Ukraine Conflict Demonstrates Need for Close U.S.-EU Cooperation


The current conflict in Ukraine has shown the importance of close cooperation between the United States and the European Union to defend the system of international law. We support the aspirations of the Ukrainian people to seek their destiny with Europe, even as Russia seeks to thwart their right to make their own sovereign decisions. The United States joins Ukraine in mourning the loss of life that resulted from the tragic events in Odesa, when a pro-Russian mob attacked a peaceful demonstration for Ukrainian unity. We have called for an immediate de-escalation of tensions and end to violence. The United States stands ready to support the immediate implementation of the commitments made in Geneva on April 17 and calls on all parties to work to prevent further tragedy.

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The Geneva accords produced a “glimmer of hope,” as President Obama put it, but even before the Trade Union fire in Odesa, Russia’s failure to live up to these has required the EU and us to send Russia a message that it must stop its destabilizing actions. The United States and EU both realize that a united front is the most effective way forward.

Even as the EU and the United States announced additional sanctions on Russians (including their owned and controlled companies) and Ukrainians seeking to destabilize Ukraine and violate its sovereignty, the previous sanctions are already having an effect on the Russian economy. The IMF has cut Russia’s growth forecast for 2014 and estimates Russia’s economy has already entered recession.

There have been $63.8 billion of capital outflows from Russia in first three months of the year. The Russian Central Bank had to raise interest rates to 7.5% to cope with rising inflation and 10-year Russian government bond yields exceed 9%. The ruble and the Russian stock exchange have taken significant hits. Russia’s central bank has had to spend billions to defend the ruble, eroding Russia’s buffers against external shocks. Standard & Poor’s has downgraded the credit ratings of Russian sovereign debt, and of Rosneft and Gazprom, to BBB-, one notch above junk status, with negative outlook. Russian companies are having difficulty tapping into international capital markets. According to the Financial Times, there have only been two $1 billion bond issues from Russian companies this year, compared with nine deals raising over $13 billion by the same time last year. Many multinationals, including banks, are putting their investments and financings on hold. Another example of Russia’s increasing isolation is the fact that nearly all top-level CEOs will skip the St. Petersburg International Economic Forum at the end of May.

As a former investor and banker, I know well that predictability, stability, and respect for the rule of law are necessary preconditions for foreign investors to commit long-term capital in any country. Russia has long suffered from the well-deserved reputation of having none of these. I am struck at the parallels between Russia today and the Soviet Union before Perestroika. I studied at Leningrad State University in 1983 and worked in the U.S. Embassy in Moscow in 1984 when Russia was stagnating under General Secretaries Yuri Andropov and Konstantin Chernenko. Following research at the Soviet Academy of Sciences in 1988, I worked in Moscow in the early 1990s for an international law firm deeply involved in Russian projects. I decided against a legal career in Russia because I concluded that the respect for laws would remain low. This conclusion has proven correct: in Transparency International’s 2012 Corruption Perception Index, Russia was ranked 133rd among 176 countries.

Apart from the natural resource sector, which represents a high percentage of Russia’s foreign exports and GDP, relatively few foreign investors are adventurous enough to stomach the risks – including significant corruption and crony capitalism – in Russia. Even without further tightening of sanctions, the outlook remains bleak due to Moscow’s short-sighted economic policies. The United States and the EU have shown that we are prepared to increase sanctions if Russia’s actions to destabilize Ukraine continue. Furthermore, if Europe succeeds in diversifying its sources of energy supply and reducing its reliance on Russian gas (initial signs are encouraging), the Russian economy will continue to suffer. The United States and the European Union must move swiftly to deepen our collaboration, especially on energy security, in light of this crisis.

It did not have to come to this. The United States has worked for over two decades with the EU and other institutions to try to integrate Russia into the Euro-Atlantic community on the basis of mutual respect and acceptance of international law. We even expanded the G7 to include Russia in the G8, in order to give Moscow a stronger voice in economic and political discussions among the world’s leading economies. President Putin knows that the choice of the Ukrainian people – expressed in the Euro-Maidan protests and by the new government chosen by its elected parliament – to increase cooperation with the EU is their choice to make, not Moscow’s. It is no threat to Russian-speaking Ukrainians, and certainly no threat to Russia’s legitimate interests if Russia does not define those as the right to dominate its neighbors and violate their sovereignty.

It would be wiser for Russia’s leadership to recognize the value of being a responsible actor and stop using energy exports as a means to intimidate its neighbors. It is imperative for Russia’s own welfare that it cease its assault on its neighbors’ sovereignty. Banging the nationalist drum may bear short-term fruits; but the reality of the economic situation will eventually dawn on the Russian electorate.

By Anthony Luzzatto Gardner | U.S. Ambassador to the European Union


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