Eastern Ukraine is caught in the same cycle that led to the recent annexation of Crimea: Pro-Russian crowds have seized government buildings and are demanding independence, while Russia, its troops poised for invasion, warns the authorities in Kiev against using force.
The U.S. and its allies have chosen staged sanctions to dissuade Russian President Vladimir Putin from further aggression, but to have a chance of success, each step must leave no doubt that the next would be taken. So how is this strategy working out so far?
Those measures already applied by the U.S. have made life more difficult for some of Putin's closest business allies, demonstrating a readiness to impose more drastic economic sanctions if needed, up to a kind of isolation from the dollar financial system that was imposed on Iran. Those actions announced by the European Union? Not so much. In the few cases where EU sanctions concerned individuals who run companies, it doesn't appear they are being enforced.
France remains on track to deliver the first of two Mistral-class helicopter carriers to Russia later this year. Italy’s Eni SpA and energy companies from Germany, France and a half-dozen transit countries are still committed to building the South Stream natural gas pipeline. The project is specifically designed to bypass Ukraine in delivering gas to the EU, and it could now be shortened to cross Crimea, taking advantage of Russia’s annexation.
It is hard to measure the impact that the threat of broader economic sanctions has had. Russia's main stock exchange has lost about 8 percent of its value since the start of the year. The ruble is down about 6 percent against the U.S. dollar. Growth forecasts have been cut, and capital flight from Russia in the first quarter was about $70 billion, more than in all of 2013. So a cost has been exacted, but not a huge one. Putin appears to see it as an acceptable price for the annexation of Crimea, and he is pressing further.
Russia's leaders are aware that eastern Ukraine is different from Crimea -- less solidly pro-Russian and much less simple to cut off and defend. So their Plan A for the rest of Ukraine appears to be a little different: to destabilize the country so that holding effective nationwide presidential elections on May 25 is impossible, and to encourage the federalization of eastern Ukraine to such an extent that these regions fall under de facto Russian control, making Ukraine's integration with the EU unworkable. Plan B -- invasion -- would involve much higher costs and risks.
If the Europeans think that Plan A gives them wiggle room on imposing painful sanctions, they are deluding themselves. It was important that the U.S. administration respond to the latest seizures and declarations of independence in Donetsk, Kharkiv and Lugansk by warning Russia that if it moves into eastern Ukraine "either overtly or covertly," further sanctions will follow. Europe's leaders have been more cautious, with German Chancellor Angela Merkel, for example, expressing only “concern” about the situation. Putin is escalating, and the EU is failing to respond. Putin is likely to see that as a green light to carry out his Plan A.
Ukraine's interim authorities have taken a significant risk by sending in security forces from Kiev to evict and arrest protesters in the east, defying Russian threats, and it is promising that they have had some success in Kharkiv. Still, the possibility of violence that provides the trigger for a Russian invasion is real. Talks among the EU, Russia, Ukraine and the U.S. set for some time in the next 10 days are a step forward, yet they will succeed in foiling Putin's efforts to dismember Ukraine only if the EU makes its threat of economic sanctions credible.
It is easier, of course, for the U.S. to take a tougher line on Ukraine, because its slight economic ties to Russia mean it has far less to lose. Yet the EU has far more to lose if it allows Russia to continue destabilizing or invading their common neighbors.
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