Dec. 3 (Bloomberg) -- Ukraine’s biggest protests in almost a decade are pushing President Viktor Yanukovych into a corner.
As throughout its history, the former Soviet nation of 45 million is torn on whether to align itself to Russia or Europe. After years of shifting alliances, Yanukovych last month opted to seek closer ties with his eastern neighbor. That ignited the biggest demonstrations in nine years, which turned violent over the weekend as a police crackdown fueled demonstrators’ ire.
“There is no optimal scenario for Yanukovych,” Alexei Makarkin, deputy head of the Center for Political Technologies in Moscow, said by phone yesterday. “He showed himself to be an unreliable partner for the West, raised lots of doubts in Russia and domestically transformed his opponents into real enemies.”
Yanukovych has a choice between crushing the protests and negotiating with the opposition. The first risks triggering escalation and alienating voters 14 months before presidential elections. The latter undermines his authority and weakens his bargaining position with Russia and the European Union.
As Russian President Vladimir Putin dismissed the Kiev protests as a “pogrom” rather than a revolution, predicting they will soon dissipate, the Ukrainian leadership sent mixed signals. Yanukovych, who leaves today for a three-day trip to China, condemned police violence and promised increases in wages and pensions. Prime Minister Mykola Azarov said the rallies were getting out of control and showed “signs of a coup attempt.”
Those diverging messages kept investors guessing about the country’s future, boosting borrowing costs and credit risk. The yield on the government’s 2023 dollar bond rose 60 basis points, or 0.6 percentage point to a record 10.57 percent yesterday. The cost to insure the country’s debt for five years against non-payment using credit-default swaps surged 75 basis points to 1,056, the world’s third highest behind Argentina and Venezuela, according to data compiled by Bloomberg.
The protests echo the Orange Revolution nine years ago, when hundreds of thousands stayed on the streets in subzero temperatures for months. The peaceful vigil eventually overturned Yanukovych’s victory in a presidential election that protesters believed was marred by fraud.
This year’s demonstrations are the biggest since then. Organizers said as many as half a million people joined protests in downtown Kiev in disappointment over the government’s decision to pull out of an EU trade deal. The rallies, which also spread across the nation, turned violent, leaving hundreds of people injured as riot police battled demonstrators.
“Nothing like this ever happened in Ukraine,” Gleb Pavlovsky, president of the Effective Policy Foundation in Moscow, said by phone yesterday. “In 2004, there was nothing like that, no force was used against the public.”
The response to the violence was overwhelming as a the crowd swelled in downtown Kiev, seizing public buildings, facing the Berkut riot police and urging people around the nation to start a general strike.
Clashes continued, jolting opposition leaders into action. Boxing world champion Vitali Klitschko and Arseniy Yatsenyuk, the head of jailed ex-premier Yulia Tymoshenko’s party, raised the stakes and called for a vote of no-confidence and early elections.
As the street violence attracts global attention, Ukraine’s polarization between east and west is more visible than ever, said Andrey Makarychev, a professor at the University of Tartu in Estonia.
“It is the ruling regime that provoked people to go to the streets,” Makarychev said by e-mail. “The issue at stake is not only the fairness of the electoral procedures, but something much better articulated -- the European identity of the country.”
The EU and Russia, which buy about a quarter of Ukrainian exports each, are competing for influence over the country that’s an essential transit route for Russia’s gas shipments to the West.
European leaders yesterday reiterated that the door is still open for Ukraine. The EU is ready to sign a trade agreement if authorities “demonstrate the necessary political will” to meet its conditions, European Commission spokeswoman Pia Ahrenkilde Hansen told reporters in Brussels.
Yanukovych has said the terms of the EU deal don’t provide sufficient protection from possible Russian trade sanctions. Russia disrupted imports from its neighbor in August in protest of the proposed agreement. Ukraine’s economy is going through its third recession since 2008 and talks for an International Monetary Fund bailout have failed.
Ukraine wants to “change some conditions” of the trade pact, Yanukovych said in a television interview yesterday, adding that he’s still committed to European integration. In the meantime, the government will this week start talks with Russia over the gas price Ukraine pays to its eastern neighbor, which supplies 60 percent of its consumption of the fuel.
Yanukovych has played a balancing act since he became president in 2010, in part serving the interests of the powerful businessmen who prop up his power, Jan Techau, director of the Brussels office of the Carnegie Endowment.
“Getting too close to the EU would endanger the oligarchs’ business model,” Techau said by phone yesterday. “Yet they also don’t want to get too close to Russia. The political situation seems frozen in Ukraine between the oligarchs not wanting a full tilt to either the EU or to Russia and the populace that’s disappointed.”