Vladimir Putin's Big, Soviet Dream

Vladimir Putin's dream of rebuilding the Soviet Union is falling apart, thanks to Ukraine.

(Corrects size of Ukrainian economy in third paragraph.)

Russian President Vladimir Putin's success in defusing the Syria conflict contrasts sharply with a fiasco developing closer to home: the disintegration of his grand plan to build a Eurasian economic union on the ruins of the former USSR.

Putin sees a free-trade agreement uniting former Soviet states as a big part of his political legacy. He has mentioned the project in every major speech for almost two years. "Tight integration with our neighbors is our absolute priority," Putin toldinternational Russia experts last week at a conference in Novgorod. "The Eurasian union is a project meant to preserve the identities of nations and the historic Eurasian community in the new century, in a new world."

So far, only the nucleus of Putin's grand vision exists in the form of a customs union of Russia, Belarus and Kazakhstan. For the project to succeed, it needs new members -- above all Russia's southwestern neighbor, Ukraine, a nation of 45 million people with a gross domestic product of $176 billion.

Ukraine, however, is looking elsewhere for partnership. On Sept. 18, the government approved a draft association agreement between Ukraine and the European Union. The treaty would remove customs duties for Ukrainian exports to the EU and reduce Ukrainian import duties on European goods. It would effectively torpedo any customs union with Russia, because the EU emphatically does not want free trade with Russia, Belarus and Kazakhstan on the same terms as with Ukraine.

Russia has repeatedly warned Ukrainians to choose their partner carefully or suffer the consequences. Last month, the Russian customs service began exhaustive unilateral checks of imports from Ukraine, creating long lines at the border. Kremlin economic adviser Sergei Glazyev saidthis was Russia "preparing to introduce tougher customs administration in case Ukraine makes the suicidal move of signing the EU association agreement."

Animosity between the countries has gotten personal. Russia's notoriously politicized sanitary-epidemiological service, for example, banned the import of Ukrainian chocolates -- a strike against Ukrainian billionaire Pyotr Poroshenko, who owns the Roshen chocolate company and has been a strong proponent of EU integration. When Glazyev and Poroshenko met face to face at a political forum in Yalta on Sept. 23, the popular website Ukrainskaya Pravda calledthe encounter "Russian vs. Roshen."

At the event, Glazyev and Poroshenko nearly came to blows. Poroshenko, whose chocolate garnered the praise of former U.S. Secretary of State Hillary Clinton, also present in Yalta, demanded to know if Glazyev really believed that Ukrainian chocolate was dangerous for Russian consumers. When Glazyev questioned whether Poroshenko had read the Ukraine-EU agreement, the billionaire responded: "I wrote it."

Russia's argument is that a Ukraine-EU deal will force it to erect customs barriers against European goods entering Russia through Ukraine -- a move it says will reduce Ukraine's export volume to Russia by about 24 percent. Putin made the same argument in Novgorod and suggested, for the umpteenth time, that Ukraine join the Eurasian customs union and then talk to the EU about new terms of trade as part of that organization.

In Moscow, Russian Prime Minister Dmitry Medvedev deployed sarcasm against the Ukrainians: "This is a choice that our partners should honestly explain to the Ukrainian people: 'You know, we believe it is best for our country to create such an alliance with Europe. After that, everything will be fine and we will develop like other European nations, such as Greece or Cyprus.'"

The current Ukrainian government is not going to change its mind. "Ukraine has spoken," Ukrainian President Viktor Yanukovich saidon Sept. 20. "Now we expect an answer from the European Union."

The answer may come at the November summit of the Eastern Partnership, the EU's program for building ties with former Soviet nations. Ukraine's is the only major trade agreement on the agenda. Armenia, a much smaller post-Soviet state that had been in negotiations with the EU, defected to Moscow, announcing it would join Putin's customs union.

Yanukovich, a former street thug from Eastern Ukraine whose Russian is better than his Ukrainian, has made a strategic choice in favor of Europe. This threatens to jeopardize Putin's cherished dream of reuniting most of the Soviet Union's splinters under Moscow's auspices. To the Russian president, the union is much more important than Syria: It is about his life's work, not just 15 minutes of dubious Middle East-peacekeeping fame.

So Putin will not give up. Yanukovich faces re-election in 2015, and Russia is expected to pump massive amounts of money into the Ukrainian presidential campaign to ensure victory for a pro-Moscow candidate. Putin hopes he can still persuade his difficult neighbors to step off the European path.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

    To contact the author on this story:
    Leonid Bershidsky at lbershidsky@bloomberg.net

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