Seminar on Ukraine Crisis, the European Situation and Sino-European Relations

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On November 15, 2014,the China Institute of International Studies and the Editorial Department ofInternational Studiesjointly held the “Ukraine Crisis,European Situation and Sino-European Seminar” in Beijing. Officials and experts were present from the European Department of the Ministry of Foreign Affairs, Institute of European Studies and Institute of Russian, Eastern European and Central Asian Studies of Chinese Academy of Social Sciences,China Institutes of Contemporary International Relations, China Foreign Affairs University, exchanging views on issues relating to the Ukraine crisis and major power relations, the domestic situation in Ukraine and the overall European situation. The main views can be summarized as follows:

Great Power Relations

Russia divorced from Ukraine completely, experiencing great suffering.Ukraine ended up swinging between Europe and Russia, but ultimately it leaned to the West. Ukraine was developing substantive cooperation with NATO, which is more important than formal membership in NATO.Meanwhile, Russia not only lost Ukraine but also suffered economically and diplomatically.

On the one hand, Russian domestic capital outflow has increased dramatically. It was estimated that the amount could top 150 billion dollars in 2014. But on the other hand, the West discontinued the provision of capital and technology, which heavily disrupted Russian oil and gas production in new energy areas such as Siberia and the North Pole.

In addition, Russia has faced unprecedented diplomatic isolation. The negotiations over Russian accession to the OECD in recent years have failed to move ahead, and other former Soviet Union republics have been more centrifugal to it.

The Ukraine crisis made the EU more divided internally and more difficult to coordinate. The Central and Eastern European countries have been split into two camps. Poland, three Baltic countries and the Czech republic belong to the hardline camp. Slovakia,Hungary, Romania and Bulgaria were swinging due to their close economic ties to Russia. This division could reduce the decision-making efficiency of the EU and NATO in the future.

Germany adopted a two-track strategy during the crisis. On the one hand, it was consistent with the EU and America. But on the other hand,it stressed dialogue with Russia. The“unusual” diplomacy of Germany could bring further uncertainty to the future orientation of the crisis.

America and Europe were by no means monolithic during the Ukraine crisis, rather they maintained a relationship of “selective alliances.”America paid more attention to power,while Europe paid more attention to issues and became the biggest winner of the crisis, not only strengthening its dominance in the trans-Atlantic alliance, but also improving its status as the sole superpower in the international system.

In contrast, the EU struggled to control the crisis. It was concerned with the burden of the crisis, but it could not get rid of its dependence on Russian energy. The EU encountered a dilemma.

Risks for Ukraine

In recent times, the political and economic risks of Ukraine have increased. Meanwhile, Ukraine faces a lasting external threat from Russia.Ukraine was actually on the verge of a collapse. The street politics, ultranationalism and political purge in Ukraine gravely endangered its political reform and stability. The street politics could not be stopped.

Making matters even worse, the soldiers fighting in East Ukraine joined the street politics during their holidays. If the international community failed to take actions,internal conflict could erupt again in Ukraine. Ukraine’s ultra-nationalism was prevailing and flooding into the elite class, which became a great check on the Poroshenko government.President Poroshenko’s policy with regards to Russia became tougher after the parliamentary election.

In addition, Poroshenko promulgated the Act of Political Cleanup and National Strategy Against Corruption after he assumed power,which was subsequently questioned as indiscrimination. More than one million public employees were affected.

On the other hand, the national economy of Ukraine was on the verge of crisis. Its finances were depleted,currency devalued near 100 percent,and banks almost lost payment capabilities. The Ukrainian government adopted strict capital control measures to contain the outflow of capital. The withdrawal of foreign currency and bank deposits was limited. Bound by its agreement with the International Monetary Fund, Ukraine dramatically increased its social and public expenditures,which exacerbated inflation pressure.Imposing economic sanctions on Russia also caused serious impacts on Ukraine. Ukraine’s exports to Russia in the first eight months of 2014 dropped by 2.5 billion dollars by a rate of 25 percent. In addition, the cost of war was huge. In 2014, it was estimated that the war cost 63 billion hryvnias,which accounted for 30 percent of the budgetary income of the Ukrainian government.

Given the uncertainty of Russia’s actions in the Ukraine crisis, the possibility could not be ruled out that there would be large-scale military actions in East Ukraine. The sanction effect of the EU would decrease,and Russia’s capital shortage would be relieved. The sanction effect was anticipated to disappear after 2015.

Fate of European Integration

The year 2014 marked elections in the European Parliament and changes to major EU institutions. European integration achieved some progress,while still facing resistance. Politically,the election of Juncker as President of the European Commission could set an important precedent, which revealed the political development direction of EU institutions. The election of Tusk as President of the European Council also represented a further maturation of the integration of East and West Europe.

Economically, the banking alliance of the EU was taking shape after long preparation and negotiations. At the same time, resisting forces started to surface. Right wing parties gained considerable power in the European Parliament election. Some countries even went backwards on immigration and integration. Germany and France diverged greatly on some policies,causing incremental imbalances between the twin-core of the integration.The authority of existing integration achievements such as the European Fiscal Compact was also challenged.

The EU economy was fragile,and the task was urgent to shift from“crisis alliance” to “growth alliance.”The European debt crisis has generally been relieved, but fluctuation cannot be ruled out in 2015 due to the uncertainty of a French deficit cut.The south and north differentiation of the EU economies was improved to some extent. The situation of Southern European countries that were badly hit by the crisis improved. Countries such as France, Italy and Finland were in trouble with different causes. Finland’s traditionally competitive industries suffered major setbacks, greatly impacted by sanctions against Russia.Serious structural problems existed in the French and Italian economies,which could hold back the overall European economy.

Deep-seated problems in the development of the European economy remained unresolved. In the area of finance, the austerity trend of the Eurozone will not change in short term. There is little possibility for heavily indebted countries to introduce large-scale fiscal stimulus programs.Countries with better fiscal situations could launch stimulus at appropriate times.

Structural reform would still be the primary task of member countries.Progress will proceed at different speeds. Countries that have received support, such as Ireland and Greece,will make big progress. Meanwhile,structural reforms in France and Italy have encountered great difficulties due to domestic political reasons. In the area of monetary policy, since EU laws forbid the ECB to purchase sovereign debt directly and it has been difficult to do this in the secondary market, it was of little possibility for the ECB to launch a United States Federal Reservestyle quantitative easing program.

Sino-European Relations

In 2014, Sino-European trade and economic cooperation proceeded in a mature and comprehensive manner.Against the backdrop of the release of the Sino-Europe 2020 Strategic Agenda for Cooperation, China established cooperation mechanisms with France and Germany to better plan future cooperation and ensure sustained development.

The friction in Sino-European trade was controllable. The two sides reached an anti-subsidy agreement on telecommunication products, signifying the maturity of their bilateral relations.Furthermore, the strategic influence of Sino-European relations continued to grow. Cooperation between the RMB and Euro will have strategic repercussions.

Although a number of activities and proposals are at the initial stage,such as the first Sino-EU Dialogue on Security and Defense, the Sino-German Dialogue on Foreign Affairs and Security Strategy and the Sino-EU Cooperation on African Security, they are remarkable breakthroughs from traditional Sino-European relations.