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Ukraine and EU fail to salvage trade pact

Ukrainian President Viktor Yanukovych
Sasha Mordovets | Getty Images

Ukraine's President Viktor Yanukovich failed on Thursday to salvage an ambitious free-trade pact with the European Union despite a warning that Ukraine was risking its future by turning its back on the deal.

Ukraine and the 28-nation EU had aimed to sign an ambitious trade and cooperation agreement at Thursday's summit in the Lithuanian capital Vilnius, which would have marked a historic westwards shift by the former Soviet republic away from Russia's orbit.

But, under intense pressure from Moscow, Yanukovich renounced plans last week to sign the agreement in favour of closer ties with Russia, dealing a blow to the EU's efforts to build closer relations with former Soviet republics.

Yanukovich still flew in for the meeting - held to discuss the EU's four-year-old outreach programme for Ukraine and five other east European countries.

(Read more: Ukraine may gain 'short-term benefits' by move east)

EU fails to salvage trade deal with Ukraine

He detailed Ukraine's economic woes at the meeting with EU leaders, including German Chancellor Angela Merkel and British Prime Minister David Cameron, citing high prices Ukraine has to pay for natural gas from Russia.

Yanukovich proposed startingthree-way talks between Russia, Ukraine and the EU and urged Brussels to help Ukraine soften the terms of a possible loan from the International Monetary Fund, an EU diplomat said.

But the EU rejected trilateral talksand said Yanukovich must give a commitment to sign the agreement that he refused to give.

"He had to make that leap of faith that he wasn't prepared to make," the diplomat said.

Merkel said she had no hope that the EU and Ukraine would reach agreement at the Vilnius summit, which ends on Friday, but she said thedoor remained open to Ukraine.

Still on the table

One EU diplomat said the agreement remained on the table but was unlikely to be signed in the next year.

"Ukraine's president talked not about the agreement ... but about the economic problems facing Ukraine and which need to be solved. He wanted these problems to be solved by the European Union and Russiatogether," Lithuanian President Dalia Grybauskaite, whose country holds theEU presidency, said in a statement after the dinner.

(Read more: Ukraine drops plan to go West, turns East)

An EU diplomat quoted Germany'sMerkel as comparing the summit to turning up for an engagement only to find that more commitments were needed first.

A few dozen Ukrainian protesters demonstrated outside the summit venue in Vilnius holding placards saying "Yanukovich, don't steal the future" and "We are Europeans."

Speaking in Vilnius earlier, EU enlargement commissioner Stefan Fuele said Ukraine's decision to walk away from the deal could imperil its future.

Disputing Ukraine's estimates that upgrading its economic base to European standards would cost $20 billion a year, Fuele said:"The Ukrainian economy needs huge investments, but these are not costs. They represent future income and...wealth."

"The only costs that I can see are the costs of inaction allowing more stagnation of the economy and risking the economic future and health of the country," he told a business forum in Vilnius, adding the EU offer remained on the table.

Former Polish President Aleksander Kwasniewski, who has served as an EU envoy to Kiev, hinted more money for Ukraine - beyond the 600 million euros (489.5 million pounds) of support on offer - was possible but he remained sceptical about prospects for a deal in Vilnius.

"We need to discuss the financial situation in Ukraine, which is very difficult. And such homework is being done in the last few hours," he told Reuters shortly before Yanukovich met EU leaders for dinner.


Russia, keen to maintain its influence with former Soviet republics, wants Kiev to join a Moscow-led trade bloc and has put pressure on Yanukovich not to sign the alliance with the European Union.

His government says the suspension of the EU deal marks only a "pause" in moves to integrate Ukraine into Europe's mainstream. But Yanukovich has signalled plans to focus on reviving economic dialogue with Russia at least for now.

(Read more: Iran's economy set for post-nuclear deal boost)

The EU side, however, said there was no readiness to enter into a geo-political bargaining game over Ukraine, referring to buying its loyalty with an offer of more financial aid.

"It was never a bazaar for billions. It was a question of giving Ukraine and the Ukrainian economy access to the largest integrated economic market in the world," said Swedish Foreign Minister Carl Bildt.

Among its conditions for a deal, the EU had asked that Ukraine tackle the issue of "selective justice," an implicit demand that it address the fate of jailed former Prime Minister Yulia Tymoshenko, Yanukovich's arch rival, who declared a hunger strike on Monday.

In an emotional appeal, Tymoshenko's 33-year-old English-educated daughter, Yevgenia, made a plea on behalf of her mother, asking the EU not to turn its back on Ukraine.

"In the name of my mother, I ask you not to leave Ukraine without your protection. Without your support, we don't even have a chance for relatively honest elections, a partly independent press, the remains of political and economic competition and most importantly there will be no hope for positive change," she said.

Several thousand protesters demonstrating against the Ukrainian government's decision to walk away from the EU deal gathered on Kiev's Independence Square on Thursday as Yanukovich arrived in Vilnius.

Yanukovich has already accepted short-term support from Moscow, which supplies Ukraine half of its gas needs, without committing to Russia's Customs Union with Kazakhstan and Belarus, and all the while keeping the EU within reach.

The EU will initial political association agreements with two other ex-Soviet republics, Georgia and Moldova, at the summit, putting them on track to sign formally in around a year. A visa agreement with Azerbaijan will also be signed.

Belarus and Armenia will also attend the summit, though there seems little prospect of their moving closer to the EU. Belarus is a member of the Russia-led customs union, which Armenia has also opted to join.

But the biggest prize in the Eastern Partnership is Ukraine, a country of 46 million people bordering four EU member states.

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