By the Blouin News Business staff

Ukraine bets on E.U. economic deal

by in Europe.

French President Francois Hollande (R) speaks with Ukraine's President Petro Poroshenko during a meeting at the Elysee Palace in Paris, on April 22, 2015. PHILIPPE WOJAZER/AFP/Getty Images

French President Hollande (R) speaks with Ukraine’s President Poroshenko in Paris, 4/22/15. P WOJAZER/AFP/Getty Images

On Monday, trilateral talks between the E.U., Ukraine, and Russia will take place in Brussels over the implementation of the economic provisions of the E.U.-Ukraine Association Agreement. The agreement was signed by Ukraine’s President Petro Poroshenko in June 2014, but to take full effect it needs to be ratified by each of the E.U.’s 28 member states. Progress is being made on that front, as the upper houses of the French and German parliaments approved the agreement on May 7 and 8, respectively, but several other E.U. countries have yet to do so.

On Wednesday, France hosted Ukraine’s Prime Minister Aresniy Yatsenyuk, who came to discuss security and economic ties with President Francois Hollande and other top officials. (This builds upon Poroshenko’s similar visit to Paris in late April). After the meetings, Yatsenyuk announced that Ukraine and France will jointly organize a Paris investment summit this autumn to develop bilateral trade and economic cooperation. “A large-scale privatization launched by the Government of Ukraine and the beginning of functioning of a free trade zone between Ukraine and the European Union on January 1, 2016 will open new opportunities for trade and investment project,” Yatsenyuk also noted.

France has been a key advocate for strictly adhering to the Minsk II peace accord to end the fighting in eastern Ukraine, which Kiev also insists upon. And while Paris will not provide lethal arms or peacekeepers to Ukraine, increased investments and economic deals aren’t off the table — and are necessary to Ukraine’s survival in the face of Russian pressure. Ukraine’s economy contracted by 6.8% last year, and the IMF now predicts it will shrink by 5.5% this year. The World Bank’s estimate is even more grim — a 7.5% contraction for 2015, with inflation reaching as much as 40%.

Russia’s ambassador to the E.U. requested that the economic provisions of the E.U.-Ukraine Association Agreement be postponed until 2017, but that was rebuffed by European officials. Still, it remains to be seen what precise details the free trade zone will have after these negotiations. Russia has repeatedly expressed concerns about an “uncontrolled flow of non-regulated goods” flowing from the E.U. through Ukraine into the Russian market. In March, Russian Economic Development Minister Alexey Ulyukayev went so far as to say that if Moscow’s concerns are not taken into account, Russia would have to take protective measures, including driving up customs tariffs on Ukrainian goods. It is debatable how sincere Russia is about this “threat,” as it may very well be looking for any plausible-sounding excuses to intimidate Ukraine and keep it in a position of weakness, both militarily and economically.

Despite France’s best intentions, and those of other European nations, Ukraine’s turn to the E.U. is no substitute for peace and restored economic ties with Russia. However, the Association Agreement not only throws Ukraine a lifeline, it also gives Kiev (and Brussels) a bit more leverage in future peace negotiations with Russia. True, Moscow could dismiss the agreement entirely, but it is taking it seriously enough to participate in the talks and try to influence the outcome from the inside. If all parties reach a consensus, it will help build an economic foundation for an eventual peace.