Slow Down, Chancellor.

Photographer: John Thys/AFP/Getty Images

Don't Punish Russia for Compromising in Ukraine

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
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The European Union summit taking place today and tomorrow shouldn't decide the future of economic sanctions against Russia, because the cease-fire in eastern Ukraine is uncertain. I still think the sanctions were a bad idea, but having imposed them EU leaders need to be consistent in clearly linking changes to the success of the truce.

Easing the sanctions is not on the table today. The question EU leaders are debating is whether to agree now that the restrictions, which among other things limit borrowing in European markets by state-owned Russian companies, will remain in place until the end of this year, or delay making that decision until June.

German Chancellor Angela Merkel and European Council President Donald Tusk, as well as most of Russia's European neighbors, back the tougher option. They are encouraged in this by the U.S.: Yesterday, U.S. President Barack Obama talked to Merkel on the phone and the two leaders agreed the sanctions should not be relaxed until Russia fulfills all its commitments under February cease-fire deal that was agreed in the Belarus capital, Minsk.

The leaders of Hungary, Italy, Cyprus, Austria, Spain and Slovakia are more dovish. They argue that if an extension of the sanctions is announced now, the truce will be undermined because Moscow will see that its effort at compromise isn't being reciprocated.

The argument the doves make is compelling, if the EU wants to see the Minsk agreement through. Despite some sporadic fighting, even Ukrainian President Petro Poroshenko has said  the Russian-backed rebels have pulled back much of their heavy weaponry, a condition agreed in the previous cease-fire deal signed last September but never observed until now. Lamberto Zannier, head of the Organization for Security and Cooperation in Europe, charged with monitoring the truce, said earlier this month that, "all in all," the cease-fire was holding and, for the first time since the conflict started, violations did not involve the use of heavy artillery systems.

Telling Russia now  that, regardless of this progress, the EU wants to extend sanctions would confirm Kremlin suspicions that Western sanctions have little to do with the Ukraine crisis, but were imposed to weaken Russia as an emerging economic competitor. And if Russia is going to be kept out of Western financial markets no matter what happens, then according to this logic it should at least make sure Ukraine is subdued. If that becomes the dominant view in the Kremlin, the sanctions will lose their last shred of importance in President Vladimir Putin's calculus. Normalizing relations with the West would simply cease to be a goal.

At the same time, though, it would be a mistake to hand over the carrot of reduced sanctions too soon. The Minsk cease-fire agreement was laced with a number of time bombs and the next of these is ready to explode. 

This week, the Ukrainian parliament amended the law on a "special status" for the rebel-held areas within Ukraine, which it adopted last fall to meet the conditions of an earlier, failed cease-fire agreement. This status permits the rebel authorities to operate their own police forces and courts, as well as to build closer ties with neighboring Russian regions. The amendments, however, make this special status contingent on holding elections in the rebel-held areas that are compliant with Ukrainian law and observed by the OSCE, as well as on withdrawing all "illegal armed formations" from eastern Ukraine. In addition, the Ukrainian parliament drew up borders for the special status area that follow last fall's separation line between the Ukrainian troops and the rebels. This would require the insurgents to give up military gains they made earlier this year, including the hard-fought railroad hub of Debaltseve.

The rebels are up in arms about these steps, not least because they weren't consulted. Their leaders, Alexander Zakharchenko and Igor Plotnitsky, said in a joint statement that "by denying Donbass a special status, Kiev has trampled upon the fragile Minsk peace and led the situation into a dead end." Russia backed them with a harsh Foreign Ministry statement, which said the amendments to the special status law contravene the latest Minsk deal.

Russia is wrong about that. Both the elections and the shifted border were stipulated in February's agreement. The real problem with Ukraine's handling of the rebel-held areas is different: Contrary to the Minsk deal's terms, a de-facto economic blockade of Eastern Ukraine remains in place. Enrique Menendes, an entrepreneur and volunteer who lives in the rebel-controlled city of Donetsk and moved his family to Ukrainian-held territory, wrote on Facebook recently that the authorities in Kiev have already established a defacto border. They extract bribes and semi-legal payments from businesspeople who try to bring goods across the border, and make it difficult for locals to travel back and forth. This suggests that Kiev considers the territories lost and doesn't believe the political part of the Minsk deal, under which they return to Ukraine as autonomous regions, will ever work.

That approach and Russia's nervousness make the fate of the cease-fire uncertain. So Europe's doves are right to call for a three-month time-out to see how things will play out. It's correct to put the onus on the Russian and pro-Russian side, since they are the aggressors, but that doesn't preclude making sure Ukraine abides by the conditions of the deal it signed. 

If Putin's professed desire to end the conflict (while hanging on to Crimea) prevails, and he pressures the rebels to go through with the elections, that would call for a more substantial reward from the EU. It would also give European leaders a chance to correct the costly mistake they made by introducing economic sanctions in the first place.

Sanctions haven't ended the war, but they have alienated the majority of Russians and helped persuade them that the West is their enemy. By demonstrating that the goal of the sanctions was to encourage peace in Ukraine and nothing else, Europe could start mending fences -- not with Putin, but Russia, a country that will always be central to the continent's fortunes.

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

To contact the editor on this story:
Marc Champion at mchampion7@bloomberg.net