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Pro-European Union activists gather during a rally in Independence Square in Kiev, Dec. 17, 2013. Weeks of angry pro-European Union protests as well as Western pressure have forced President Viktor Yanukoyvch to make some concessions to the opposition. Russian President Vladimir Putin upped the stakes Tuesday in the battle over Ukraine's future, saying Moscow will buy $15-billion worth of Ukrainian government bonds and sharply cut the price of natural gas heading to its economically struggling neighbor. (Efrem Lukatsky/AP)
Pro-European Union activists gather during a rally in Independence Square in Kiev, Dec. 17, 2013. Weeks of angry pro-European Union protests as well as Western pressure have forced President Viktor Yanukoyvch to make some concessions to the opposition. Russian President Vladimir Putin upped the stakes Tuesday in the battle over Ukraine's future, saying Moscow will buy $15-billion worth of Ukrainian government bonds and sharply cut the price of natural gas heading to its economically struggling neighbor. (Efrem Lukatsky/AP)

Putin outbids EU with $15-billion bailout offer to Ukraine Add to ...

Russian President Vladimir Putin has used his country’s economic might – cheap energy and billions in desperately needed cash – to yank neighbouring Ukraine back towards Moscow, infuriating the crowds protesting non-stop on the streets of Kiev and leaving a badly outplayed West with few obvious countermoves in the Cold War-style struggle over the fate of the former Soviet republic.

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Four weeks ago, Ukraine seemed set to sign a trade agreement with the European Union that would put the country on track for eventual accession to the EU. The Kremlin first used the stick – the threat of crippling economic retaliation – to get Ukrainian President Viktor Yanukovych to walk away from that deal on Nov. 21, a reversal that has since brought hundreds of thousands of pro-European protesters into the streets of Kiev. Now, Mr. Putin has produced the carrot: cut-rate natural gas, and a promise to buy $15-billion (U.S.) in bonds from the cash-strapped Ukrainian government.

The political costs of the deal are not yet known. The White House warned the deal “will not address the concerns of those who have gathered in public protest across Ukraine.” But it’s highly unlikely the United States or the EU, which is already wrestling with bailouts to some failing member states, can match the largesse of the Kremlin.

The $15-billion cash injection will allow Ukraine to meet some $9-billion in debt obligations for 2014, while the cut-rate natural gas – Mr. Putin slashed the price by a third, from $400 per 1,000 cubic metres to $268.50 – could mean better days ahead for Ukraine’s aging factories, which are almost completely reliant on Russian customers and Russian-supplied gas.

A smiling Mr. Yanukovych heaped praise on Mr. Putin following their meeting inside the red walls of the Kremlin in Moscow. “I will say openly: I know that this work wouldn’t have been done at this optimal speed if not for the Russian President’s political will,” Mr. Yanukovych said.

The reaction on the streets of Kiev was an angry one. Opposition leader Vitali Klitschko, the heavyweight boxing champ, accused Mr. Yanukovych of having sold the country’s interests out to Moscow. He said he would give up his boxing crown to challenge Mr. Yanukovych in presidential elections that aren’t due until 2015, but which the opposition is calling for immediately.

“He has given up Ukraine’s national interests, given up independence and prospects for a better life for every Ukrainian,” Mr. Klitschko told a crowd of more than 10,000 who took part in a 27th consecutive day of protests in Kiev’s Independence Square. He and other opposition leaders vowed to block parliament to prevent the Putin-Yanukovych pact from being ratified.

The opposition fears that the price of the Russian bailout will be Ukraine joining the Eurasian Union, a Moscow-led customs union and trading bloc due to come into existence in 2015. Many see the Eurasian Union, a pet project of Mr. Putin’s, as an attempt to restore Russian influence over Ukraine and other parts of the former Soviet Union.

Mr. Putin denied the connection outright. “I want to calm everyone down – today we did not discuss the issue of Ukraine’s accession to the customs union at all,” he said. Mr. Putin added that the bailout came without any “increase, decrease, or freezing of any social standards, pensions, subsidies, or salaries” – a deliberate contrast with the International Monetary Fund, which had offered to help Ukraine only if it introduced austerity measures and macroeconomic reforms.

Protesters in Kiev had little doubt the Kremlin would expect something in return for its seemingly generous financial help. “I know of only one place where you can find free cheese – and that’s in a mouse-trap,” said Arseniy Yatsenyuk, a former economy minister and another opposition leader.

Demonstrations have turned occasionally turned violent in recent weeks, with Mr. Yanukovych twice sending riot police in failed efforts to clear the streets and protesters barricading themselves inside Kiev city hall. Thousands of government supporters – many of them bused in from Russian-speaking regions in the east and south of Ukraine – are also camping in the streets, vowing to back Mr. Yanukovych and his turn towards Russia.

 

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