Acta Universitatis Danubius. Œconomica, Vol 11, No 2 (2015)

The Impact on Continental and Economic Issues of Russia’s Military Stance on Crimea and Eastern Ukraine

Romeo-Victor Ionescu¹, Pierre Chabal²

Abstract: The paper deals with a very complex analysis of the Eastern Ukraine and Crimea and its impact on other European countries. The analysis covers historical, social, cultural, religious, linguistic, economic aspects, which are put together in order to obtain the best description of the situation. This approach is one of the few others realised at this scientific level. The latest statistical data and information are used in order to support the analysis and its conclusions. There is a pertinent connection between the historical, social, cultural and economic environment in region. The main conclusion of the paper is that a compromise is possible with compensations for the other interested global actors, not only for Russia. Moreover, the present strategically, military and economic crisis’ approach will be very important for the future events anywhere in the world.

Keywords: geopolitics; geo-economics; comparativism; economic contraction; regional economic disparities

JEL Classification: F51; F62; O52; O57; R11

1. General Approach

The end of 2013 and the month of March 2014 mobilized the memories of March 1937. The old dynamics of the German-Austrian “Anschluß” in the late 1930s agitated the minds as to a Russo-Crimean “annexation” in the 2010s. To be sure, the search for a resemblance, for a comparison, was easy, and much easier than an analysis that would integrate the changes of the world context in which the events were taking place. Disruptions affecting Ukraine are, however, essentially those affecting the whole arc of countries of the Eurasian “in-between”- space, which links the Baltic area, in the north, to the Black-Sea/South-Caucasus region (Belarus, Ukraine, Moldova, Georgia, Armenia, Azerbaijan, Iran and Turkey, nay Syria) in the east and in the southeast.

Thus approached, the international crises in Georgia (during 2008), that in Ukraine (since 2013) and other internal tensions that arouse international interest (Turkey, Iran, Syria, Belarus) light up in a new way, the spotlight of the last phase of the establishment of the New International Order of the post-Cold War, against the backcloth of Chinese power and Sino-US latent rivalry. Civil and political confrontations within Ukraine are part of the crisis, but this crisis is primarily international, specifically continental, according to the main hypothesis of this article, and it is a crisis situated at the gateway to the “New Asia” (Chabal, 2015).

This hypothesis thus “situates” this crisis, in turn, out of the history of the 20th century alone and fully within the new configurations, those of “the Sino-Russian-European 21st century”.

At first sight, the tension in Ukraine, the referendum in Crimea and the “reattachment” of the peninsula to Russia seemed an open surprise. The concept of “annexation” or Anschluß was spontaneously used in the western/European press. However, international politics and events are oftentimes essentially ambiguous and it is never clear what to make of them, especially when involving historical “origins” of events. The fact that Crimea was Russian until 1954 is true; the fact that the Soviet empire no longer corresponds to present border-designs is also true. To be sure, Russia’s justification is as ambiguous in her stance on Crimea (and eastern Ukraine, and eastern Moldova) as it would be (?) on northern Kazakhstan, but, equally certain is the ambiguity of the (lack of) capacity of other States in the region and in the world as to how to react to that stance on Crimea and Ukraine.

And so, as often in academic analysis, when facts are uneasy to understand, one would be well-advised to revert to theoretical views. Our contention in this article is that one ought to mobilise concepts, among them some classic ones from geopolitics and their derivatives, to make sense of Russia’s stances in the 2010 before analysing the impact, particularly in economic terms, of Russia’s s move into Crimea in 2013/2014.

Nowadays, the conflict between Ukraine and Russia covers political, military, social and economic aspects. The main question related to this crisis is how deep is this conflict and which are its challenges for the international community?

There are a lot of articles, interviews and statements concerning the Ukrainian crisis. On the other hand, there are not large scientific analyses focused on it.

This paper offers a complex political and economic analysis based on the latest official data and considers that the greatest challenges for Ukraine and the international community will started at the end of the military conflict in region.

2. Critical Overview of the Literature

2.1. The Geopolitical Causes of Russia’s Stance in the 2010s

Rather than reverting to immediate news reports, made worse by acute journalistic sensationalising of the facts, it is suggested to extract the necessary elements of discussion from theories that link space and power. The link between territory, as physical space, and power, as the capacity to dominate and impose one’s view, is provided by geopolitical thinkers. We need to browse through classic geopolitical concepts (1), adapting some of them in particular, in order to seek to provide a fine-tuning of unfolding geopolitical dynamics (2).

2.1.1. Classic Concepts: Adapting some Geopolitical Classics

Classic thinkers, contributors from the late 19th and early 20th centuries, some of them German, some others Anglo-American, provide us with five views of the relevance of the physical space or territory. Let us remind ourselves of how these views relate to the events of Eurasia in general and with those in and around Ukraine in particular. It will then be possible, in each case, to state and discuss, to use and refute these views and suggest an analysis of the dynamics since 2013 in Ukraine as case-study of the European-Asian interface.

a)- vital-space :  expansion / losses of 1991 lack of space

The issue of space in geopolitics is addressed as a territory animated by a State, according to the view of F. Ratzel (1844-1904)³. That is, all States are in a struggle for space and seek to increase their territory in order to access more resources. This classic idea that States, as a rule, extend into their neighbours, has a countervailing significance: any State having lost territory will be driven to reacquire it, as if expansion was an unstoppable trend. Applied to the case of today’s Russia, it is easy to see how this approach suggests that not only is the recent reattachment of Crimea to Ukraine in 1954 relevant to “reactive” geopolitics but also that, from the Russian point of view, 1991 has meant a large-scale loss of territory, namely that land conquered from the 16th century and the accesses to various sees in the world (Baltic, Black, Caspian, Okhotsk, …) to the 19th century and mastery of the whole of Siberia and part of Manchuria. From the loss of space to the lack of space, especially to the subjective nature of the feeling of a lack of space in very large States, there is only a narrow margin.

b)- reconstruction power / former scenarios / from 16th century

As to power in classic geopolitical views, K. Haushofer⁴ (1869-1946) suggests that not only can power be constructed but that it can also be reconstructed. And so, the Japanese scenario of the late 19th century, the German scenario of the 1930s and, maybe, the Russian scenario of the 2010s would bear some resemblance. This calls for nuances. Comparisons are about looking in parallel at facts that are linkable to some analysis, not at identical facts. That Russia, having been the greatest land-power of the 19th century and the inspirer of the Soviet Empire, would seek to reconstruct its influence and might over the continent is not illogical. Haushofer would most probably, if he were to share his views with us today, contend with the logic present in the tough stance over Crimea and eastern Ukraine: geopolitics is less concerned with Westphalian legal rules than with the attempt to reach power, which is, according to another of Haushofer’s views, by essence, an attempt at hegemony, that is absolute power. Relative power is but one stage to the realisation of power, in a deterministic realist approach.

c)- maritime  projection // access to sea // for land power

Power can also be hegemonic by combining sea-power and land-power. The former, referred to as “maritime power” for A. Mahan (1840-1914)⁵, consists of a capacity to “project” power across the seas and eventually overseas, whether in a colonial or neo-colonial way. Continental powers, however, such as Russia - and China for that matter-, usually seek sea power less in order to project their power overseas than to exercise a capacity to patrol in their own waters “extended” over the dominance of “relevant seas”, of which the Black sea is obviously one for Russia. The events of 2008 in Georgia remind us of the importance for Russia of the military port of Batumi in Georgia; those of 2014 of that of Sebastopol in Crimea (and the southern China sea for China). From the point of view of Russian geopolitics over the long, multi-secular scale, there is no alternative to dominating the Black sea and that dominance calls for the control of Crimea. Two Balkan wars (1912) and, before that, the long, historical confrontation with the Ottoman Empire had the same purpose.

d)- heartland  key // key to back sea // and Mediterranean // as maritime Europe

Another theorist of the fact that sea-power complements land-power, H. MacKinder (1861-1947)⁶ , rigidifies the power relations between the powers of the sea (England of the 18th-19th c.) and those of the land (Germany of the late 19th c.). He further suggests a deterministic, sequential dynamic for dominating the continent, from Eastern Europe to the heartland, to the Eurasian space and to the world. On the way ‘from’ Germany ‘to’ central Asia, the Ukrainian plain seemed to him the space for mobility par excellence. In this perspective, it is clear that Russia has traditionally as much intent on Central Asia as the “continuation” of land as she does over the Black Sea as the “continuation” of access to the maritime space, from the Black Sea to the Bosporus, the Eagan Sea and the Mediterranean and, from there, to the Atlantic, as a complement to the access to the Atlantic from the Baltic Sea and the North Sea. This long-term perspective takes away much, if not all, of the contemporary tensions as attributable to a particular type of leadership or another.

e)- periphery  contain // expansion of NATO // (Baltic, Central Europe, Rumania)

The drive to expansion from the center triggers, according to the vision of N. Spykman (1893-1943)⁷, a ‘containment’ from the periphery. History reminds us that if the ambitions of the periphery to conquer the central Asian space have failed (ancient Greece, modern France, Japan, Germany), on the other hand when the centre attempted to dominate the continent (Middle-Age Mongolia, modern URSS), it could not do so for longer than several decades. The concept of ‘containment’ helps analyse the cold war as a geopolitical occurrence. Further, the periphery is a kind of amphibious buffer zone separating the properly maritime powers (England, United States) from the properly land powers (Russia, China), which brings shades into the black-and-white Manichean suggestion that Russia is ‘wrong’ in viewing Crimea as space of Russian control and Europe is ‘right’ in contesting that view. Russia is simply containing European/NATO enlargement of influence (Baltic States, Central Europe, Rumania and Bulgaria) and Europe is simply containing desires of Russia to compensate the losses of 1991 with a Eurasian economic space.

These reminders allow us to take into consideration, further, some more contemporary, geopolitical concepts and similarly apply them to the situation of Russian initiatives in the eastern Balkans. These are drawn from French authors, not because they would offer a ‘better’ view but because they suggest a welcome diversity of views and a number of potential analyses.

2.1.2. Concepts Updated: Fine-Tuning Geopolitical Dynamics

Contemporary authors, from the last quarter of the 20th century, active within French academia and research, provide us with about ten modern views of geopolitical dynamics. They are not chosen here because they share a nationality among themselves (and with the author of the part I of the article), but because they offer an array of views and analyses, that complement rather well the over-accepted views that the physical territory is the key to geopolitics. What is suggested is that there are many other determinants than the sheer material space.

intentions  admitted or real/ prevent domino effect / Ukraine, Georgia  West

One such determinant consists of the ‘real’ intentions of actors, beyond their admitted intentions, often in the form of governmental rhetoric. This factor, which Y. Lacoste (1929-)⁸ brings to the fore, suggests, beyond material, territorial determinants. Russia’s real motive in Ukraine and Crimea is most probably to prevent the novel domino-effect of countries in the former soviet zone and the CIS space joining, one after the other, the western space (whether European or Atlantic) dynamic, with now Belarus (and soon Armenia) ‘secured’ in the Customs Union and the EEC. The real motive of the West is to secure Ukraine in the European-Atlantic dynamic, realising that, in the 21st century, countries’ decision to adhere to one or the other geopolitical space (West or East) is likely to be a long-term clarification. From this point of view, what happened in Crimea and what is happening in Ukraine has a significance which reaches far beyond these territories and all the way to countries situated in the “arc” in between East and West. It is unlikely that these real intentions subside.

b) borders  typical // Soviet/Russian with Crimea as link

The acute tension of this early 21st century marks the fact that borders are again the subject of nationalist and military moves. M. Foucher (1946 -)⁹ looks as the border-dimension of conflicts. He suggests a simple question: why should a border be stable? and a simple answer : borders, being the products of the unequal history of victors and losers, are bound to be questioned, sooner or later. From the Russian viewpoint, 1991 has caused a reshuffling of borders in the Baltic northwest, in the Centralasian southeast, in the Caucasian south, very uncomfortable at that, given five centuries of expansion. Conversely, 1991 has brought, in the West, a renewed awareness that the time has come (?) to contain post-soviet Russia in zero-sum games, probably untimely in these modern times of multilateral regionalisation, no longer times of sovereignist antagonisms. The West and the EU have more to bear in mind by way of Russian competition: the Eurasian economic space is already linking the ‘in-between’ countries (Belarus, Armenia) and central Asia (Kazakhstan, Kirghizstan, Tajikistan) to Russia.

c) structuration  of space / maritime as continuation of Russian land

The resemblance of maritime to terrestrial space, suggested by H. Couteau-Bégarie (1956-2012),¹⁰ historian of the seas and naval confrontations, enables us to understand that, from a geopolitical viewpoint, whether under State sovereignty (land) or with an open international legal status (high sea), space “structures” ambitions and initiatives, land being itself structured and competitive : sea-lanes as much as land-corridors. Applied to Russian geopolitical visions of maritimity, this suggests the Black Sea and Crimea to be both a ‘continuation’ of Russian territorial management. ‘Continuation’ is a much connoted word since Clausewitz’ famous ‘war is the mere continuation of politics with other means” (K. Von Clausewitz, 2013). Here, war is not necessarily the main characteristic of the unfolding ambition but one of the forms taken by this ambition. The recent Russia-inspired Eurasian Economic Community is a much more serious contender of rivalry with Europe and “the West”: in 2013, instability in Ukraine started precisely when the idea of an “association” of Ukraine to the EU became fashionable.

d) geo-economics  recovery after crisis // 90s: Russia in crisis/ 2000s: Europe in crisis = opportunity

In a geo-economic perspective of “de-territorialisation”, for instance with Ph. Moreau-Desfarges (1943-)¹¹, actors are viewed no longer in terms of the “rapport” to the territory as a power-base but of the impact of economic stability or cyclical downturns on their status vis-à-vis other actors. In this vein, if Russia underwent in the 1990s an economic crisis when Europe was doing better, the reverse occurred in the 2000s with the Russian economy benefiting from higher world prices for energy (Russia is among the major world producers of natural gas and crude oil) and Europe in the deepest economic and monetary upheaval since its creation. A Europe in crisis is an opportunity for any actor wishing to adopt assertive stances over the interests of weaker competitors and if Ukraine was perceived as a possible ‘associate’ partner to the EU, non-European contestation of that possibility manifested itself more when the EU was weakened in/since 2008. With oil prices going down again, Russia is probably getting more determined in this stance vis-à-vis Ukraine and the Balkans.

e) grey zones  face of citizens: Russian passport issue = South-Ossetia 2008

International situations bear upon citizens in any territory, who often suffer from open conflicts among state decision-makers. From a humanitarian point of view, J.C. Rufin (1952-)¹² devised the concept of “grey zones” to qualify portions of a territory which escape the control of public authorities and where various forms of violence set in and disrupt the normal course of life. The fate of citizens becomes trapped and engulfed in possible manipulations dictated more by geopolitical interests than by humane motives. In Georgia, South-Ossetia and Abkhazia in 2008, in Crimea, Ukraine and east-Moldova from 2014, the fact that citizens are Russian-speakers was equated with their longing to revert to the Russian nationality and to see their living space attached to the Russian Federation. Humanitarian concerns go to citizens with differing views, intent on remaining within the existing sovereignty, since their uprooting does not agree with the stability or protection to which they are entitled. Whatever the inter-governmental dynamic, war-like actions have cause many casualties and deaths.

f) regional geopolitics  specificity : “in between” West/East - East/West

Or, is there specificity of the Balkans and of the Black Sea that would suggest a sub-regional geopolitics different from that of other regions? Inspired by F. Joyaux (1938-: Asia would be a region with lines of divide equating physical, civilizational and cold-war political traits when, elsewhere, these divides do not match)¹³, we should deepen the hypothesis that Ukraine today belongs to the arc of countries “in-between” East and West, an arc mentioned in the introduction to this part I of the paper. Indeed, in the post-cold war, such an arc exists in between i) an Asia that extends West as the “Shanghai dynamic” of the SCO has affiliations encroaching upon the CIS space (Belarus, …) as well as into the Middle East (Iran, …) and as the EEC has affiliations with the region (Armenia, …) and ii) a Europe that extends East as the EU, the OSCE and NATO have enlargements into the former soviet zone and into continental Asia. Physical or civilizational dimensions apply less than the fact that reverting to cold-war (West-East) dynamics would again ascertain the specificity of that zone.

g) national interest  enhance status leadership - Putin’s style / “cyclical” presidency

The national interest is a constant of geopolitical action as M.-F. Garaud (1934-)¹⁴ reminds us in the case of France. It can be mobilised to analyse yet further the situation in the Balkans and Ukraine. Russian stances from the late 2000s in the Black Sea (Georgia, Ukraine, Crimea) correspond to the service of post-soviet Russian leadership status, in addition to other notable services, namely the active participation of Russia to the construction of both the “new Asia” and of the “new Eurasia”. The pursuit of the national interest cannot be disputed as being the common denominator of all governments and leaders. What has changed since the Westphalian order was begun in the mid-17th century, confirmed by the UN system of world management, is that international actions should be negotiated and accepted before being undertaken (which applies also to interventions in 1991 and 2003 in the Middle East). The issue over Crimea is also one of time-dimensions and cyclical leaderships in Russia and Ukraine, as well as one of assertive versus constructive leaderships.

i) can criticise ?  is Russia just another country/ cold war ideology / US position, G2 with China

Russia’s stances in the Balkans, justified for some and untimely for others, suggests to ask if it is possible to criticise Russia, a question which P. Boniface (1956-)¹⁵ asked about Israel’s policies towards Palestine (Boniface, 2003, 2014). The issue is that of bias. For criticising a contemporary dynamic, one may be accused of stirring past deeds which belong to the past and ought not to be mobilised to account for present dynamics. It is certainly a biased analysis to equate what some call the “annexation” of Crimea (2014) by Russia with the annexation of Austria by Germany (1937). It is equally biased to equate criticism of Russia’s today with and cold-war-type criticism of the past. If i) Russia did not annex Crimea in 2014 similarly to what happened in Austria in 1937, then ii) to criticise Russia today does not amount to an ideological primary anti-Russian attitude. Any country and any foreign policy can be criticised and this may lead to improvements in international relations. Russia and Europe and Ukraine could monitor the situation in the Balkans differently: the recent Putin-Hollande-Merlk meeting (6/2/2015) can be criticised as a modern Yalta “over the heads” of Ukrainians.

j) track-2 diplomacy  to some extent - Lavroff / Lavroffisation / Sochi Olympics

And so, finally, crisis-management can revert to track-II diplomacy as practiced by various IR Institutes in the world, notably at IFRI, led by Th. de Montbrial (1943-)¹⁶. To be sure, the crisis over Ukraine and Crimea, just as many international crises since the cold war (over Iraq in 1990, over North-Korea since 1994,…) yield to various diplomatic dances-of-the-slow-snail. These dances mobilise forefront diplomats, here S. Lavroff in particular, and track-II actors, such as “experts”. They also mobilise international events not directly linked to diplomacy but attracting high international visibility, such as sporting events¹⁷. In this vein, the year 2014 witnessed, all at once, the crisis in Ukraine and Crimea, the displaced G7-meeting (from Sochi-Russia to Brussels) and the Olympic Games in Sochi-Russia, where some Ukrainian athletes protested against the referendum held in Crimea (at the risk of being disqualified for breaking Olympic neutrality). Classic track-II conferences over Ukraine did and do complete the picture: crises are also “managed” by recourse to lay-mobilisations.

This rapid promenade in the alleys opened by contemporary analysts of geopolitical determinants in the late 20th century usefully completes the reminders of classic authors of the late 19th century. Applying all of these in order to make sense of events of the early 21st century (not “To use 21st c. tools to hold Russia accountable for 19th c. behaviour”…) suggests that what is at stake is not particularly just Russia or Ukraine or even Crimea, but broader dynamics. Russia is acting but as a western-Eurasian power belonging to an Asia that is more and more China-inspired. Europe is an actor but also a Union more and more inclined to manage initiatives and crises as a continental power, which raises for Europe the every decision to (partly) des-atlanticise its security.

In conclusion of part I of this article, Russia is at a crossroad between vertical determination (annexing Crimea) and multilateral construction (constructing the Eurasian EEC)? This is suggested for at least three reasons.

First, adjustments are massive and numerous in the post-cold war, not just in the zone of the Black Sea, Ukraine, Crimea, or even in the whole of the zone “in between” Eurasia and Europe. It is a much more widespread phenomenon and therefore particular dynamics must be analysed from a wide perspective. The post-cold war international order is questioning many givens inherited from the cold war, for instance Euro-African relations, Sino-Russian relations, South Asian dynamics, East-Asian construction, Latin-American assertions, etc.

Second, the nature of international power is affected by the opening of the political borders in the world since 1991, and is therefore evolving, from an essentially political and military nature, to an economic nature at large, and particularly commercial and financial. It is necessary to analyse events again according to economic cycles, in the neo-critical manner of, for instance, S. Amir and E. Wallerstein¹⁸. More generally than the neo-critical approach, we suggest that the present Black Sea dynamic is affected by the economic crises either in Russia, Europe or the world at large.

Third, above all, the change taking place in the world at present, and therefore also in the former Soviet zone, is one from vertical to multilateral dynamics. That is to say, it is no longer appropriate or even possible for a State to act according to unilateral ways or even strict bilateral ways. This means that (unilaterally) neither Russian in the Black Sea, nor the USA in international politics, whether around Ukraine or in Afghanistan, nor China for that matter, can succeed long in seeking to initiate domination. This also means that (bilaterally) neither Russia with only China can seek to dominate Asia, nor the USA with only the EU can seek to dominate western Eurasia.

Coming to Russian foreign policy in the present times, Russia has “no choice” but the multilateral SCO format, together with five other members and in a collective dynamic of, altogether, sixteen “SCO-affiliated” countries, which is both inevitable for Russia and uncomfortable: risking to appear as the “armed arm” of China (against the West), in Ukraine or elsewhere. Or else, Russia is acting in a way that paves the way for the enlarging EEC, another multilateral initiative, involving large parts of the CIS space, also in a competition with China, but an economic competition, not a military one as with the CSTO.

The latest official data published by the European Commission talk about weak economic performance in 2013, stagnation in 2014 and a little future recovery in 2015. The potential risks for the Russian economy are high inflation rate, rouble depreciation and fiscal outlook deteriorating (European Commission, 2014, p. 124).

Another study highlights that the decline of the oil and gas prices on international market and the difficulty to attract foreign investment after Russia’s military intervention in Ukraine support a negative macroeconomic evolution in Russia in 2014 and 2015 (Central Investigation Agency, 2014).

An interesting approach is that Ukraine-Russia conflict is a family conflict, which started as a result of Ukraine’s option to a future adhering to NATO. This is why Russia was “forced” to start the military actions against Ukraine (Saunders, 2014, p. 1).

The Ukraine’s economy has bad perspectives, because its industrial areas are under conflict. Moreover, the national currency is plummeting. This is why IMF approved the second loan for Ukraine (1.4 billion USD). This loan is focused on five important economic areas: a sharp currency devaluation, which will increase the cost of all imported goods, a government-funded bailout for domestic banks, government spending cuts, measures to regulate money laundering and a sharp increase in energy prices. Ukraine asks for urgent international financing (Burke Michael, 2014, p. 2). An interesting point of view is that the pro-European and anti-Russian bastion in Ukraine is Lvov region, where 30% of the population lives below the poverty limit (Ernu, 2014, p. 2).

3. The Russian Economy under the Crisis’ Impact

After high economic growth rates during 2010-2012, Russia faced to the economic contraction in 2013 and 2014. The forecast economic growth of 2.0% in 2015 will support a little economic recovery (see Figure 1).

Figure 1. GDP growth rate in Russia (%)

Source: personal contribution

The real risk for the Russian economy is related to escalation of the conflict in region and imposition of sanctions (European Commission, 2014, p. 125).

As a result of the regional crisis, Russia faces to a negative net export of good and services even that it decreased dramatically its imports during 2012-2014 (see Figure 2).

Figure 2. Net exports’ trend in Russia (%)

Source: personal contribution

The imposition of sanctions against Russia supported the employment’s decrease and the increase in unemployment rate. This trend will continue in 2015, as well (see Figure 3).

Figure 3. Employment and unemployment’ trends in Russia (%)

Source: personal contribution

On the other hand, the inflation rate is still high in 2014 and will decrease slowly in 2015 (see Figure 4).

Figure 4. Inflation rate’s trend in Russia (%)

Source: personal contribution

Maybe the single positive economic evolution is that connected to the budget deficit, which is unchanged from 2013 (0.5% of GDP) and which will increase to 1.0% of GDP in 2015. This situation is supported by little government gross debts, even their trend is positive (see Table 1).

Table 1. Budget indicators (% of GDP)

In Table 1, the budget situation depends heavily on the price of oil, which is considered to remain above 100 USD/bbl in 2014 and 2015.

Russia is placed at 53rd position in the world under the competitiveness criteria. This position was supported by better domestic competition, ICT use and business sophistication. On the other hand, Russia faces to inefficient institutional framework (world rank 97th), corruption and favouritism (92nd) and re-establish trust in the independence of the judiciary (109th) (World Economic Forum, 2014, p.6).

4. The Ukrainian Economy under the Crisis’ Impact

The Ukrainian economy faces to a deep recession. The GDP in 2013 represented 85% from the same GDP in 1992, even that Ukraine has a lot of rare materials. Moreover, there are great economic disparities between the Ukrainian regions (see Table 2).

Table 2. Ukrainian administrative divisions by GRP per capita (in USD)

Source: Ukraine Regional Dataset, 2013

According to data in Table 2, the regional dispersion is presented in Figure 5. The low developed regions in Ukraine are the Western regions, while the developed regions are the Eastern regions. Even Autonomous Republic of Crimea has a GRP higher than the Eastern regions.

Figure 5. Disparities related to Gross Regional Product in Ukraine

Source: personal contribution

The macroeconomic trend during 2008-2013 is presented in Figure 6. The forecast for 2014 is negative -8.0% (Central Investigation Agency, 2014).

Figure 6. GDP trend in Ukraine

Source: personal contribution

This macroeconomic evolution was supported by high unemployment rates (8.0% in 2013, for example) and normal inflation rates (0.7% in 2013).

On the other hand, Ukraine faced to an increase in the public debt, which achieved 40.6% of GDP in 2013. The public debt consists of domestic public debt, external public debt and sovereign guarantees (see Figure 7).

Figure 7. Public debt in Ukraine (2013)

Source: personal contribution

In 2014, Ukraine achieved better world rank (76th), even that it still faces to great challenges as: the institutional framework (130th), decreasing the dominance of large companies in domestic markets (129th) and making markets more competitive (125th) and more efficient (112th).

On the other hand, restoring peace in Eastern Ukraine is undoubtedly the country’s highest priority (World Economic Forum, 2014, p.7).

5. The Ukrainian Crisis’ Impact on Ukraine-Russia-EU28-USA trade Relations

The Ukraine’s exports achieved 71.14 billion USD in 2013 and covered: ferrous and nonferrous metals, fuel and petroleum products, chemicals, machinery and transport equipment and food products. The main export partners were: EU28, Russia, Turkey and Egypt (EEAS, 2014). The Ukraine’s imports covered 87.21 billion USD in the same year, 2013, and consisted of natural gas, machinery and equipment and chemicals. The main import partners were: EU28, Russia, China, Germany, Belarus and Poland (see Figure 8).

Ukraine’s exports

Figure 7. Ukraine’s foreign trade (2013) Source: personal contribution

According to Figure 8, Ukraine’s main foreign trade partners are EU and Russia. Russia has to maintain high exports in order to pay its imports of sophisticated industrial goods. EU is the main export partner for Russia, as well. This is why the European imposition of sanctions affected the Russian economy (Adomanis, 2014, p. 3).

On the other hand, three Eastern Ukrainian regions (Harkov, Dnepropetrovsk and Poltava) cover the greatest part of the exports.

The EU-Ukraine agreement signing leads to partial loss of the economic connections with Russia and the Custom Union, which will support a great budgetary deficit (an annual flow of 15-20 billion USD). Moreover, Ukraine’s external debts are distributed between USA (80%), Russia (6.5%), EU28 (4.3%) and China (4.3%). This is why, USA, Russia, EU28 and China negotiated their spheres of economic influence at the end of 2013. USA will invest in energy and lands, Russia will take the military industry, the energy transport and different infrastructures, China will focus on Crimea harbor and lands and EU28 is interested in many economic projects.

On 4th of March 2014, Ukraine signed a financial agreement related to a loan of 610 million Euros from EU28. On the other hand, Ukraine signed a preliminary agreement with IMF regarding a loan of 17 billion USD. There is a powerful interdependence relationship between Russian and Ukrainian economies. Ukraine is the most important transit country for the Russian natural gas to EU28. Russia tried to bypass Ukraine by building North Stream and South Stream gas pipelines. On the other hand, EU28 tries to decrease its dependence by the Russian gas.

The next step of this conflict is that Russia will be forced to produce itself the main products imported from Ukraine and, probably, from the EU28, when Ukraine will be able to adhere to the EU (Dembitski A., 2014, p.2).

In conclusion of Part II of this co-authored article, Ukraine’s conflict is far away of finishing. The economic, political and strategically interests are too high to support a rapid solution in this geographic area. The main global economic and military actors (USA, Russia, EU28 and China) have their own interests in Ukraine and fight to obtain more advantages. EU28 tries to become more active in this region with its adhering partnership for Ukraine.

A compromise is possible with compensations for the other interested global actors. Perhaps, at least a part of Ukraine will become member of the EU on medium term. On long term, the solution will result from the economic performances of EU28 vs Russia, which will be able to guide population and regions to one or another regional organization.

6. Conclusions

According to the above complex analysis, Ukraine is just a point on the political-military chase table. The stake of this game is immeasurably greater. The main global actors try to obtain more advantages in the region. The historical approach supports the idea that Russia had and has greater interests in region. Moreover, the latest events implemented Russia’s wish to restore the red empire.

EU28 became more active in region using its proposal to attract Ukraine to the European Union, at least on medium term. Moreover, EU28 play the role of potential lender for Ukraine.

USA is traditionally present in the region, as long as it is the possibility to convince Ukraine to adhere to NATO.

There are at least two other countries directly interested in the problem: Moldova and Romania, which try to find the best strategically, military and political solutions to avoid direct conflict with Russia.

The cultural, ethnical, religious and linguistic aspects are very important for a final solution. And this solution will be not a military one. Unfortunately, Ukraine will have the same statute as Cyprus: a part of Ukraine will remain under Russian administration, while the other one will adhere (maybe under an emergency procedure) to the European Union. Maybe the most important aspect of this research is that the forced territorial reorganization is possible in the 21st century in Europe.

7. Acknowledgements

The economic analysis in this paper was realized with the support of the Research, Education and Development Association (REDA) Romania.

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