Crisis in Ukraine: 11 billion reasons for optimism?

As the standoff in Crimea continues into its second week, Ukraine and former Soviet master Russia remain embroiled in a bitter political crisis.

On March 6, European leaders meeting in Brussels approved a wide range of economic and development assistance measures worth more than €11 billion ($15 billion) to support a beleaguered interim government in Ukraine. European Commission President José Manuel Barroso first revealed details on the package on Wednesday, with funding — drawn from the European Union budget and EU-based international financial institutions — designed to stabilize Ukraine’s faltering economy and aid the country’s interim government in achieving a “stable and prosperous future.”

Devex reported how the United States followed suit by announcing the preparation of a $1 billion assistance package to help Ukraine’s most vulnerable citizens weather the storm of economic reform measures slated to dismantle Russian-supported energy subsidies, reduce government spending and devalue the national currency.

But what does the EU aid package mean for Ukraine’s immediate economic future and how can these funds help the country get back on its feet?

A multi-billion euro package

Despite marked differences of opinion on whether economic sanctions or other punitive measures should be levied against Russia, the level of support for the interim government in Ukraine can be considered as a significant show of European solidarity.

Leaders of the 28 European Union member states and institutions dug deep as the bloc sought to leverage a significant financial package and increase the visibility and impact of its collective action.

Key elements of the multi-billion euro package include:

1. €3 billion in economic assistance from the EU budget.

2. Up to €8 billion from the European Investment Bank and the European Bank for Reconstruction and Development.

3. Up to €3.5 billion leveraged through the EU’s Neighborhood Investment Facility.

4. Technical assistance on a number of areas from constitutional to judicial reform and the preparation of elections, scheduled for May 25.

The economic assistance is broken down into €1.6 billion in macro-financial assistance loans — of which €610 million can be mobilized rapidly “within a matter of weeks,” upon agreement with the International Monetary Fund and Ukraine’s interim government, with a further €1 billion to follow through a separate MFA — and €1.4 billion in development assistance grants over the next seven years.

For the latter, the European Commission is currently preparing a new €140 million program for 2014 aimed at supporting institutional transition and reinforcing the impact of the MFAs. This would be complemented by actions aimed at supporting civil society, with a further €60 million on offer this year through the Commission’s European Neighborhood Instrument — should progress be seen on the issues of democracy and the respect of human rights in the country.

For the remaining period to 2020, a bilateral envelope worth up to €650 million is currently foreseen as part of the ENI — with an additional €40-50 million per year on offer subject to proven progress in deepening democracy and respect of human rights.

The EU remains Ukraine’s biggest international donor — providing €3.3 billion grants and €10.5 billion in loans through the EIB and EBRD since 1991. As far as existing programs are concerned, the Commission is currently funding a number of ongoing sector budget support and technical assistance programs — worth approximately €400 million — that will provide input to the new government in key areas such as economic development, public financial management and justice.

‘Far-reaching consequences’ for Russia?

After the leaders’ meeting in Brussels, a joint statement condemned Russia’s “unprovoked violation of Ukrainian sovereignty and territorial integrity,” also considering the decision by Crimea’s Supreme Council to hold a referendum on becoming part of the Russian Federation — set to take place on March 16 — as “unconstitutional” and “illegal.”

Furthermore, it warned of “far-reaching consequences” in the event of further steps by Russia to destabilize the situation in Ukraine. But while the European Union institutions have suspended visa talks with Russia and — together with the European G-8 member states — have put on hold their participation in June’s G-8 Summit in the Olympic city of Sochi, there appears to be little appetite to further admonish Russia and risk damaging strong trade and energy ties.

However, the Commission would neither confirm nor deny rumors that EU bilateral financial assistance to Russia — worth a total of €2.8 billion since 1991, but now more modest with the EU and Russia seen as equal partners — could be under threat.

Since 2007, funding has included €40 million through the European Neighborhood and Partnership Instrument — including institution building, support for minorities, €100 million for higher education, €130 million for cross-border cooperation projects — including economic and social development in areas such as health and the environment, and €23 million for other regional initiatives.

Keeping tabs on a tense situation

In other developments, the Commission confirmed that it has opened an antenna office in Kiev to monitor humanitarian and civil protection issues.

According to an official statement, Brussels is in touch with the principal relief and aid organizations to coordinate any possible future activities and carry out contingency planning. A spokesperson from the Commission’s department for overseas humanitarian aid and civil protection — or ECHO — confirmed that the situation is being “closely monitored,” but that it is not yet being considered as a humanitarian crisis.

Nonetheless, the situation on Europe’s doorstep remains tense, in a situation described on Friday by European Council President Herman Van Rompuy as “perhaps the most serious challenge to security on our continent since the Balkan Wars.”

With reports circulating over the weekend of further large-scale movements of troops allied to Moscow in the autonomous republic — located in the southeast of Ukraine — Van Rompuy’s call for an immediate withdrawal of Russian armed forces and unfettered access to be granted to international monitors appears to have gone unheeded.

Indeed, on March 9 military observers from the Organization for Security and Cooperation in Europe were stopped — for the third time in as many days — from entering the Black Sea peninsula by the firing of warning shots from unidentified “self-defense” forces believed to have close ties to the Kremlin.

It is to be hoped OSCE observers are soon permitted safe passage and that last week’s pledge by Europe’s leaders — rather than marking a return to the East vs. West posturing of the Cold War era — instead marks the start of thawing relations between Russia and Ukraine and an end to a potentially disastrous sibling rivalry.

Are you working or have you worked previously for an EU-funded project in Ukraine or Russia? Want to share your experiences and have your say on last week’s funding announcements by Europe’s leaders? Just how will developments impact aid implementers and civil society on the ground? Please leave a comment below, join our LinkedIn discussion, contact us on news@devex.com or tweet your thoughts to @devex.

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