(Reuters) – The European Union told Ukraine it was risking its economic future by rejecting a free-trade deal in favor of closer ties with Russia, hours before a likely frosty encounter on Thursday evening between EU leaders and President Viktor Yanukovich.
Yanukovich was due to fly into the Lithuanian capital Vilnius in time for a dinner in honor of the Eastern Partnership, the EU’s four-year-old outreach program for former Soviet republics, including Ukraine.
He had been expected to sign a far-reaching free-trade and political association deal with the EU at the Vilnius summit, the result of years of negotiation.
But last week, following intense pressure from Moscow and growing concerns about Ukraine’s dire economic situation, Yanukovich announced he was not ready to sign the EU deal yet and would instead focus on reviving economic dialogue with Russia.
EU enlargement commissioner Stefan Fuele said on Thursday Ukraine’s decision to walk away from the agreement could imperil its future.
Disputing Ukraine’s estimates that upgrading its economic base to European standards would cost $20 billion a year, Fuele said: “The Ukrainian economy needs huge investments, but these are not costs. They represent future income, more growth, more jobs and more wealth.”
“The only costs that I can see are the costs of inaction allowing more stagnation of theeconomy and risking the economic future and health of the country,” he told a businessforum in Vilnius, adding the EU offer remained on the table.
Yanukovich himself set the scene for a chilly reception by dismissing the EU’s trade offer as “humiliating”. The 600 million euros ($800 million), or so, of support on offer was “candy in a pretty wrapper”, he said.
But his presence at the EU gathering – without signing the agreement – indicates he does not want to burn his bridges with the EU and leave his country’s economic future solely toRussia, which wants Kiev to join a Moscow-led trade bloc. His government says the suspension of the EU deal marks only a “pause” in moves to integrate Ukraine into Europe’s mainstream.
The EU side, however, said there was no readiness to enter into a geo-political bargaining game over Ukraine, likely a reference to possible increased financial aid.
“It was never a bazaar for billions. It was a question of giving Ukraine and the Ukrainian economy access to the largest integrated economic market in the world,” said Swedish Foreign Minister Carl Bildt, who warned that Yanukovich’s decision to abandon the EU deal left it vulnerable to pressure.
Yanukovich has already accepted short-term support from Moscow, which supplies Ukraine half of its gas needs, without committing to Russia’s Customs Union with Kazakhstan and Belarus, and all the while keeping the EU within reach.
Defending Kiev’s decision, First Deputy Prime Minister Serhiy Arbuzov told the Vilnius forum: “The country cannot be ready for such a serious decision (to sign) if the social-economic situation is not balanced.”
“No about-face has taken place. We are confidently moving towards an aim which we have set. Ukrainians need Europe and the European path is the only one for us,” he said.
EYE ON THE PRIZE
The EU will initial political association agreements with two other ex-Soviet republics, Georgia and Moldova, putting them on track to sign formally in around a year. A visa agreement with Azerbaijan will also be signed.
Belarus and Armenia will also attend the summit, though there seems little prospect of their moving closer to the EU. Belarus is a member of the Russia-led Customs union, which Armenia has also opted to join.
But the biggest prize in the Eastern Partnership was always Ukraine, a vast country of 46 million people that borders four EU member states, and it will be something of an elephant in the room during the dinner on Thursday night.
EU leaders, including German Chancellor Angela Merkel, French President Francois Hollande and British Prime Minister David Cameron, will hold a pre-dinner meeting in Vilnius to work out how to handle the situation with Yanukovich, officials said.
EU leaders will have an opportunity to press the case of jailed former prime minister Yulia Tymoshenko, a bitter Yanukovich rival who was convicted of abuse of power in 2011, after a trial the EU says was political.
Tymoshenko declared a hunger strike on Monday and has given her support to the tens of thousands of Ukrainians who have demonstrated in Kiev against the rejection of the EU deal.
On the eve of the summit, Yanukovich told the EU to stop meddling in her case and appeared likely to retort that her guilt had been proven in a Ukrainian court.
EU leaders may also try to understand from Yanukovich how he intends to balance his acceptance of help from Russia with his stated aim of moving closer to the EU. Russia and Ukraine have suggested three-way talks with the EU, but that is not acceptable to Brussels.
“These are bilateral programs between the EU and the Eastern Partnership countries. It’s not about negotiating three-ways with Russia,” said an official from Lithuania, which holds the EU presidency and has planned the Vilnius summit.
It is not clear what Russian President Vladimir Putin did to get Yanukovich to shift position, but diplomats in Brussels, Kiev and Moscow have suggested Russia will give Ukraine a more favorable gas-supply deal and better terms on repaying 1.3 billion euros of debt.
It will also reopen trade flows that have been interrupted since Yanukovich started making his overtures to Brussels.