Following the end of the Cold War Ukraine was left in limbo. While most of Central Europe became members of the EU and then Nato, the prospects for Ukraine to join either of these organisations was virtually zero, in spite of the lip-service Brussels paid to Kyiv’s “turn to the West.”
Russia’s full-scale invasion just under a year ago has changed all that. Ukraine is already a de facto member of the Western economic-military alliance and is now starting to work its way through its application process. A new International Monetary Fund (IMF) deal is almost done. The government in Kyiv says it has completed four fifths of the EU application requirements. And talk of making Ukraine a member of Nato has begun, as its military effort is supplied, trained and increasingly integrated with Nato’s defence systems.
Ukraine expects to complete its monitoring programme with the IMF and start negotiations on a fully-fledged programme in the second quarter of this year, in order to cover a $10bn financing gap in the state budget deficit for 2023.
A new IMF programme is a done deal. Ukraine has fulfilled almost all the requirements of the IMF's monitoring programme except one, according to Ukraine’s Minister of Finance, Serhiy Marchenko. And a new deal will be needed.
Marchenko said that the state budget deficit has been reduced to $38bn from the $51bn of last year and is expected to be fully financed through external sources. The US has promised $10bn in grants and the EU will provide €18bn in macro-financial assistance in the form of loans. That still leaves Kyiv short of $10bn that it hopes to make up in the form of borrowing from the multilateral lenders, including the IMF. And a deal with the IMF is a prerequisite for credits from all the other multilateral lenders.
The government has not said which conditions remain unfulfilled but corruption and the deep penetration into the state by the oligarchs has always been high on the IMF’s concerns. In what may be a related event, Ukrainian law enforcers raided the home of oligarch Ihor Kolomoisky last week and announced a $1bn embezzlement scheme linked to the businessman connected to his holdings in the oil business. Several other businessmen and high officials also came under scrutiny in similar raids.
Kolomoisky used his media empire to back Ukrainian President Volodymyr Zelenskiy's presidential run in 2019 and was a friend of the president. Despite having stolen some $5bn from his own bank, PrivatBank that collapsed in 2016, Kolomoisky has been at liberty in Ukraine since his return following Zelenskiy's election victory.
Last week’s raids are the latest and most drastic action taken by the authorities as part of a corruption crackdown that started with Zelenskiy’s oligarch speech in March 2021 and then the oligarch law enacted in September 2021. The president stripped his former friend of his Ukrainian citizenship in July then the government seized his oil assets Ukrtatnafta and Ukrnafta in November under provisions put in place by martial law. A corruption crackdown may not be an explicit demand in the current negotiation with the IMF but progress in fighting corruption is in general a prerequisite for any deal.
Following the Revolution of Dignity in 2014 that brought down president Viktor Yanukovych, Ukraine signed off on an Association Agreement with the EU and a Deep and Comprehensive Free Trade Areas (DCFTA) deal to improve trade ties. While the new relation with Brussels was widely heralded, the duty free quotas in the trade deal were so small they were typically used up in just the first few weeks of the year. Ukraine remained a long way from becoming a full EU member. Before the war Zelenskiy pushed hard for a concrete timetable, complaining about being kept in the “perennial waiting room.” Brussels refused to commit to any date at all.
That’s all changed now. Ukraine and Moldova were given EU candidate status on June 23, 2022, and have begun the formal process to become full members. Officials in Brussels have made it clear that membership could still be a decade away, but Kyiv is pushing hard to speed the process up and concrete actions are already being taken.
At an EU-Ukraine summit in Kyiv last week a 15-point roadmap for Ukraine's access to the EU's internal market was agreed. As part of this agreement, Ukraine will now join the EU's single market programme, justice programme and civil programme, providing more support for small businesses in Ukraine's market.
Access to the EU’s markets was also improved under the terms of a seven-year Single Market programme that is designed to simplify access to EU countries' markets and promote business and its development and competitiveness. This programme's budget is €4.2bn.
“Our participation in this project will contribute to additional support for Ukrainian entrepreneurs, who are the foundation of our economy," Shmyhal added. Increasing Ukraine’s trade with the EU is one of the easiest ways of improving the country’s finances and avoids the build-up of more debt.
Specifically, Ukraine and the EU also concluded a memorandum on their strategic partnership in renewable gases, biomethane, hydrogen and other synthetic gases.
The EU will open a Horizon Europe office in Kyiv by the middle of the year, to promote funding opportunities, offer technical support to Ukrainian researchers and innovators, and strengthen ties between Ukrainian and European institutions.
Nevertheless, the summit didn’t bring any promises of an accelerated accession. EU member states remain divided over the speed of Ukraine's accession. Ukraine's full economic integration into the EU may take two to four years, according to Ukrainian trade representative Taras Kachka.
But a lot of progress has been made. Ukraine has fulfilled 72% of its obligations under the Association Agreement with the EU and made significant progress in areas such as intellectual property and energy. Based on a report from the European Commission, Ukraine will conduct a self-screening of its legislation's compliance with European legislation, followed by the development of a National Programme for Adapting Ukrainian Legislation to EU Legislation.
The European Commission found that Ukraine's legislation in several areas, including energy policy, foreign policy, security and defence policy, is already in compliance with EU standards. However, legislation in areas such as public procurement and statistics are highly rated, but legislation in areas such as the legal framework for the free movement of goods is rated in the middle. Ukraine scores well in the digital business services provision field too.
Joining Nato remains the biggest challenge for Ukraine and has a mixed history. Prior to the events on Maidan in 2014 Ukraine was officially neutral, but during his tenure former President Petro Poroshenko changed the constitution to make joining Nato a national aspiration.
During the peace talks in March and April Zelenskiy offered to give up this aspiration and go back to neutrality in exchange bilateral security deals with the West.
The main objection amongst European leaders, Germany in particular, has been that it would be seen as a provocation by Moscow and could spark a war. However, as that war has already started there is no reason not to allow Ukraine in, argued Professor Sergei Radchenko in a recent article in the Spectator.
“The West wanted to indulge Russia and to partner with it. It wanted Russia to know that while its claims to a special sphere of influence in Ukraine could not be publicly accepted, they could and would be tacitly respected if Russia learned to behave,” Radchenko wrote. “Russia’s brutal invasion of Ukraine upended all that… Admitting Ukraine into Nato is no longer an outlandish, provocative idea. If anything it seems like the natural thing to do.”
Admitting Ukraine would still be difficult to do, but Radchenko suggests that just putting the offer on the table would be a useful bargaining chip in the eventual peace talks with Russia and it doesn’t have to be done quickly.
And membership could still be offered if the war ends in a stalemate with Russia still occupying significant parts of Ukraine, as was the case when West Germany joined the alliance, despite the Soviet occupation of East Germany.
“Russia’s choices today are even more circumscribed, which gives the West considerable latitude in shaping the post-war environment. It is an environment where Ukraine may well emerge as a major military player in Europe. It will command one of the better-armed and by far the most experienced armies on the continent. Leaving Ukraine in a state of purposeless drift will create just the kind of uncertainty and instability that so worried George H W Bush in 1990. It would be a mistake that we cannot afford to make,” Radchenko says.
Leaving Ukraine in limbo, caught between Russia and the EU for the last three decades, has been a contributing factor to the current war, but clearly the war has crystalised everyone’s position on Ukraine. By the West throwing itself into fully supporting Ukraine in its war with Russia, Ukraine has already been de facto admitted to the European community and definitively rejected a closer alliance with Russia. Now the process of formally admitting it into the European club has begun.