Game of Zones

Who could possibly object to the EU offering its magic touch on free trade and democratic values to the countries emerging from the ashes of the Soviet system? As it turned out, anyone with sufficient paranoia to equate an EU association agreement with NATO accession (no prize for guessing). The force of such objection is tearing Ukraine apart. Was it then foolhardy to offer such an agreement at all? CESifo researcher Thorvaldur Gylfasson and his colleagues Inmaculada Martínez-Zarzoso and Per Magnus Wijkman go to the root of the question in their latest CESifo Working Paper.

Exactly a year ago, the EU announced that it had completed negotiations on Association Agreements, which included a deep and comprehensive free trade agreement (DCFTA), with Armenia, Georgia and Moldova. The agreements were to be initialled at an Eastern Partnership summit in late November of that year in Vilnius. At the same time, Ukraine would sign its own DCFTA, which had been initialled earlier. The mood was festive.

What actually happened is, well, history. Two months before the summit Armenia announced that it would not initial its agreement but instead join the Eurasian Customs Union proposed by Russia. Then, a few days before the ceremony, Ukraine announced it would not sign the Association Agreement either.

Behind these baffling decisions was massive pressure from Russia. In the case of Armenia, it had threatened to withdraw the Russian troops that protected Nagorno-Karabakh, an Armenian enclave in Azerbaijan. In the case of Ukraine, Putin had threatened with disrupting trade and oil and gas supplies, while at the same time offering the carrot of juicy loans. Georgia and Moldova also reported measures and threats by Russia.

But what can account for the fateful consequences of the initiative? The short answer is, a combination of overestimation and underestimation. On the one hand, the EU overestimated the economic ability and political preparedness of the four Partnership states to implement association agreements with the EU, while underestimating the opposition of Russia to such agreements with countries in its "near-abroad", Putin viewing them as a long-run threat to his power base at home. Ukrainian President Viktor Yanukovich, in turn, underestimated the popular rejection of his swerve towards Russia and the longing of Ukrainians for more closeness with the West. Putin underestimated the depth of this feeling as well.

After reviewing the preparedness, or lack thereof, of the candidate countries, and the factors leading to the backsliding in Armenia and Ukraine, the authors conclude that offering the agreements was, and still is, a good thing, despite Russian fuming. Trying to draw lessons from the debacle, they recommend for the EU to not make a functioning democracy with a free press a precondition for opening negotiations on a free trade agreement, arguing that the difference between a free trade agreement and actual accession is significant. They also argue that the EU should not make a referendum of the negotiated agreement a condition for adoption.

But that does not preclude better informing the business community, NGOs, political parties and the media of such countries on what is involved in the negotiations. The EU also needs to focus the candidate country's attention on measures to improve the functioning of its market economy, reducing corruption and improving the ease of doing business in the course of negotiations. The significant progress made by Georgia in these aspects has facilitated its progress while the poor record of Ukraine has contributed to its problems. Furthermore, the great heterogeneity displayed by the partnership candidates suggest the need for a treatment tailored to the specific circumstances.

So, it is definitely worth saving the Eastern Partnership. To do it, urge the authors, the signature of the Association Agreements with Georgia and Moldova should be speeded up, with the EU providing technical and financial assistance for their rapid implementation. And saving the Eastern Partnership also calls for "extraordinary actions" by the EU in coordination with the USA to make it possible for the Ukrainian citizens to exercise their right to determine their future.

Maybe that is precisely what Putin fears.

Thorvaldur Gylfason, Inmaculada Martínez-Zarzoso, Per Magnus Wijkman, Can and Should the EU's Eastern Partnership Be Saved?, CESifo Working Paper No. 4869
Other CESifo Working Papers by Thorvaldur Gylfason

This text is the responsibility of the writer and does not necessarily represent the opinion of the authors of the paper featured.