Between war and default: why Kiev has no alternative to Minsk agreements

Since early March 2015, the southeast of Ukraine has lived in the situation of unstable ceasefire. Anti-Russians in the West and radicals in Ukraine qualify the agreements signed in Minsk as capitulation and acceptance of the Kremlin’s scenario. Patriots in Russia and Novorossia are not satisfied either. This proves that the Minsk-2 was a compromise. Before and during the last Minsk talks, the stakes were very high, so, Russia’s goal to find an alternative to the Minsk-1 has not been achieved.

Since the parties were forced to sign the agreements, they are now a bit uncertain about their future. One day the conflict will have to be settled, but for the time being, the parties need something more stable than just ceasefire.

Throughout last week, representatives of the OSCE, Ukraine, Russia and Germany were making quite controversial statements about the fulfillment of point 2 of the agreements – withdrawal of heavy weapons from the frontline. One thing they were unanimous was that the key asset of the agreements – very specific deadlines – were not being met. As far as fulfillment is concerned, here opinions were different. Last week the OSCE monitoring mission confirmed that the parties were moving their heavy weapons but could not confirm complete withdrawal. High Representative for Foreign Affairs and Security Policy Frederica Mogherini said they had no full picture of the process. This means that the Europeans are satisfied with what is going on and that it is for the conflicting parties to decide if point 2 has been fulfilled and if ceasefire will be continued.

On March 2 2015, Russian Foreign Minister Sergey Lavrov pointed out substantial progress in the fulfillment of the measures agreed on in Minsk. A week later, on March 9, Ukrainian President Petro Poroshenko said that “pro-Russian separatists” had withdrawn “substantial part” of their heavy weapons, while the pro-governmental forces had withdrawn “the lion’s share.” This means that the parties admit the fulfillment of point 2 and are ready to go to the next point. For the time being, the Minsk-2 agreements are effective, although point 1 is working partially and point 2 not to the full extent. So, the parties may proceed.

The next point is even harder for Ukraine – its Supreme Rada will have to recognize the self-defenders. Until then they in Kiev are trying to persuade the UN and the EU to deploy their peacekeepers in Donbass. Poroshenko has already approved sending relevant requests to New York and Brussels. This initiative is not so much a step towards peace as a way to put pressure on Russia. In any case, Poroshenko’s last statements show that they in Kiev realize that the Minsk-2 has no alternative as a new war could ruin their army.

On the other hand, the Ukrainian authorities continue their military pressure on Russia. On March 2 2015, Poroshenko asked the Supreme Rada to enlarge the Ukrainian army to 250,000 troops. He said that now the army will have to have two commands with two headquarters, which means for two frontlines, and he obviously meant Crimea.

In any case, all the steps the parties are taking now demonstrate their wish to see ceasefire continued.

On March 2 2015, US Secretary of State John Kerry met with Russian Foreign Minister Sergey Lavrov. After the meeting, he promised once again that the West would toughen its sanctions against Russia if the agreements on ceasefire in Donbass were not fulfilled. The same day the Normandy Four (Ukraine, France, Germany and Russia) agreed to deploy OSCE observers at all points where the ceasefire was ever broken. Following up on this decision, on March 6 and 7, the EU foreign ministers met in Riga to consider ways to enlarge the OSCE monitoring mission to Ukraine. That was to show that the Normandy format was alive.

The Europeans are still inclined to settle the conflict with Russia peacefully. On March 2, French Foreign Minister Laurent Fabius explained that their toughness did not mean that they were going to declare war against Russia. This is exactly on what condition the Europeans are ready to be at one with the Americans and this is what we could see during Obama’s video-conference with the leaders of the EU, France, Germany and Italy on March 3.

The next day, on March 4, the US President prolonged sanctions against Russia for one more year, with more economic sanctions yet to come from the EU. The point is that they in Washington and Berlin have seen that the sanctions the way they are now are changing nothing in either Russia’s policy or the conflict in Ukraine. The way they are the sanctions are just a mechanism of pressure on the Russians and a way to prevent further war in Ukraine as something that can ruin the pro-western regime in Kiev.

On March 8, President of the European Council Donald Tusk told The New York Times that the EU was not ready for additional sanctions. This means that the Europeans are satisfied with the current ceasefire and will consider new sanctions only if it is broken.

In the meantime, the US Ambassador to Germany said that President Obama had decided to take time with arms supply to Ukraine. He did it after his last meeting with German Chancellor Angela Merkel. The US and German leaders are said to have agreed to give some time to diplomatic and political efforts. On March 3, Minister of State for Europe Michael Roth confirmed that the goal of the Merkel-Hollande initiative was continued ceasefire in Ukraine. It may have yet failed to finalize the conflict but it may be the last chance to do it peacefully.

The same is true for the plans to send US military advisor to Ukraine. The Americans are planning to send no less than 300 servicemen in March-October 2015. The personnel will be deployed in Lviv region as part of the joint mission. In May and July there will be rotations. At the first stage, the Americans are supposed to train three Ukrainian battalions. This will hardly be enough should the war continue. So, the Americans need to send more advisors. If the war continues, this will look like sending troops to Ukraine but if the conflict is frozen, the Americans will be able to do almost the same they did in Georgia under Saakashvili before the war in South Ossetia. In any case, this all is just a way to pressure Russia. The Americans are trying to draw Ukraine into NATO by adapting its army to western standards. So, no coincidence that they have suspended their program to train Ukrainian soldiers. They just want first to see if the ceasefire will be observed or not.

All of the abovementioned diplomatic and military measures are supposed to encourage Russia to continue being part of the Minsk process. For Germany, this is a strategic process as the Germans believe that further conflict in Donbass may jeopardize the future of the whole European Union as it may stimulate centrifugal tendencies. With neither the US nor NATO being ready for a war with Russia, the EU’s positions look even weaker. In fact, they in Brussels do not know what they will do should there be a war with Russia. The Europeans are not ready for this. They are not even ready to increase their military expenses. No coincidence that the first thing they in Brussels said in reply to Jean-Claude Juncker’s initiative to create a common European army was that the EU would save 120mn EUR a year. So, we can see that for the Europeans this project is not so much a way to effectively fight Russia as a chance to save budgetary costs.

The Europeans have just one chance to keep their anti-Russian sanctions on their current level provided that Russia does not withdraw from the Minsk process. There are two ways for them to help Ukraine: the first way – realistic - is to keep the nationalist regime in Kyiv afloat, the second one – let’s call it romantic - is to turn Ukraine into an example of thriving democracy for the Russians. But the problem is that neither way implies financing from Brussels.

In the meantime, Ukraine is facing a default. In Jan 2015, the IMF said that in the coming years the country will need $41bn but, according to the Vice President of the European Commission, if the war continues, it may need even more. This is one more argument in favor of the Minsk-2. The Ukrainians urgently need loans. The IMF has already given a preliminary consent, but the slump of the Ukrainian hryvnia in late February has kept it from making the final decision. The IMF’s fiscal discipline program for Ukraine stipulates a rate of 20-22 UAH per 1 USD. Meanwhile, on April 1 2015 the gas tariff for the population in Ukraine will be raised by 6 times, with the heating tariff to be raised by 72%. For the industry the gas tariff will grow by 2.2 times. Since in Ukraine energy tariffs are linked to the hryvnia rate, now that UAH has slumped, the tariffs will have to be pushed even higher. And this will mean revision of the IMF’s lending terms. Even if the money is given now, the Ukrainian authorities will have to use much of it just to keep the UAH rate within appropriate levels. They will also need subsidies for their growing energy tariffs – something the IMF will hardly accept.

Whatever the case, Poroshenko was quite honest in his last TV interview when he said that the current state of Ukraine’s economy and finances does not let the country continue its war in Donbass. Almost 25% of the Ukrainian industry has been halted, 10% has been destroyed. “As long as we are at war, we will have no investments,” the Ukrainian President said.

So, today there is no alternative to the Minsk agreements. The Minsk-2 is a chance for Ukraine to go from war to diplomacy. In fact, Poroshenko admits that some Ukrainian territories will remain uncontrolled by Kiev. Instead, he suggests using foreign loans and investments for building normal life and turning Ukraine into a showcase of democracy. On the other hand, Poroshenko accepts no concessions as far as Ukraine’s territorial integrity or European integration are concerned. He suggests that the autonomous regions of Donbass will have no right to veto Ukraine’s foreign political initiatives. Compromise is possible in humanitarian sectors, in taxation, in local governance but only if the war is stopped and only within Ukraine. This confidence inspires Kyiv to fulfill the Minsk agreements.

EAD Analysis