Merkel`s meetings with President Viktor Yushchenko and Prime Minister Yulia Tymoshenko -- opposition leader Viktor Yanukovych will not be available to see Merkel -- were expected to focus on Ukraine`s further integration with Europe in the form of an EU-Ukraine Action plan and the EU-Ukraine "Enhanced Agreement." The leaders were also likely to talk about Ukraine`s eventual invitation to join NATO and the prospects of Ukraine being offered a Membership Action Plan (MAP) at the next NATO summit in May 2009. In addition, Merkel no doubt wanted to discuss energy and business relations -- Germany is Ukraine`s second-largest trading partner after Russia.
The European Union imports 80 percent of its natural gas from Russia via the territory of Ukraine. In the light of increasingly shaky EU-Russia energy relations over the last two years, it seems clear that the further integration of the second-largest country on the continent into the EU is a vital interest for the bloc. Unfortunately, the long-running and ongoing domestic power struggle in Kyiv -- pitting Yushchenko and Tymoshenko, who together command a majority in the Verkhovna Rada, against Yanukovych, head of the powerful pro-Moscow Party of Regions -- has produced a deadlock in the implementation of many urgent reforms requested by the EU.
In addition, Tymoshenko and Yushchenko are clearly already jostling with one another with an eye on the next presidential election. In short, the constantly changing parliamentary majorities and sometimes violent boycotts of the legislature are doing nothing to encourage Ukraine`s further integration with Brussels. However, EU membership is clearly supported by the large majority of the Ukrainian population.
The new Enhanced Agreement will be linked to a deep and comprehensive Free Trade Agreement for Ukraine. French President Nicolas Sarkozy, whose country currently holds the rotating EU Presidency, has said the negotiations should be completed by the beginning of next year. If this agreement contains a clear membership prospective for Ukraine, it will calm many domestic policy struggles in Kyiv.
Of course, Ukraine`s relations with Europe are shaped to some extent by its relations with Russia and the key to those relations is energy. The two countries agreed in March to break up the former opaque trading structure that involved Russia`s state-controlled Gazprom, Ukraine`s state-owned oil-and-gas company Naftohaz Ukrayiny, and the rather obscure intermediary RosUkrEnergo (RUE). RUE is half owned by two even more obscure Ukrainian oligarchs -- Dmytro Firtash (45 percent) and Ivan Fursin (5 percent), an Odessa banker with reputed ties to the recently imprisoned mafioso Semyon Mogilevych. Gazprom owns the other half of RUE.
Under the new deal, Ukraine will receive gas that is one-quarter more expensive Russian gas and three-quarters cheaper Central Asian gas routed via Russia. The resulting mixture will cost considerably less than European markets prices. Since Moscow insists on keeping Kyiv out of direct gas relations with Central Asia, it remains unclear whether RUE has really been cut out of the deal. Moreover, the Central Asian price concessions will expire at the end of this year and Turkmenistan has already announced it will seek European-level prices for its gas in 2009. The era of cheap gas for Russia and Ukraine is coming to an end.
That price increase will pose serious difficulties for the Ukrainian economy and will lead to new tensions between Russia and Ukraine -- tensions fraught with potential consequences for the European market and the presidential election in Ukraine next year.
With these events not far over the horizon and the EU and Germany facing the possibility of direct fallout from them, Chancellor Merkel has to secure a stronger role for the EU in these negotiations. When the merger of the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD) is completed in the coming months, the new structure could serve as the ideal vehicle for acquiring larger stakes in Ukraine`s gas-transport network. The EU could then insist on greater transparency in the future gas-pricing deal by introducing European accounting and management standards. Given the weight of European consumer power, European interests must have a stronger say in the negotiations with Russia.
Still In Play
Russian President Dmitry Medvedev has warned Ukraine against seeking NATO membership. Vladimir Putin, when he was president, threatened to target his "brother Slavs" with Russian missiles. Putin and other Russian politicians have hinted at support for separatist movements in Ukraine, focusing on the primarily ethnic-Russian Crimea and eastern regions of the country.
The Ukrainian government still has much to do to convince its people of the advantages of joining NATO. But the percentage of Ukrainians favoring membership has doubled over the last three years, reaching 36 percent. However, 28 percent remain opposed to membership and the other third are undecided. Although Ukraine and Georgia did not get all they hoped for out of the NATO summit in Bucharest in April, the bloc did assure the two countries that they would one day become members. "NATO welcomes Ukraine`s and Georgia`s Euro-Atlantic aspirations for membership in NATO," NATO Secretary-General Jaap de Hoop Scheffer said. "We agreed today that these countries will become members of NATO."
For Russia, however, the success of Ukraine`s NATO bid and of its general democratic-transformation project would pose a direct threat to the legitimacy and domestic stability of so-called Putinism in Russia. That is why Medvedev -- himself a product of Putinism -- has spoken so sharply against the new developing order in Europe.
The stakes, then, are high. Germany, as a European economic and political heavyweight with a special relationship with Russia, must take an active and leading role in the process of Ukrainian integration with Euro-Atlantic structures, for Europe`s sake as well as for Ukraine`s. Finally, it would seem, Germany has a chancellor who understands this shift in geopolitics and its consequences for Germany.
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