UKRAINE SCENARIO: BUMPY ROAD OR DEAD END BY 2030?

Source: Friedrich Ebert Stiftung (Scenario Team EU-Ukraine 2030) Published in March 2014

Scenarios do not attempt to predict the future, but offer different pictures of possible and plausible futures. They can be helpful in enabling decision-makers and stakeholders to adapt their strategies in order to achieve or avoid a certain scenario.

BUMPY ROAD SCENARIO

Bumpy Road relations are characterized by ambiguity, with little progress on the integration path. By 2030, a series of elections in Ukraine has shown no explicit political will to deepen integration with the European Union (EU). This dampens the relationship, but there are still positive changes, such as Kyiv’s implementation of the Association Agreement (AA) obligations. With the observed passivity of the EU towards Ukraine and due to Russia’s efforts, Ukraine has fallen deeper into the Russian sphere of influence and has started negotiations on an associated membership with the Eurasian Economic Union. The region retains the status quo with a declining economy, a lack of reforms, and a widening gap between democracy and autocracy.

The events of Maidan seemed to signal the victory of the pro-EU forces in Ukraine, and positively transformed the EU’s attitude towards the Ukraine’s integration aspirations. Using the momentum, the United States (US) also extended its technical support for democratic and institutional transformations in Ukraine. However, Russia was not satisfied with losing its political dominance over Ukraine, and sanctions and bans on Ukrainian products followed: increased gas prices, unfavourable credit conditions, and worsening trade between the two countries (banning some Ukrainian exports, hardening customs regulations, etc.). However, these negative shifts were partially compensated by financial assistance from the EU, the US, and the IMF. The temporary stabilization of the economy and formation of a transitional government led to the election of a pro-EU president in 2014.

The new government took advantage of the situation and implemented some unpopular economic reforms that were necessary for signing the AA in 2018. These reforms concerned the transparency of business regulations, implementation of EU technical and phyto sanitary standards, bringing excise duties to the EU level, etc. However, the signing of the AA escalated the tensions between different regions of Ukraine. The involvement of the EU and the US in the internal affairs of the country left some political groups out of the negotiations. With no strong leader to unite the country and satisfy all strata of the electorate, the West supported one of the former opposition leaders for the presidency in 2014. In three years, it became clear that the political sphere needed further diversification and inclusion. The president did not gain meaningful support in the government to fully introduce a set of reforms. The consolidation of the political process and agenda could not be finished, because it simply did not start: the administrative apparatus lacked professionals, and corruption schemes proved hard to resist with only short-term goals.

The first years of the new EU-Ukraine trade framework unleashed a wide range of problems in the Ukrainian economy, because some EU companies increased their presence and activities in the Ukrainian market and local enterprises struggled to compete with them. Without a decent, focused information campaign accompanying the implementation of the EU-Ukraine trade framework and its possible advantages, the social tensions and negative attitude towards the country’s direction intensified. Additionally, the Deep and Comprehensive Free Trade Agreement (DCFTA) demanded great efforts for Ukrainian dealers to enter the EU market at a higher level. The “mortality rate” of the Ukrainian SME and of some bigger companies that were oriented strictly on the internal market increased. Consequently, the Ukrainian GDP dropped slightly, and the condition of public finance became more critical—especially regarding the budget deficit and the country’s debt. Cases where public sector employees’ salaries and social payments were delayed became increasingly frequent.

Meanwhile, Russia pushed the idea of the Eurasian Customs Union (ECU) even further—offering an alternative to the EU’s European Neighbourhood Policy (ENP) and Eastern Partnership (EaP) tools, but with a clear membership perspective. The ECU, free of democratic conditionality, offered Ukraine a membership with no political constraints, promising to compensate the increasing tariffs from the WTO membership. Short-term benefits—increased GDP, continued access to the Russian market, and a potential recreation of the technological research and development complex—seemed like a release from the obligations for modernization and standards set by the EU.

As a result, the 2019 presidential elections in Ukraine reflected the current situation—the new president reversed the course set by the previous pro-EU leader. Economic hardships were too hard to bear and overcome after many years of economic instability. Brain drain and emigration from Ukraine left the country with an enormous lack of civil society activists and progressive minds. As Ukrainian civil society became more marginalized, people preferred to stay away from political life feeling unable to change it. Ukraine’s path towards the EU was set back even further, causing minor pro-EU protests in 2021. To demonstrate solidarity with the Ukrainian people, the EU finished the ratification of the AA in 2022. Ukraine tried to fulfil the obligations undertaken by the AA and strived to implement all of the international requirements undertaken in the context of harmonization of public administration management processes, but it often lacked either the institutional capacity or the required finances. Over time, it became obvious that the current political elite of Ukraine once again preferred to give the illusion of change by signing the international agreements, but not implementing them.

In that regard, even the first benefits of the signed DCFTA failed to improve the situation, although by the mid 2020s, a large number of Ukrainian enterprises had managed to adapt to the new economic conditions. Trade turnover between the parties and foreign investments in Ukraine once again increased. Ukrainian economic indices, including personal income and government revenues, gradually improved. But political uncertainty in Ukraine and internal factors—including a gap between adoption and enforcement of legislation, persistently high levels of corruption, slow introduction of innovations, and energy-saving technologies—kept mutual EU-Ukraine economic relations at bay. However, these factors did not affect the relationships with other regional partners.

Following a long period of negotiations and the Action Plan implementation, a visa-free regime between the EU and Ukraine was finally established in 2022. It drastically increased mutual human flows, but access to the most highly sought-after segments of the EU labour market remained restricted for Ukrainians. Meanwhile, in other areas, EU companies benefited from the increasing competition from the Ukrainian labour force, as Ukrainian workers were closer to the European standards of professional education and willing to accept lower salaries. Seasonal work migration from Ukraine to its Eastern neighbours became a trend once again.

Major energy disputes—like the disagreements on prices and energy transit via the Ukrainian transport system, delayed payments, the energy infrastructure’s lack of modernization, building of new pipelines, etc. —were solved within a newly created trilateral EU-Ukraine Russia consortium. It brought the main energy operators and politicians of the three parties to a common table. However, sitting at the round table did not resolve energy-conflict situations within bilateral EU-Ukraine relations (or within Ukraine-Russia relations).

The overall developments led to the re-election of the Ukrainian president in 2024. Significant delays in transparent public procurement, the enforcement of competition rules, and intellectual property rights caused the European Commission to continue antidumping practices for some Ukrainian commodities. As a result, Ukraine was behind schedule in reducing fiscal and quantitative barriers for imports of automobiles, machinery, and food products from the EU. At the end of the 2020s, there were still a few claims from European companies concerning Ukrainian business entities violating trademark rights, utility models, and know-how. This hampered trust in the business environment and hindered common entrepreneurship, hence forcing Ukrainian companies to look eastward for business partners

Overall, the rift in Ukrainian society was deepened over the years with advantages for the pro-Russian attitude. Public awareness was formed by the superiority of a government-influenced media. By the late 2020s, Ukraine assessed itself as economically attractive and began a dialogue with the EEU on the associated membership The political elite once again used the financial benefits of the international agreement to sustain its swinging strategy: to take a 180-degree turn from the EU towards Russia. Without clear road signs, the Ukrainian vehicle hit another bump on the road to the EU.

DEAD END SCENARIO

Relations between the European Union (EU) and Ukraine are based on minimal cooperation, as the backsliding from democracy in Ukraine only leaves room for the political dialogue of mutual criticism. This, however, has an effect on Ukraine because its lack of political will and corruption schemes have pushed it to become Russia’s satellite. The Western world has opted out of dealing with the unpredictable character of the region, only speaking with the dominant Russian voice. The majority of issues are settled via the trialogue between the EU, Ukraine, and Russia, under the auspices of the latter and with Ukraine being more of a pawn than a player. Ukraine is an associated member of the Eurasian Economic Union (EEU). Human rights abuses, misuse of funds, and economic stagnation overrule the development of any common EU-Ukraine values and joint projects.

On the one hand, the 2013 Vilnius Summit fiasco demonstrated the incompetence and dependence of the Ukrainian government on its hostage status to Russian politics and lopsided economic and political games. The Ukrainian political elite was unable to recognize the deep-rooted demand for a European-oriented policy, and was overwhelmed with the protests following the Vilnius summit and unable to find in this tense political situation an appropriate reaction to the demands of the people.

On the other hand, it showed the EU’s incompetence in drafting agreements with an adequate balance between incentives and obligations, as well as the exposed remnants of the EU’s neighbourhood policy and the weak voice of the European Union. The reluctance of the EU to use the momentum of the Maidan Eurorevolution and its hesitation in the introduction of sanctions prolonged Ukraine’s internal conflict.

Despite the further intensification of protests in 2014 and the pro-European aspirations of Ukrainians, the EU chose the strategy of awaiting and adhering to Russia’s political actions. Meanwhile, Russia’s tactics aimed at the federalization of Ukraine had more of an effect than the sanctions, mediation efforts, and economic survival measures imposed by the United States (US) and the EU. Thus, a historical chance to use protests in Ukraine to relaunch and put strong, sound, and fresh governance structures into effect was lost. One of the largest European countries was left on its own, while the EU did not use the moment to establish itself as a new power in world politics.

The inability of the Ukrainian government and the opposition to find compromise escalated the situation: the political dynamics led to catastrophic radicalization, chaos, and conflict. Any possible negotiation on the EU-Ukraine Association Agreement (AA) ceased. Reasons and grounds for effective dialogue and relations between the EU and Ukraine were minimized. EU-28 had difficulties coping with economic disturbances in Greece, Spain, Portugal, Bulgaria, and Romania. A new composition of the European Commission elected in 2014 decided against »dragging Ukraine by the ears« and constantly addressing its problems, while trying to maintain »good neighbour status« with Russia.

This meant phasing out EU-Ukraine cooperation instruments—forcing in turn foreign investors to cut back on investments in Ukraine, and creating a negative impact on the trade turnover between the EU and Ukraine.

Also, the budget deficit grew. With no EU Emergency Action Plan at hand, the crisis courted economic disaster on a scale that no Russian or Western bailout could alleviate. Russia took this as an opportunity to draw Ukraine closer—increasing corruption schemes and political pressure to push its Western neighbour into its open arms. Additionally, Russia’s $15 billion loan and adjusted gas prices were compelling arguments for Ukraine to deepen the cooperation with Russia in the economic and energy sectors. Influenced by a pro-Russian oligarchic lobby, the Ukraine government supported this trend because of the country’s current situation.

To this end, the energy policy became even more entangled with business interests. Gas was further used by Russia as a political trump to pursue its own interests. With lower natural gas prices, Ukraine was reluctant to seek new ways to modernize its energy sector with green and renewable energy sources. Without competition and modernization, Ukraine remained a satellite of Russia, who treated it as a pool for draining its resources. Likewise, the EU was also not ready to allocate funds for the modernization of Ukraine’s pipelines and for the renovation of energy generating facilities. The cooperation on the modernization of existing facilities failed to start after the 2014 presidential election. The policy of diversifying energy suppliers urged the EU to decrease its gas imports from Russia, which led to dwindling gas transportation through the Ukraine. In addition to the North Stream, Russia continued to develop the South Stream gas pipelines, bypassing Ukraine.

Social tension, increases in the state debt, unemployment, migration, and energy dependence forced the government to solicit additional financial assistance from Russia, which was mainly spent on the campaign to elect a pro-Russian president in 2014. The country walked a thin line of civil war: only de facto federalization helped avoid the de jure break-up of the country. The suppression of protests and civil unrest, as well as statements by the international community on violations of the election process did not prevent the President from taking an authoritarian stance. The opposition was repressed and forced to cease its activities, with some of its members entering the family of the ruling party. The practice of cronyism—appointing people from the »family« for posts rather than selecting the best professional in a transparent interview process—had been cemented once again: it minimized the chances for the emergence of a professional political elite.

As a response to human rights abuses in Ukraine, the EU chose to limit the scope of cooperation with its largest Eastern neighbour. The visa liberalization process was stopped. Between 2015 and 2020, with no AA in place, the EU gradually decreased technical and macro financial assistance for Ukraine in a way that limited any economic reform. Deferred harmonization of Ukrainian legislation with EU rules and standards—in terms of technical, sanitary and phyto sanitary regulations—hampered mutual trade. Corruption and tax evasion, as well as unclear legislative rules for the establishment of companies in Ukraine remained a chronic issue. To this end, Ukrainian enterprises directed their attention towards Russian and Chinese investors.

The Eurasia Economic Union (EEU) began operations in 2015, and Ukraine applied for an associated membership to compensate for the loss caused by the restricted access to its goods and services in the EU market. China was eager to give a helping hand to Ukraine and cement its own influence in the region. In particular, the increase in Chinese exports of construction materials, equipment, and building services served as a way to gain access to the vast scope of Ukrainian natural resources.

The early 2020s saw a decline in business contacts with Western partners and a reluctance to implement sweeping reforms. Thus, authorities further solidified economic relations with Russia and China. The former managed to pull the country into wide-scale joint projects, while the latter launched a series of projects mainly in agricultural and industrial sectors. Such cooperation with Russia and China prevented a political crisis and stabilized the economic situation in the country.

Without involvement in Horizon 2020 and the EU funding programme for research and innovation, Ukraine lacked the resources for modernizing and promoting competition in science. The science and education systems failed to gain momentum for harmonization along with EU standards. The Ukrainian education system had not been integrated into the Bologna process: cronyism negated the need for diplomas by giving preference to lower qualified candidates over those with professional degrees. The absence of a qualified medical and educational HR pool led to the deterioration of social standards. Pro-Russian and anti-Western propaganda served as the basis to bring up a new generation of loyal compatriots—with a lack of options rather than personal choice. Travel to Ukraine (and the region) was limited for foreigners in general, with imposed visa restrictions for EU and US citizens.

Because of Russia’s growing influence on socio-economic processes in Ukraine, close ties with the Eurasian market, and the absence of political choice, a pro-Russia president was elected again in 2019. This meant de facto Russian control of Ukraine’s resources and political processes. The final political milestone was reached in 2030 when Ukraine received associated member status in the Eurasia Economic Union. Gas export tariffs for Ukraine were lifted and industry production cycles between Ukraine and Russia were gradually restored; however, this trend led to a decrease of sovereignty for Ukraine. The supra-national institution controlling the customs regulations limited Ukraine’s ability to protect its own national interests. Furthermore, politically motivated business actors continued to dictate rules in the region.

With business and politics fully intertwined and controlled by Russia, the only format of negotiations was via a trialogue between the EU, Ukraine, and Russia, where the EU played more of an observer role. With the failure to use the opportunities of 2014 to bring Ukraine under an EU agenda, the EU lost the chance to use Ukraine’s success story to spread the idea of democracy and to convince Russia to take the »Lisbon to Vladivostok Strategy« seriously. Now, instead of the global Greater Eurasia or the Greater Europe concept—which was intended to embrace European and Asian territories—the world was forced to deal with Russia’s increasing political mood swings, its backdoor approach to political negotiations, its leveraging of the gas game, and its growing regional dominance. This is a dead-end street for EU-Ukraine relations. And reverse is broken.