparatory legislation.  Even some limited progress via such routes is better than no progress.

That said, having seen Crimea annexed, parts of eastern Ukraine “frozen” and become de facto “Kremlin protectorates”, with any literal turning off of the gas and a freezing of the nation during the winter, the question within the RADA and Ukrainian society would be – “What else can The Kremlin do to us?  F*ck them, let’s just do what we need to do to leave The Kremlin behind once and for all.”  A simplistic outlook perhaps, but no doubt an outlook that will gain traction the more The Kremlin turns the screw, rather than one of accepting subjugation.

In the meantime, the EU and its Member States have gone as far as they will collectively go regarding sanctions.  In the absence of any appetite to go any further by too many Member States, the political spin will be that of adopting a “wait and see policy” as existing sanctions begin to bite.

The Kremlin, meanwhile, will attempt to bring down the EU’s Third Energy Package that causes significant issues for Gazprom, try and force through the South Stream pipeline – perhaps on the back of gas stoppages for which Ukraine will be blamed, reinforcing the “unreliable transport partner” theme – and apply pressure to the weak EU States to collapse sanctions solidarity.  Whether the EU and its Member States will stand or fall to The Kremlin campaign that is about to begin in earnest remains to be seen.

Kremlin direct and indirect funding to western environmental NGOs lobbying against fracking will be stepped up as well as their coverage in the appropriate Kremlin controlled propaganda machines – as will funding for any other NGOs that meet the needs of The Kremlin in other sectors too.  Business lobbies etc.

There are of course other markets for Ukraine should it decide to wait as long as possible before receiving the Kremlin more ire for not changing course.  Ukrainian agriculture will be of interest to both the US and China for various reasons.  India too  Opportunities in Ukrainian energy diversification are there for the taking.  Big and profitable business can be done.  The Ukrainian government would welcome such partners as quickly as they make themselves known.

There is also the issue of the IMF, WB and international lenders for any new parliament and government to consider.  Whilst Ukraine is hoping the IMF will release tranches 3 and 4 of the existing agreement simultaneously the winter,  it is necessary to admit that this is simply still not enough.  Any new assortment of the political class will necessarily have to try and negotiate further lending if possible – even if enough to simply pay off all external debts early to save the crippling interest payments to bond holders.

A need to cull or postpone some social programmes would be necessary, as well as raising some taxes – or streamlining tax payment systems to remove the massive corruption within – or both.  The time to do that is as soon as possible whilst the Ukrainian public mood is one of doing what is necessary in the face of Russian aggression.  The public did not bat an eye at the 15% War Tax introduced in July on savings for example.

With no Marshall Plan, and an amount of money required probably close to double official estimates, hard negotiations and hard choices face Ukraine and its western allies that will probably continue to feed cash into the Ukrainian system ad hoc so it avoids default – though default these days seems to have a very elastic definition.

Post 26th October and a new RADA taking its seats, the following 6 – 12 months are going to be exceptionally interesting – possibly volatile once more – and not without significant hardships for Ukraine.

Perhaps during all that is about to come, there is a need to remember what really matters to the vast majority of Ukrainians the most – genuine democratic reform and the rejection of ingrained corruption.

That also happens to be the very thing The Kremlin fears most!

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