Atlantic Council Executive Vice President Damon Wilson and Senior Fellow Adrian Karatnycky discussed on a conference call for press the implications of the protests on Ukraine’s economy and political stability and the role of the transatlantic community in pressing for true democratic reform and possible further European Union association.

IAN BRZEZINSKI:  Thank you.  Morning, everybody; I’m Ian Brzezinski.  I’m a senior fellow at the Atlantic Council, and I get the pleasure of serving as your moderator for today’s panel:  Ukraine, the politics of protest.  Now, as everyone knows, on the 21^st of November, Ukrainian President Viktor Yanukovych decided not to sign an EU association agreement and a deep and comprehensive trade agreement with the – with the EU.

These two agreements were meant to be the high-profile centerpiece of the Eastern Partnership Summit in Vilnius of the following week, on the 28^th of November.  Yanukovych’s decision followed months of economic and political pressure from Russia, who of course prefer Ukraine to join a Moscow-led customs union.

Yanukovych’s decision has prompted widescale pro-European protests in Kiev and around the Ukraine, many of which are calling for Yanukovych’s resignation.  I’m struck by the fact that over 350,000 people appeared in Kiev protesting Yanukovych’s decision.  But even more interesting to me is the fact that these protests were matched in cities like Odessa and Donetsk and elsewhere in eastern Ukraine.  Some have compared these protests to the 2004 Orange Revolution.

These developments reflect two powerful and interconnected dynamics at play.  The first is the challenge that Ukraine faces in reforming its largely corrupt and inept polity and economy.  And the second is the reality that Ukraine remains a central focus of a geopolitical competition for geography, population and economic potential in Europe – a competition the Kremlin is driving, and one to which too many in Western Europe have sought to ignore, at least until recently.

So the question is what next and what to do.  What do these protests portend for Ukraine’s economy, its political stability and its geopolitical orientation?  Will they cause Yanukovych to change course?  Is the European Union ready to give Ukraine a second chance?  Do they really mean it?  What can we expect from Russia and the Kremlin?  And above all, since I’m sitting here in Washington, what should be the role of the trans-Atlantic community in pressing for a true democratic (in ?) Ukraine and possible further European Union integration of Ukraine?  And what should be the tradeoff between these two objectives?

We  have two experts, I think, perfectly poised to discuss and address these questions.  We have Damon Wilson, who is executive vice president of the Atlantic Council.  Before he took on that position, he was the NSC director for Central, Eastern and Northern Europe, and with that, he’s also served in Europe as the deputy chief of staff for the secretary general of NATO.  Just about 10 days ago, he testified before the Senate Foreign Relations committee on the Eastern Partnership, and he has recently co-authored a Freedom House report on Ukraine.

Adrian Karatnycky is also a senior fellow at the Atlantic Council.  His day job is as the CEO of Myrmidon Group, which advises investment banks, funds and companies on politics and economic policy in Ukraine.  He is a former CEO of Freedom House, and he is published widely in the Wall Street Journal, Washington Post, Foreign Policy and other prestigious magazines.  And if anyone knows Ukraine, they know Adrian.

I might add, the two of them are soon to have an op-ed out called “Endgame in Ukraine.”  And we’re going to start off with Adrian, who is going to give us an update on kind of recent developments, and then we’ve asked Damon to kind of comment on, what are the political significance – geopolitical significance of these developments?  And then, that will be followed by moderated discussions.  And I might add, these comments and the discussion will be on the record.  So Adrian, let me turn to you first.

ADRIAN KARATNYCKY:  Yeah.  Well, let me talk first about the protests.  The protests which have been going on for the last couple of weeks and were triggered by the government’s about-face on European integration achieved sort of mass status and became the largest single-day demonstration in Ukrainian history, where, like I said, between 350,000, maybe upwards to half-a-million people at any one time were on the streets of  Kiev this Sunday.  They were triggered by a combination of discontent with the government, and also at the appalling crackdown on peaceful demonstrators the previous night.  This was a signal that the citizens of Kiev, at the very least, at the capital, massively support a civilized, rule-of-law society, and are appalled at the kinds of tactics that their militias and their authorities are capable of.

Yesterday, there was a little bit of a sort of a downward turn – tens of thousands of people came out into the streets.  It was a working day.  Revolutionary calls for a general strike did not take hold, but the situation today saw a somewhat larger turnout – an effort in parliament to topple the government through a parliamentary vote that fell short.  But let me just say that the protests remain a latent and ongoing threat to the government, the president, and I would say also to the interests of – the financial interests of many of Ukraine’s wealthiest, many of whom have  a large presence in political life through deputies that have – that are part of their networks, that belong to a variety of political parties through their financing of political campaigns, and above all, through the ownership – their ownership of television media.

Now, while the revolution has – the protests were spurred largely by alternative media, because in Ukraine, about 50 percent of the country is now broadband-connected, and in the cities, it’s upwards of 70 and 80 percent, and you have a very informed, alternative set of information to officially influence and officially control sources – television is equally an important mobilizing factor.  And interestingly enough, the main TV stations are owned by the businessmen who are sometimes referred to as oligarchs, and they have been reporting very objectively and very, I would say – in a way that actually is fueling the protests, giving lots of airtime to the opposition, showing the acts of violence and the brutal beatings of innocent citizens, in which, as you may know, over 40 journalists have received different kinds of traumas and lacerations and serious concussions and injuries.

In any event, all of these things suggest that there is a range of forces in the – both in the establishment and in the opposition pressing for some kind of a change.  The opposition demands are for the resignation of the president, the resignation of the government, new presidential and new parliamentary elections; that’s a lot to demand, and we will see how that plays out.  But I do think that the financial and business groups would like to see a movement in the direction of compromise, of some consolidation.  And there are already signs that parliamentarians even in the ruling party regions have stepped up to denounce the violence, to reject crackdowns as a – as a way out.

So it seems that there is – they have not yet, I would say, coalesced into an organized force, but clearly, from the way their media and their – the deputies that are beholden to the large economic interests are playing the game, they are, at the very least, heavily hedging, and certainly, they are trying to position themselves somewhere midway between the opposition and the government.

President Yanukovych, on the other hand, because the protest did not escalate or maintain the pace that they had had on Sunday, felt comfortable enough to fly on a scheduled state and economic visit to China; he has landed in China, which means he left fairly early in the day.  My own view is that President Yanukovych is a very tough street-fighting politician.  He is a guy that it will take a lot to get to bend.  He has rejected a range of pressures and a range of incentives in the case of the European Union, and whether this will lead to a breaking point in Ukraine remains to be seen.  We have to keep in mind the timetable on this.

We’re approaching the dead of winter.  Right now, the temperatures in Kiev are in the, like, low ‘30s.  They’re not – they’re not – they’re at the sort of freezing point there.  There have not been any – you know, any snows and so on.  It’s a relatively, you know, stable weather environment, but we are approaching the Christmas holiday season, et cetera, et cetera.  All of these things are suggesting Yanukovych will probably be playing for time and trying to make the minimum number of compromises required.

In the meanwhile – one last point – Ukraine’s economy is in a very vulnerable state.  The hard currency reserve is at about 20 billion (dollars) – you know, in a condition.  The last time there was concern about the stability of the currency, the Ukrainian Central Bank had to use $5 billion in one month – that was in 2008 – to try to hold the currency peg; it collapsed, and there was a 70 percent collapse in the value of the hryvnia.  It went from five to eight, so there is a danger of that.  Bank studies suggest that in the next year, Ukraine will to have make – to meet all of its foreign debt obligations, will have to be paying out very large amounts of hard currency reserve.  These matters have to be dealt with.

And the other issue that Yanukovych has thus far not addressed, and in fact has not seen – found a solution is to get a refinancing of the various credit obligations Ukraine has through a deal with the IMF.  He is resisting the IMF’s strictures, and again, the economy is only worsening.  The economy is flat; there is no growth.  Protests and turmoil, in my view, will create negative – have negative consequences for the economy, and therefore, for the large economic interests that are influential in politics.  I’ll leave it at that and turn it over, I guess, to Ian.

MR. BRZEZINSKI:  Before I turn it over to Damon, let me ask you one question.  What is driving these protests?  Is it public reaction to the Yanukovych government and the violent crackdown it had on protestors over the weekend?  Or are these protests really driven by a desire to have Ukraine get onto a track that brings them deeper and deeper into the West, deeper and deeper into Europe?

MR. KARATNYCKY:  I think it is a confluence of both.  This – these are the aspirations of wanting to be like the West, wanting to have the rule of law, wanting to have a police, not a militia.  Ukraine has 350,000 police; the U.K., with a 50 percent larger population at all levels, has a police of about 180,000.  There are 30,000 people in the Ukraine in equivalent of MI-5; in Britain, those statistics are at about 5,000.  It’s a heavily-policed society, and none of the past governments have ever done anything to pare it down, to create local police with local attachments.  This is all a sort of a highly-centralized, and a lot of these guys are still trained in very thuggish policing techniques.  They’re bringing people from outside of town.

I think people are just outraged at the levels of corruption that have emerged in Ukraine.  People are outraged at the beatings of young, innocent kids that occurred on Friday into Saturday last week, and people want a civilized government.  People are mature enough to know what that is, and people sort of felt that the last ability for Ukraine to move in that direction through quick European association and cooperation was sort of snuffed by Yanukovych in his decision to postpone that option.

The last thing I should say, which I didn’t say, is that I believe that the mass protests, which were ignited by Europe and the violence, would ignite even more dramatically, particularly in central and western Ukraine, were Yanukovych to choose an option of signing a customs union or an agreement with Russia.  That would trigger, I think, a further escalation of the levels of protests we have already seen, and I believe that the people around Yanukovych understand that, and I think even Putin, in a sense, indirectly understands that, that Ukraine – the option of a turn to Russia, in my view, has been excluded by this – by the level and anger of the protests.  It would just be another trigger for a further escalation of anger.

MR. BRZEZINSKI:  Great, thank you.  We just had a good description of what’s going on inside Ukraine, and on what I’d like to do is step out and take a look at Ukraine from the outside.  And turning to Damon, I’d like to ask you, what’s at stake here?  Why should all Europeans, and why particularly should this side of the Atlantic here in the United States, North America, be concerned about developments in Ukraine?

DAMON WILSON:  Thank you very much, Ian.  Let me pick up on that question and come it at three ways.  First, what’s at stake for Ukraine.  Second, the policy side – what should U.S. policy be focused on right now?  And third, the broader context of what’s really playing out all across Europe’s east.  First, on the Ukrainian part of this – I mean, I think what we’ve seen play out – Yanukovych’s strategy all along had been to not make a choice.  It’s been to do both – to pick both Europe and Russia.  This means to move forward with concluding all the technical and important agreements with the European Union without ever buying into the values that really underpinned these agreements.  He wanted the benefits without the liability, if you will.

At the same time, his relationship with Russia, from day one since the agreement that left the Black Sea Fleet in Crimea for 45 years, has been how to seek out Russian support – much of it (rent-seeking ?) support – financial support without strings attached, without the domination that comes with the relationship that he inevitably is getting into with Putin.  He’s tried to get it both ways, and what I think we see coming – happening is that this has actually come to a head now, and he’s seeing that he hasn’t been able to actually manipulate both sides of the equation and get both what he wants from European Union and from Russia without taking on strings attached.

So what played out just less than a week ago at the European Union’s Eastern Partnership in Vilnius, when we were watching Vilnius it looked like we were marking yet another missed opportunity for Ukraine.  It looked like the Vilnius summit was really a failure to lock in the strategic direction of Ukraine towards a European future, and that Yanukovych was coming back with his tail between his knees after a very difficult meeting with Europeans, looking towards an inevitable path forward that would help move Ukraine down the path of Eurasian authoritarian kleptocracy rather than the prospect of European free market democracy.

And that’s what it looked like right after Vilnius.  Ukrainians themselves have kept open, I think, this historic window of opportunity.  The protests, by coming onto the streets in numbers far larger than during the Orange Revolution, have opened – kept open this window for Ukraine’s future.  It’s in play again.  It was obviously prompted by a reaction to what happened – Yanukovych’s rejection of the EU offers, but it was the violence itself, the crackdown on Saturday night that really embodied, I think, a sense of frustration in the excesses of the administration. 

So I agree that, at a minimum, what will result with coming out of this is that it has put a brake on how far Yanukovych can go with Russia.  He may have rejected the European Union’s agreements, but I agree with Adrian that what we see in the straits today means that we are not going to see Ukraine moving into the customs union rapidly.  That would lead, I think, to even more reaction among the population.  But what we’ve also done is that the people on the streets have opened up a maximum opportunity to actually re-establish this pathway to Europe.  They’ve potentially given Ukraine and potentially given the administration, the Yanukovych administration, a path out if he so chooses that, and we can get into that a little bit.

This is also – we have to be very aware that the dynamics in Ukraine are important, but also what’s been playing out is Russian strategy.  We’ve seen – in fact, it’s very much a Vladimir Putin strategy:  a combination of personal humiliation for leaders in post-Soviet states combined with economic threats – real economic threats that he’s imposed already on Ukraine, Moldova – as well as the potential for the use of force. 

And at the end of the day – and I think Putin finds Ukraine as the big prize.  The other post-Soviet states matter but Ukraine is fundamental.  And so we have to be aware that a broader strategy is playing out, and that in turn means that – I believe quite strongly – that the European Union and the United States actually need a – they need a coordinated strategy towards Ukraine, a coordinated strategy towards Europe’s East. 

The European Union is playing at high levels.  Radek Sikorski of Poland, Carl Bildt of Sweden, Cathy Ashton, Stefan Fule of the commission, Merkel – Chancellor Merkel, Foreign Minister Westerwelle of Germany, they’re all in the game.  They’re all speaking out.  They’re all engaging on this issue at the highest level, not to mention former president – Polish President Kaczynski.  The United States is playing with Ambassador Pyatt on the ground in Ukraine, with Assistant Secretary Nuland here. 

We need to first coordinate with the European Union, but it’s time to elevate the U.S. engagement, time to think about:  How do you engage the vice president and secretary of state, the president himself?  And remember, at a critical time during the Orange Revolution – the key turning point during the Orange Revolution was when Secretary of State – then-Secretary of State Colin Powell stepped into the fray and called into question the legitimacy of the action – the election.

And so I think that’s one of the key points, that the U.S. has to engage and engage at a high level in coordinating with Europe.  To do what?  First, weighing in with Yanukovych directly on the consequences of further violence, or the use of violence, while also giving him a viable path forward. 

Second, weighing in with the security services.  Where we have strong ties with the police, the military, the intelligence services, use them to underscore and dissuade the importance of not turning to violence, but also to help sow doubt in Yanukovych’s mind, and others in his inner circle, that if they were ever to try to call on them – to pull that lever and call on them to use force against their own citizens, that they may not respond.  That was a critical part of the strategy during the Orange Revolution on the part of the West and I think it’s relevant here.

At the same time, the United States and Europe can help bring the opposition to the negotiating table with Yanukovych’s inner circle.  Some of the opposition demands on the streets are frankly not legal, are frankly outside of a political, constitutional, legal path.  And that’s not what Ukraine needs.  We want to reinforce democratic rule of law in Ukraine.

And so I think bringing the opposition to the table through a pathway that channels their demands in a way that can be seen as legal and constitutional while bringing Yanukovych’s inner circle and other Party of Regions actors – who are showing a clear sign of being willing to potentially defect from the Party of Regions and help to form a new majority in the Rada, or certainly sending signs that they’re willing to sit down and negotiate a way out.

And the last piece of this is for the U.S. and European Union to weigh in behind the scenes with critical oligarchs that are backing a range of political actors in Ukraine and help them appreciate that their future – their future economic interests where they want to invest in the West, they want to travel to Europe and the United States – their future is with Europe, and that their critical support in standing behind a negotiated settlement between the opposition and the government that restores Ukraine’s potential path towards agreement with the European Union is a critical part of this strategy.

I’d just conclude with a final comment that what’s playing out in Ukraine today is part of a broader game of the Europe’s East, which really at issue here is the next chapter of European integration.  The Eastern Partnership was about beginning the integration process with six post-Soviet states, and Vladimir Putin stepped in with a firm “nyet” to try to put an end to that process.  It’s clear to me that if the United States sits on the sidelines and thinks that the European Union has the ball on this, the EU, the European Union, will fail in its next stages of promoting European integration. 

And so this is where the United States can step in to help articulate a clear vision and a goal of completing Europe, of backing unequivocally the Eastern Partnership and helping to mitigate the ambivalence among some EU members themselves to address the security issues that really plague all of these post-Soviet states that are unaddressed by the Eastern Partnership process, and at the same time work with the European Union to anticipate and counter Russian moves to undermine and disrupt these countries’ moves towards Europe, while at the same time putting important incentives on the table.

So, Ian, with that let me conclude and turn it back to you.

MR. BRZEZINSKI:  OK.  And let me just push you on one issue.  You’ve sat in the White House.  You’ve briefed the president before – President Bush.  You were able to convince – you were among those who convinced President Bush to push for a membership action plan for Ukraine.  Now we’re dealing with an issue that’s not in NATO, not necessarily ostensibly trans-Atlantic in nature.  How would you convince – what would you say to President Obama to say, get off the sidelines?  What is the rationale for the United States getting into this game?  What’s at stake for U.S. interest?

MR. WILSON:  Thanks, Ian.  You’re right, this isn’t – this isn’t NATO per se where the United States understands its natural leadership role.  And there are those that are arguing, with reason, that the United States should really stay in the back – in the background on this issue, because the last thing we want to do is to create a dynamic of U.S.-Russian confrontation that fuels this in a negative way.

My concern with that, however, is it also can be seen as an excuse for inaction, or absence from the issues at play.  And if you talk to folks in Europe’s East, if you talk to folks in Ukraine and Moldova and Georgia, they’re concerned.  Their perception is that Washington has basically said:  We’ve got Russia.  We’re managing Russia – Russia policy but we’re deferring to Europe on you guys, on the neighbors.  And it doesn’t work that way. 

To get the policy right with these post-Soviet states, to get the policy right with the neighbors and with Russia, you have to be able to push on all fronts.  And the Europeans won’t be able to do this on their own.  They have a prominent role to play, a leading role to play, but the United States has to be doing this hand and glove.  You can’t – by not engaging in Europe’s East, by not engaging – and what’s at stake in countries like Ukraine or Moldova or Georgia, it leads many of those in Moscow to decide that they can get away with more.

And so this is where U.S. interests come into play, because if we think we avoid getting into a confrontation with Russia by standing on the sidelines, in many respects it helps feed the appetite of those in Moscow that are pushing for stronger domination over these countries.  It will lead to instability and insecurity in the periphery of Europe, which has the potential to create even greater problems for the United States and U.S. policy where we have to come back in to deal with a much more significant problem.

What’s at stake today in Ukraine is serious.  There’s a glide path here towards a positive outcome, but there’s also a real prospect of a Ukraine that becomes ungovernable, of a Ukraine that becomes plagued and marred by more violence, and ultimately a Ukraine that could be a place of conflict and outside interventions.  That would be a disaster for U.S. interests, and I think a role right now could help prevent that.

MR. KARATNYCKY:  Damon, let me just add one more thing on the psychology of it, and that is that President Yanukovych is the person who, after all, is the one that needs to be influenced.  And people in – you know, that I know who are – I have regular meetings with people both from the opposition and people in the – in his inner circle, including the presidential administration. 

My general sense from those meetings is that he – you know, he regards power and leaders of major countries with great seriousness.  And he has been very careful in the first days of his administration to try to do the minimum number of things to maintain a good relationship with the United States.  And I think that it would help Europe immeasurably if the U.S. were involved at a very senior level in the dialogue with Mr. Yanukovych.

MR. BRZEZINSKI:  No, I can’t help but throwing in just one thought on this issue, why it’s important to the United States.  It strikes me first there is a – (inaudible) – competition going on, and if we handled this properly – that is the West, including the United States – we can ensure this will be the last spasm of the Cold War. 

And why is this – why is this important?  Because Ukraine, its 45 million people – (inaudible) – it’s got enormous economic potential – it really is the last huge, great space in the Europe landscape, and integrating it into Europe, integrating it into Euro-Atlantic institutions completes the vision of a Europe that’s whole, free and secure. 

That’s good for the United States in two ways.  One, it ensures a Europe that is more stable, and a more stable and at peace Europe is a Europe that can be more outward looking and will be a better and more reliable partner with the United States in addressing 21^st century challenges.

Second, I think ensuring the periphery around Russia is critical to Russia’s own transformation as an international actor and as a democracy.  As long as Russia feels it can have hegemony over Ukraine, it’s going to be more difficult for an imperial entity to become democratic.  They’re contradictory dynamics.  And consolidation of Ukraine actually – and integration into Europe brings Europe and Russia closer together.

MR. KARATNYCKY:  Absolutely.

MR. BRZEZINSKI:  But let me tie in to our participants in the other side of the line, so to speak.  (Gives queuing instructions.)  So let’s start with the Q&, but let me throw one other question to Damon and to – and to Adrian as people queue up. 

One name that hasn’t appeared for quite a while has been Tymoshenko’s name.  Does that mean that the EU is no longer hung up on ensuring her release prior to signing of the – of an association agreement and a trade agreement?  How dominant has a demand for Tymoshenko’s release been coming from the protesters?  I get the sense they’ve been focusing more on other demands – Yanukovych’s resignation and such.  What is the Tymoshenko factor now?  Adrian?

MR. KARATNYCKY:  Well, I don’t think it’s as great a factor as it has been before.  Really, there are – fundamental events that have mobilized the public’s attempt to mobilize around her imprisonment were not – did not lead to particularly large and long-lasting protests.

So I think, obviously, if there is a solution she will be released.  And I think people sort of understand that if there is a global bargain that brings Ukraine into an association with the EU and calms the pressures from the public, that there will be an opportunity – you know, that her release will certainly be part of – part of that package of arrangements and understandings.

And the first thing I think that they want to do is to – that she needs some sort of surgery on her back.  And so she will be out of the political process for at least the midterm for a while.  But it’s true; there are no signs, no calls – very few calls for her release as a mobilizing theme of the protests.

MR. WILSON:  Ian, I – go ahead. 

MR. BRZEZINSKI:  (Gives queuing instructions.)

MR. WILSON:  Ian, I would just add to what Adrian said, is that this really is not about Tymoshenko, and frankly shouldn’t be about Tymoshenko.  It is about whether Ukraine is making a commitment towards the European future, which means that what is fundamentally required in Ukraine for democracy and democratic institutions, rule of law, to actually begin to develop is the end of revenge politics, the end of winner-take-all scenarios, and that those that come to power can therefore amass wealth and the power and end up putting their political opponents behind bars.

And I think that’s what fundamentally has been at stake, and that’s why her name and her place in prison has been central to much of the debate leading up to the Vilnius summit.  Very few Western leaders are putting their neck out for her per se as an individual.  They’re putting their neck out for what it represents to have political opponents behind bars if you want to move to Europe.

MR. BRZEZINSKI:  OK.

MR. KARATNYCKY:  And I also agree that Europe will not – will not change its demand.  I mean, her release would be part of the grand bargain, if there is a grand bargain.

MR. BRZEZINSKI:  I think we’ll take our first question.  Do I have Alisha Moony (ph) from the Wall Street Journal? 

Q:  Alicia Mundy –

MR. BRZEZINSKI:  Oh, excuse me.

Q:  – from the Wall Street Journal. 

MR. BRZEZINSKI:  Thanks, Alicia.

Q:  Yes, you were talking about the stakes for the U.S.  And there’s been some effort by some of the opposition in the Ukraine in the last year or so to reach out to U.S. politicians and the administration saying that one of the big issues is energy, because if the Ukraine were able to get support to pull farther away from Russia, they could develop their own energy and bring themselves into Europe, and that would be great for the U.S.

Where is the – from your viewpoint, is the energy issue a strong enough issue to get the U.S.’ interest in, if not direct involvement then support for a protest government?

MR. BRZEZINSKI:  Damon?

MR. WILSON:  The energy issue has been huge in Ukraine, and partly because it’s been the biggest lever for which Russia has had control and influence and can manipulate Ukraine.  But it’s also been the sector that Ukrainian politicians themselves have wantonly left corrupt and distorted so that they – it’s a force of enriching themselves.  And so it cuts both ways.

The United States, working with Europe, I think has tried over the years to figure out and to help advance policies that actually can mitigate Ukraine’s dependency on Russia for its energy, and so you’re seeing Ukrainian – you’re seeing American companies involved in offshore exploration in the Black Sea; you’re seeing Chevron, Exxon competing for – and Shell competing for a shale gas contract in Ukraine, which is part of the critical strategy of diversifying Ukraine’s own energy sources and mitigating its dependency on Russia.

At the same time, however, the United States and Europe are trying to push a major energy efficiency program with Ukraine.  Ukraine, after all – Ukrainian per capita consumption of energy is something like five times that of a German.  And this is where the government has not – the Ukrainian government has not picked up the stick.

And so the United States and Europe have felt like they haven’t had a full partner in this because if the Ukrainians were serious, the best thing they could do for their own national security would be to move forward with an aggressive energy efficiency strategy, which would really mitigate their dependence on Russia, but it would also begin eliminating the rent-seeking, eliminating the source of financing for so much corruption that enriches the elite right now.

MR. BRZEZINSKI:  Adrian? 

MR. KARATNYCKY:  Yeah, I would – I would add – well, first of all it’s important to know that the Russian price at the Ukrainian border, the – you know, the actual price is $510 per thousand cubic meters, while the price in Germany and Poland is under 400 (dollars).  It’s 350 (dollars) to 380 (dollars) in those countries.  So Ukraine – and that includes paying much longer transportation costs along the line.

So Ukraine is paying the highest price in all of Europe, and it is a measure of Russian pressure.  Ukraine has been trying to diversify, and one of the ways is it’s been buying gas – buying gas in small amounts through – from Europe at the reduced prices.  Russian gas that’s going to Europe is actually being reversed back into Ukraine and is being – and there’s still a price differential and a discount for what Ukrainians are paying.  Secondly, Ukraine is also seeking to develop an LNG platform and an LNG terminal, and there I think is another place where the U.S. can be quite helpful.  It requires, you know, moving LNG gas through – you know, into the Black Sea, and that would require Turkish cooperation.  U.S. diplomacy can be much more engaged in that.

So the one thing to say about Yanukovych – and, yes, there is rent-seeking on the arbitrage between – the domestic price of gas is about 20 percent of the price of the imported gas, and a lot of that gas actually is – some of it is used to keep the prices low for the population, but a lot of that gas is resold at the much higher commercial level by these, you know, corrupt networks and corrupt, you know, rent-seekers that are part of the orbit around the president, and eliminating that is very important for eliminating Ukraine’s dependency on Russia but also for cleaning up – cleaning up the country and reducing the high levels of corruption.

Q:  OK.

MR. WILSON:  You know, I think, like, the path – what I would say is that leveraging Ukraine’s energy resources – (inaudible) – indigenous natural gas with companies like Chevron, Exxon and others, are beginning to see potential, but also its massive infrastructure, particularly storage capacities, shouldn’t be both an objective and an element of a strategy to engage the oligarchs. 

Why?  Because if you can convince the oligarchs that their infrastructure, their assets will become part of the Western European market, they’re more likely to be able to hold onto their value.  That makes them have greater interest in pulling the country to the – to the West.  I’d also say those massive storage facilities could be very, very useful to enhancing European energy security because they essentially can serve as huge natural gas reserves.

MR. BRZEZINSKI:  Let me –

MR. KARATNYCKY:  Well, I mean, I think – I think that the other issue that’s just been raised about the significance of Ukraine – I mean, Ukraine is crucial at the moment to the orderly flow of gas to many European countries.  If the situation were to become really unpredictable and difficult and the violence were to escalate – and that’s not a scenario I’m predicting but I’m just saying if it’s neglected, these kinds of scenarios cannot be excluded. 

You know, the orderly functioning of government, the orderly flow of energy into Europe, could be affected, and that’s the reason why Ukraine should be made into a stable country in which the taint of corruption in the energy sector is gone, but also that there is a sort of a political consensus in the country, and, you know, there is a – there is an impact on the European economies if things got completely out of hand.

MR. BRZEZINSKI:  All right, I think we have next Jill Dougherty from CNN.  Hello, Jill.

Q:  Oh, hey there.  Thank you very much.  You know, I’m sorry; I’ve been doing two things at the same time, including live shots on Ukraine, so I didn’t hear everything that you’ve said.  But I just wanted to ask, you know, there are some critics who say that the EU paid attention – paid too much attention, let’s say, to Tymoshenko, and also, you know, the agreement that it was offering lacked incentives for modernization.  Let’s put it that way. 

And because you have to ask – I mean, I’m asking myself – and forgive me if you’ve covered this already, but why does is the EU so blindsided by this?  Why was the United States so blindsided?  Did they miscalculate?  And can they, you know, recoup?

MR. KARATNYCKY:  Well, I mean – can I take – this is Adrian Karatnycky.  I mean, the first – the first point that we did make was that we believe that the demonstrations allow for, in effect – to use the term – a reset of some of this – of this failed attempt to woo Ukraine back in. 

EU integration can be a politically consolidating factor in Ukraine.  The financial and industrial groups in the main see their future in Europe.  Yanukovych does not really trust Putin, and so there is a possibility of sustaining that kind of a bargain.

Clearly Europe was right to insist on the release of Tymoshenko as a rule-of-law issue because there are some minimal standards that Europe seek to apply to its – to countries that it’s enticing into deeper communion with it.  At the same time, I think that because much of the mission, the Cox-Kwasneiwski mission, was focused on Tymoshenko. 

There was no parallel track development – discussion of how to ameliorate some of the short-term problems that EU integration creates for Ukraine.  And there was not enough attention paid to the deteriorating FX, the foreign exchange in Ukraine, and EU integration actually will be a further drain, at least in the short term.

So those issues I think were put to the – you know, were put on the back burner in the discussions, and I think that this – again, there is an opportunity now to look at all of these things, to look at the current state of the Ukraine economy, to look at the – and for Yanukovych to re-open the door, because we believe – or at least I believe that Ukrainian – the Russian option and the customs union option is not on – is not viable any longer. 

The public will react even more massively with greater anger is there is a push to create a wall between Europe and to, you know, create a new border at Ukraine west.  There is just – you know, society is fed up with that.  Society wants to move in a European direction.  So I think that also constrains Mr. Yanukovych and creates another opportunity for Western diplomacy.

MR. WILSON:  Jill, I would just add – this is Damon – I would just add that it’s not that the EU paid too much attention to Tymoshenko.  I think the other part of what you said is right; they paid too little attention to the Russian strategy and too little attention to the incentives for modernization as countries like Ukraine, Armenia, Moldova, Georgia were walking out on a limb.  They were actually faced with the short-term costs of the trauma, if you will, of beginning to adapt their economies towards a more competitive European economy.

There are short-term costs associated with that, while at the same time the long-term benefits of growth are long-term, but the EU hasn’t put on the table that if you reform successfully you can then begin talks about membership in the European Union.

So the challenge here is the EU put forward something that at the beginning was underestimated by Russia, underestimated frankly by the United States, and frankly underestimated by many Europeans.  As the EU got serious with these negotiations and folks could see they really would deliver both political reform and pretty transformational economic reforms, if implemented, essentially locking these countries into a European integration process, Russia changed course.  Putin changed course. 

But it didn’t happen all of a sudden.  It’s been playing out over months, beginning in the summer and heating up in August, September when Dmitry Rogozin showed up in Moldova in September, issuing ominous threats to the government there to proceed, to the renowned meeting of Putin with the president of Armenia, immediately after which Armenia dropped its pact – its agreement to move forward with Europe. 

A very clear Russian strategy has been playing out for months now, and I think that the West, both Europe and the United States, have been slow to react, almost naïve in this, and that it’s not just enough to hold onto the prospect of long-term benefits but a prospect of a European future. 

We really actually needed to be working hand-in-glove between Brussels and Washington on how they anticipate and counter Russian strategies to disrupt this process.  We saw it on a micro scale where the EU responded very quickly in Moldova when Russia blocked the imported Moldovan wines.  The European Union very quickly increased its quota of imports of Moldovan wine into the common market.

But this was flow – this was marginal.  And I think what we’ve seen play out is that we really needed what you said, the incentives for modernization to be fundamentally built into this package, but combined with that anticipating and countering specifically what the Russian efforts have been to undermine these countries’ paths.

MR. WILSON:  If I could actually elaborate a little bit more on what the West should do about Russia, I mean, for now it seems it’s been able to go over Ukraine.  Its – (inaudible) – officials say that if Ukraine should sign the agreement, they might have to help those elements in Ukraine that would want to secede.  It’s put on enormous economic sanctions against Ukraine, which I have to think violate many WTO rules and norms. 

It’s even kind of flexed its muscles militarily, you could argue, recently with its Zapad exercise and, like, 70,000 Russian troops in the region, yet neither the United States or the EU seems to have responded with any action other than kind of a little bit of whimpering, complaint that this isn’t appropriate behavior.  Should there be steps taken against Russia to remind them that this kind of behavior, this kind of conduct, this sort of coercion is unacceptable?

MR. KARATNYCKY:  Well, I mean, you know, I would – I would argue that one of the things that has to be done is that high-level interventions with and conversations with Yanukovych should give him a sense that these kinds of steps are going to be – are going to be countered, at least – rhetorically at least in Balkans.  Some of the concerns that Yanukovych has on the economic transition should be met.

I mean, I think the Europeans have begun to understand that they neglected the financial part of this.  People in the presidential administration I spoke with a couple of weeks ago in Kiev estimated about a 1.5 (percent) to 2 percent decline in GDP if Russia were to introduce the sanctions that it – that it threatens to introduce if Ukraine signs the free trade agreement with Europe.  So that’s another ameliorative, you know, problem that Yanukovych, who wants to get re-elected, faces. 

So all these things I think do require some dialogue, some understanding Europe.  And, you know, Europe has lots of internal problems and it cannot meet all of these demands, but on the other hand it can react forcefully against Russian threats. 

It should be – it should be reacting much more forcefully when these measures occur.  It should be, you know, encouraging Ukraine even symbolically by, you know, encouraging trade fairs for helping Ukraine open up new markets, not necessarily European markets but assisting and sort of saying, we’re going to work cooperatively with you to help find substitute markets for some of your – some of your exports in the event of something – at least come up with some kind of a commission that works on an alternative plan for Ukraine.

Those kinds of things could be part of the overall reassurances that are given – that are given to Ukraine’s leadership.  And I do think that Yanukovych now is in a very difficult situation.  Despite the Russian threats, I don’t believe he has the option of going in the Russian direction because it would really be explosive and incendiary in the current – in the current period of popular mobilization.

MR. BRZEZINSKI:  Damon?

MR. WILSON:  OK.  And, Jill, you also had asked where the U.S. is, how it fits into all of this.  And obviously our ambassador, Geoff Pyatt, a terrific diplomat on the ground in Ukraine, is in the midst of all the action and very active.  Assistant Secretary Toria Nuland made one of her first visits as assistant secretary after she was confirmed to Ukraine for a very difficult meeting with President Yanukovych prior to the Eastern Partnership Summit. 

And Secretary Kerry has now announced that he’s cancelling his participation in the ministerial of the Organization for Security and Cooperation in Europe, the OSCE ministerial, that the Ukrainians, ironically, as OSCE chair, are holding those – held to these principles, are holding in December.  And Toria Nuland will replace Secretary Kerry at that meeting, which I think is an appropriate move to express concern with what the – with what the Ukrainians are doing.

But the problem is, is that the Ukrainians are looking at this and seeing that they’re really not – we’re not engaging at the level, certainly that the Russians are.  Russia is playing at the Putin level.  But we’re not playing at the level that the Europeans are, where there’s been a constant strain of senior European Commission officials, foreign ministers and even heads of state engaged in this issue.

And this is where there’s an opportunity now for the president, the vice president, the secretary – not to travel to Ukraine necessarily, but to make clear that U.S. policy is not just what the ambassador says, it’s not just a statement from the spokesman of the State Department, but that the vice president, the secretary of state can speak out on this because what we’re seeing – Russia’s behavior towards its neighbors has, frankly, been outrageous. 

We’ve seen this pattern before in the run-up to the Russian invasion of Georgia, where there was a strain of Russian activity that was outrageous.  It’s not that we weren’t aware of it; it’s that we became accustomed to and almost expected it.  And we didn’t call the Russians out for it each step of the way.  And I think there’s a danger in not responding to a blatant effort to trample on the sovereignty of your neighbors.

And I think this is where the rhetoric matters, that the principle of the United States speaking out and calling a spade a spade, that Russian behavior toward its neighbors has been outrageous.  And standing with the sovereignty of these countries is important.  But at the same time, I think being clear about this vision, U.S. interest and U.S. policy is about a united – a Europe whole, free and at peace, that ultimately should include Russia in that place.  It’s not against Russia.

But in the meantime, it’s – if you’re sitting in Moscow and you’re looking at U.S. policy, many Russians heard the reset policy as if the United States was acknowledging overreach by what it did, particularly with the Ukraine and Georgia.  And I think it’s now – there’s now an opportunity for the administration to be crystal clear that that was a misinterpretation of U.S. policy and to be clear that even as the administration pursues cooperation with Russia on strategic issues, it is unacceptable to trample on the sovereignty of the neighbors.

Vice President Biden spoke eloquently about this at the very beginning of the Russia reset policy but it wasn’t really followed-up with concrete policy and action.  I think now it’s time to conjure up those words again and to hear from U.S. leadership on that again and to back it up and to show that we’re backing it up with a credible strategy towards Europe peace.

MR. BRZEZINSKI:  Yeah, before I turn to Inge Cherney (sp) from the Polish Press Agency I just have a small, slight disagreement with my colleagues on the OSCE summit.  Lavrov is in Kiev, as I understand today.  So at a very senior level, the Russians are engaging the Ukrainians.  And there’s rumors that Yanukovych may stop back on his way back from China and Russia. 

It would be unfortunate if we had an OSCE summit or ministerial in Ukraine in which only senior Russians attended and there were no senior Western representatives there.  I actually think it would be kind of a powerful message if Kerry went to the ministerial, went out and waded into the crowds, supported – expressed his support for Ukrainian independence, increased the demands on Yanukovych for reform and to assert American support for Ukraine’s integration into the Euro-Atlantic community of nations. 

But let me – let me turn to Inge Cherney (sp) from the Polish Press Agency.

Q:  (Inaudible) – first, I would like to clarify if I understood correctly.  So you said that it was a good decision taken by Secretary Kerry to cancel his trip to Kiev or – (inaudible)?  I’m not sure I understood.  And the second question is, so you said that U.S. should coordinate strategy toward Ukraine.  So I’m wondering, do you think that there should be some sort of common package prepared by the EU and the IMF to help Ukraine to meet their short-term financial needs in order to be more resistant to Russians?  Thank you.

MR. BRZEZINSKI:  All right.  Just as the moderator, my point was there ought to be a senior Western, American or European foreign minister who shows up in Kiev for the OSCE meeting, and my pick would be Kerry. 

But let me turn to Damon.

MR. WILSON:  Right.  My point was – my concern would be that unless Secretary Kerry was prepared to do what Ian Brzezinski just laid out, which I think was – is quite stunning, there’s a risk that without coupling the private meetings with this very clear public message, it would be used – just seen as validating and supporting the administration.  So if Secretary Kerry were prepared to do what Ian Brzezinski laid out, that’s – those are circumstances in which the trip would work.  Otherwise, I think it’s been the right call to call it off and not be seen as validating Ukraine’s now relatively hypocritical chairmanship of the OSCE.

MR. KARATNYCKY:  Well, and what I’d like to add is that in the absence of Yanukovych – I mean, I think talking to other members of the leadership is not the issue.  The issue is that Yanukovych has consolidated power.  He is the one who is calling all the shots. 

And meeting with his advisers, meeting with the foreign minister is a nice – is a nice thing but it advances nothing.  If Kerry were able to have access to Yanukovych and show that he is also equally in dialogue with the opposition and with the representatives of the protests, then I think a trip would be worthwhile.  But I do think that in the absence of Yanukovych, nothing serious is getting done in Ukraine in the – in the next couple days.

MR. BRZEZINSKI:  OK.  All right.  Well –

Q:  (Inaudible.)

MR. WILSON:  The – our Polish colleague asked about the EU/IMF package.  This is very much what I would see as the glide path forward:  that if the United States and Europe can help bring the opposition and the Yanukovych administration to the negotiating table on a path forward that could potentially lead to a transitional government, a technocratic government, part of what the supporting – underlying support for this would need to be clarity that the IMF and the European Union would be able to step in to help Ukraine stave off economic collapse. 

This is what’s driving Yanukovych’s short-term decision-making, is that he’s got an economic crisis on his hands, he’s between a rock and a hard place, and Russia’s offering some support without as many – is offering some support to back this out.  And I think that’s where any EU/IMF coordinated effort could show that there is an alternative to help support Ukraine through what’s going to be a perilous economic period.

MR. KARATNYCKY:  But I still do believe that the IMF is not an instrument of the EU or – it has its own independent policies –

MR. WILSON:  Sure, sure.

MR. KARATNYCKY:  – that really, at a minimum, they do believe that Yanukovych has to raise local gas prices –

MR. WILSON:  Right.

MR. KARATNYCKY:  – not to punish Ukrainian people but to remove the process of arbitrage between the extremely low domestic prices, many of which are siphoned off and sold at commercial prices.  So the IMF’s requirement is actually an anti-corruption demand.  It’s not a – it’s not really a demand to impose hardships on the Ukrainian people, because those hardships can be offset with coupons or with, you know, means-tested discounts for the poorest part of the population.  There are all sorts of mechanisms that are allowed with World Bank assistance and with EU assistance that the IMF would find acceptable.

So I think that there is not that much that Yanukovych can do.  The question is, what is the Russian offer on the table?  If the Russian offer on the table is simply not to move forward with the EU, then I think Yanukovych will accept that offer.  If the Russian offer is that you have to join the customs union, Yanukovych cannot accept that offer, because it’ll ignite a new escalation of protests well beyond what we have currently – what we are currently witnessing.

MR. BRZEZINSKI:  OK.  We’re in our last minutes, so as a moderator, I’m going to exercise the prerogative of the last question.  But if there are any other points our two speakers would like to make in addition to answering my question, I think we’d all be keen to hear that.

The question I have is, because both of you are very closely – I’d say, had good relationships with the opposition, what do the events over the last several days mean for the political opposition in Ukraine?  Do you see maturing?  Do you see a consolidation on any particular leaders?  Do you see the opposition emerging from this stronger, more unified, or will this be more of a leaderless revolution or leaderless opposition that we see?

MR. KARATNYCKY:  Damon, if I can take the first crack, the first thing I would say is that the – this set of protests – I’m not sure if it unifies and solidifies the opposition, but it makes it very clear that Mr. Yanukovych is extremely unpopular and, when he comes to face the people in 2015, that it is extremely unlikely that he could prevail in anything that resembles a free and fair electoral process.  I would – I don’t want to write his political obituary.  I think that’s a bit too soon.  He certainly is going to be in play for a while.  He’s a powerful infighter and player.  But I would say that electorally his chances are drastically reduced, and I believe that that is one of the reasons why some kind of negotiations and some kind of a compromise would suit the economic interest groups that have been – that have been backing him that have benefited by a relationship with him.  They want continuity.  They want to preserve.

And I think – so what I would argue is that these protests are not a matter of the opposition versus Yanukovych.  The problem in Ukraine is that you need some kind of a national consensus.  The country has always been divided between east and west, pro-Russia and non – you know, pro – Ukrainian-speaking sections.  European identity and European integration are actually, polls show, a unifying factor, and there’s a still a minority of support in the east and in the south, but among younger people, it’s approaching 30, 40, 50 percent, and more importantly, a poll conducted in October showed that nearly half of Yanukovych voters supported EU integration.

So what I’m saying is that there is an opportunity, through diplomacy, through protests, to create some kind of a consolidated short-term fix for Ukraine to address economic problems, possibly to put in a government of – a technocratic government of national unity to address urgent needs and to move Ukraine to Europe.

MR. BRZEZINSKI:  Damon, last word.

MR. WILSON:  And I would just say that this – what this really says – it shows less about the maturity and the growth of the opposition and more about the continuing growth and maturity of Ukrainian civil society, which, frankly, has been one of the most important breaks on any leader in Ukraine that would have authoritarian tendencies is the strengthened vibrancy and diversity of Ukrainian civil society.

I think for many Ukrainians, as they see Vitali Klitschko, who was the person polling best against Yanukovych right now, as well as other opposition figures out on the streets, they’re all going to be asking the same question when it comes to an election:  Who is prepared to govern this country?  And that’s been the Achilles heel of the opposition to date is that the Orange leaders had a chance and blew it and showed that they weren’t prepared to govern.  And so there – for new faces, so someone like Vitali Klitschko, on the one hand, doesn’t bring the baggage of the failed governance of the Orange leaders, but he also brings a greenness, if you will, to having never been a politician, having never run a government.

And so – (audio break) – assuming that the schedule stays on track, and how does the opposition prepare to actually govern and demonstrate to the population that it has learned and is prepared to take on the responsibility for delivering services, for delivering budgets, for doing the things that governments need to do, because at the end of the day, a Ukrainian will walk into an election booth and have to take a decision about who’s going to govern their country.  So I’m hoping that we have an opportunity, there is an opportunity for the opposition, with fresh faces, to leave behind some of the baggage of the past, but there still is quite a bit of homework to demonstrate that they’re prepared to take over for the teacher.

MR. BRZEZINKI:  Great.  Well, thanks again.  Damon, thank you very much.  I think your remarks have really underscored some of the powerful dynamics at play here and what’s at stake, the future of the country, the future of democracy in the region, the geopolitics of the region.  So we thank you.  And we thank everyone who participated in today’s call.

I’m supposed to announce that we’ll be posting – the Atlantic Council will be posting the audio of this session immediately on our website, and we will also have a transcript posted by close of business today.

Thank you.

(END)

Related Experts: Adrian Karatnycky, Ian Brzezinski, and Damon Wilson