A Great Impact of the Crimea Crisis on the European Union - Essay Example

The European Union and Crimea Name Class Unit Table of Contents Table of Contents 2 Introduction 2 Crimea crisis 3 Future costs of Russian Intervention 5 Sanctions 6 Impact of EU sanctions on Russia 9 Capital flight 11 Depreciation 11 Inflation 11 Economic contraction 12 Strain on public finances 12 Relations after annexation of Crimea 12 Crimea after annexation 13 Conclusion 15 References 16 Introduction Crimean peninsula is located in the north coast of Black Sea. The Russian authorities sent their troops to Crimea and annexed it. Ukraine and Russia are two countries which shares a lot in their historic origin1. Thus, the crisis of Crimea meant a lot to them. Crimea and the Sevastopol region were and still remain a vital port for the Russian fleet in the black sea. It serves as a gateway for the Russian fleet in black sea and beyond. This was one of the main reasons for annexation of Crimea leading to crisis. Russia used various agreements with Ukraine as a pretext to stay in Crimea which also include the Russian military presence in the region up to 20472. Sevastopol is a region which has been vital in providing security for Russia. The main worry for the European Union (EU) was the fact that Crimea crisis could lead to tensions in the region among the pro-European west and pro-Russian east and south. After the collapse of the Soviet Union, Russia considered Ukraine as one of the countries which was under its sphere of influence. EU has been keenly following the crisis in Crimea3. The council have been very keen on violation of Ukrainian sovereignty and acts on territory4. The act by Russia was condemned by the EU council on March 2014. There was an aggression of the Russian armed forces and federation council of Russia authorised deployment of armed forces in Ukraine territory. This report analyses the European Union and the crisis in the Crimea. Crimea crisis The Russian Ukrainian conflict has been a major issue in the EU. The leaders who are involved in Crimea Ukrainian conflict represent Slavic nations. Crimea was a Russian colony based on the Russian victory over the Ottoman Empire. Since the collapse of the Russian empire, the legal status of the peninsula has changed a lot. The status change of Crimea came up after the dissolution of the Soviet Union in 1990-1991. After an all Ukrainian referendum in 1991, Crimea was able to attain the status of autonomous republic under Ukraine. The latter referendum did not consult the autonomous republic of Crimea whether they wanted to remain in Ukraine or join Russia. In1992, Crimea gained independence and was able to write its first constitution. The referendum was amended in 1992 where Crimea was added as part of Ukraine5. After the breakup of the USSR, Ukraine and Russia have been under a lot of tension. This has been especially on the issues related to Crimea, division of the black sea and the Russian fleet on the black sea among others. From 1991, Russia had been supporting the pro-Russian rebels in Crimea and has a large contingent of its own military intelligent and civilian6. The annexation of Crimea had been planned for a long time by Russia over the last two decades. Russia claimed to protect its citizens living abroad and also engaged in massive passport distribution. Russia decision to annex Crimea may have been made after NATO made a promise to Crimea and Georgia full membership7. In February 2014, the situation changed wen high Ukrainian officials connected to Russia started fleeing Ukraine to Russian claiming fear for their lives. This led to power vacuum in Ukraine and gave Russia an ideal opportunity to annex Crimea. There were clashes between the pro-Russian and pro Ukrainian protestors at Simferopol. The pro-Russian protestors demanded secession from Ukraine and sought help from Moscow. The annexing came on February when masked individuals seized and took control of the government buildings in Crimea8. Russian forces and militias took control of the Crimea and took all the installations of army personnel among other amenities. The international law prohibits any occupation on another state or annexing as was done by Russia. The referendum that was carried out by Crimea was one sided leading to results which were not upheld by all. Crimea declared its independence on March 2014 and joined the Russian federation. The treaty to incorporate Crimea to Sevastopol was signed on 18th March 20149. Future costs of Russian Intervention After the intervention, the Russia-Ukrainian relationship has become deteriorated. This implies that it will be hard for Russia to engage in any positive dialogue with Ukraine in future. The Ukrainian conflict will have serious consequences for Russian economy. The cost of conflict in Russia was estimated to be around 1% of the GDP in 2014-201610. This is especially due to the cost of increasing investment risks. The EU member states with close ties to Russia have also been highly affected by the crisis. This is based on their exposure to the Russian market. The most affected are Finland, Baltic States, Germany and Austria.10 Russian economy had already been stuck in transition and stagnation before the crisis. The conflict led to hampering of the most needed investments and GDP growth which has affected the country. Russia will continue facing negative economic development based on rouble depreciation, capital flight and poor economic reforms. Russia low GDP has led to loss of close to EUR 20 billion in 2014 and the figure is estimated to be over EUR 30 billion in 2015.11 The Ukraine crisis will continue having negative repercussions not only for Russia and Ukraine but also Europe economy. After sanctions were imposed on Russia, the country responded with ban on agro foods imports and also restricted their travel to west. The relationship between Russia, Ukraine and western countries has been highly damaged and this is expected to continue. Ukraine has been the main victim with Donbass which was a major source of the country GDP experiencing decline in trade.12 Sanctions The EU response to the occupation of Crimea was criticised for being slow. The reaction was also fragmented compared to that of the US. The US was among the first countries to impose visa restrictions and asset freeze of all Russians who were close to Putin. The US also moved fast and started offer support to NATO by sending jets and troops to Poland13. It took some time before EU reacted to Russia annexation of Crimea. While EU was condemned for being slow in acting than US, it acted rapidly to offer support to Ukraine. EU started carrying out exploratory meetings where they agreed on loans and grants to be offered to Ukraine. The decision making structure of EU have proved to be very effective offering long support to Ukraine. The EU states were not willing to impose any sanctions to Russia since it would have harmed their economy. Germany and Italy who were heavily reliant on the Russia gas were not ready severe their economic risks with Russia. Most importantly, most of the European business was closely tied with Russia. These constraints led to the slow response of EU to effect sanctions on Russia14. The EU sanctions against Russia show a high level of coordination among the European nations. The heads of states and foreign ministers took joint decisions in the broad EU framework. The Crimea crisis made the EU more coordinated on the energy security on the region. The EU decision making structure is slow as compared to US. It is important to note that at the end, the sanctions made by EU were comparable to those made by US. The main argument by both EU and US was that the sanctions were to increase if Russia continued to create unrest in Ukraine. Russia was excluded from G8 summit on March 201415. Since Russia annexed Crimea, and the conflict in the Donbass region, EU has been imposing several restrictive measures on Russia. The restrictions are regularly updated. The sanctions carried out by EU have had a great impact on Russia financial market, defence industry and their energy sector. The bans have also had an impact on EU investments, trade in Crimea and also Sevastopol. Despite the fact that the sanctions have had a great impact on the Russian economy, they also have a boomerang effect16. This is especially by the countersanctions by Russia over EU food imports. This have turned into a lose situation leading to EU sanctions being called into doubt. Most of the EU countries which are economically intertwined with Russia have been greatly affected17. EU restrictive measures against Russia were carried out in three states which were revised periodically. The sanctions have been as a means of holding Russia responsible for invading sovereign countries. When Russia invaded Georgia, EU did not impose sanctions on Russia. Russia was even freed partially from the responsibility of aggression. On July 2014, Russian federation imposed a counter sanction against EU, US and allies. This is through a one year embargo on meat, fish, cheese and dairy products. Prior to embargo, Russia imports from EU accounted for 10% of the total agri-food. EU inflicted the maximum damage it could on Russia through the sanctions but the countersanctions by Russia were damaging as well. As the implications of Russia takeover on Crimea continued becoming clear, EU had an additional challenge of responding to the unrest that occurred in eastern Ukraine. This is especially in the Donetsk and Donbass region. The separates were demanding for the Donetsk people republic. The EU made a lot of efforts to deescalate the situation and held negotiations with Russia. All sides were asked to refrain from violence and provocations. The EU has been expanding the list of the sanctioned individuals in Russia. The EU Russia relations have been disappearing since the annexation of Crimea. This has happened despite the high dependence of EU member states on Russia especially in the energy sector. It is important to note the important role that EU played in ensuring that Russia recovers from economic stagnation after the soviet era. The EU Russia relations have been determined by mutual interdependence. After the annexation, the relationship with EU was frozen18. The Russian annexation of Crimea has made EU to focus on the region security. Most of the eastern European members are sure that Putin ambitions will only be satisfied through gaining control of Ukraine. The Russian government showed that they were not ready to tolerate close relation of Ukraine government with EU. They were not ready to accept a democratic Ukraine that could choose their foreign policy. After the annexation of Crimea, the future of Ukraine seems to lie on balance. Ukraine has massive corruption and poor economic reforms. Despite EU sending economic support packages, the Kiev government still has a lot to do19. The main issue is the fact that Ukraine largely depends on Russia for energy. The country also carried almost a third of its trade with Russia. With Ukraine gaining support from EU, Russia may use gas as a political lever. The shale gas revolution in the US and other countries has been of great importance. EU has been working hard to ensure there are interconnectors to Ukraine to minimise any move by Russia to cut off gas to Ukraine. The EU has been strict on Russian Gazprom for engaging in anticompetitive behaviour in EU20. The time of lifting the EU sanctions will depend on Moscow. Both Russia and EU can have a win-win situation through cooperating on matters of trade, security and environment. These relations remain frozen as long as Russia is challenging international boarders through annexation of Crimea. The EU sanctions forbid investments in Crimean which includes shares acquisitions and securities. EU forbids acquisitions of real estate but allows all contracts that were concluded earlier. Through the sanctions, the tourism industry was hard hit21. There are no ships that provide tourism activities that are allowed to enter into the region. Selling goods and services in Crimea is not forbidden provided the goods and services are not in transport, telecommunication, energy and exploitation of minerals. The sanctions also prohibit registering new company in Crimea. All existing properties in Crimea were not affected by the sanctions.22 Impact of EU sanctions on Russia It is important to look at how effective the EU sanctions have been in pushing its case on Russia. After Russia annexation of Crimea, the imposed sanctions led to a debate whether they would work or not. The case against sanctions looks at the fact that despite the sanctions, Russia have not given up Crimea. The country is deeply involved in Ukraine and has increased its military engagement in Donbass23. The sanctions have not made Russia coerce its posture. The sanctions have been seen as a tool that has unified the Russians behind their leader. It is also argued that through reducing trade, sanctions have reduced the western leverage and hurt the exporters. The jobs in the export sector have been hurt through the sanctions. The sanctions have been seen as a tool that has pushed Russia into the arms of China. This may lead to formation of non-western financial infrastructure which is an alternative to the existing western dominated system.24 Those in favour of the sanctions argue that the sanctions have had impacts on the short term on Russian economy. The sanctions made Russian look at the western countries responses to its actions which could not have been possible prior to Crimea annexation. The sanctions have also made it impossible for the country to seize any other territory. Russian forces have not attempted to create a corridor that would bridge mainland Russia to Crimea. The impacts of the sanctions did not help EU much in their policy on Crimea but helped in ensuring Russia did not destabilise other areas of Ukraine25. Without tangible economic prosperity, Russian patriotism may not work. Economic sanctions have a long term effect. The EU sanctions have the capability to reduce further aggression of Russia into Ukraine. Despite the long term effects of the sanctions, their expiry is based on one year. Some of the impacts of EU sanctions after Russia annexation of Crimea are as follow26. Capital flight A lot of the investors in Russia have become more uncertain. This has made them to start pulling out their investments capital in Russia. Most of the EU financial institutions have cut their lending to Russian borrowers. The Russian central bank has been trying to impose controls to ensure that money does not leave the country. The main issue is the effectiveness of the capital control by the country27. Depreciation With the sanctions in place, Russian ruble has depreciated. Investors have been making massive selloff of the ruble. To ensure that the ruble does not depreciate further, the Bank of Russia hiked its interest rate from 10.5% to 17%. This measure did not help the ruble from depreciating. The central bank has been forced to periodically intervene in the foreign exchange market to stabilise ruble. This is through selling the foreign currency and purchasing rubles28. Inflation Depreciation of the ruble has been a major factor that has led to inflation. The imports in Russia have become more expensive and the country bans on agricultural imports have led to rise in food prices. The EU ban has affected the quality of some of the food products29. Economic contraction The growth rate of Russia has been declining since the invasion on Crimea and EU bans. The IMF has downgraded their forecast on Russian economic growth in 2015. The projected economic growth is expected to decline as the EU bans takes toll of the economy30. Strain on public finances Russia has faced a lot of economic challenges after the EU sanctions. The country had large foreign reserves and low debt prior to annexing Crimea. The government have been highly reliant on the exports of oil and gas which have been highly affected by sanctions. The EU sanctions have thus put a lot of strain on the public finances31. Relations after annexation of Crimea The annexation of Crimea and destabilisation of Ukraine made it vital for EU to rethink the security situation in the central and Eastern Europe countries. Russia has shown that it can use its military might and propaganda to destabilise the region. The intervention shows that despite the fact that Ukraine is strong to be absorbed by Russia its borders orientation can be affected. The aftermath of the annexation of Crimea will see Russia losing its leverage in the EU while Ukraine is integrated into EU. This will lead to destabilisation of the geopolitical power in the region32. Crimea after annexation For the EU to help the almost bankrupt Ukraine government after the annexation of Crimea, they have to help in resolving the energy problem. The EU has few alternatives to supply gas to Crimea. Russia is the largest energy supplier to EU where 30% of the union gas and 35% of its imports were from Russia. Russia is also heavily dependent on the revenue from energy sales. Oil and gas constitute to almost 70% of the country exports with most of it being sold in Europe33. With the situation in Crimea deteriorating, EU has been very strong in condemning the acts of persecution and intimidation. This is especially the intimidation of the Crimean tartar community34. The EU made it illegal for the parliamentary and presidential elections in Donetsk and Luhansk. The two sides were called by the EU to instead work on preparing themselves on early local elections in these regions based on the Ukraine laws35. After the annexation of Crimea, the life in the peninsula has become difficult. There have been rise in unemployment level and prices. Crimea banking sector have become paralysed and most of the investors have left. This has made many of the residents to struggle in order to make ends meet. There has been an EU embargo on any goods coming from Crimea unless having a certificate of origin from the Ukraine government. Most of the EU bans have been based on investment and trade. After annexation, Russia has already seized Ukrainian enterprise and took control of the onshore and offshore oil fields36. The tourism in the Crimea has been hard hit by the sanctions. The number of tourists has almost halved despite the Russian government efforts to promote tourism. There have been frequent black outs and disruptions of power in Crimea since the area primarily depends on water and electricity from Ukraine. The economic crisis in Russia has reduced the employment opportunities. Based on the UNDP data, it is estimated that almost 20,000 of the Crimean population left for the Ukraine mainland. This is due to bad economic situation and human rights abuse. The area has been faced with closure of schools and intimidation of some of the faiths apart from the Russian Orthodox Church. Crimean Tatars have been hard hit by the crisis. The freedom and rights for the Tartars have been under threat from the Moscow government. They have been prohibited from engaging in their holidays and faces harassment from the authorities37. To help those that have been greatly affected by the conflict, EU and member states have contributed a lot in humanitarian aid. The funding has addressed the needs for the population affected by the crisis. The EU-Ukraine association agreement has focused on bringing a comprehensive free trade area for the sustainable growth of Ukraine. The EU supports the Ukrainian people to have access to democracy and prosperous future. This has made EU to increase its focus on lasting solution for Crimea38. The needs for EU and Russia differ in Crimea. This has made it prudent to have varying approach to the crisis in the region. Despite the on-going crisis in Crimea, Ukraine must focus on its future and create a strong democratic and prosperous nation. The events of Ukraine have had great impacts on the European politics. The actions taken by EU and Russia determine the future of Crimea and Ukraine39. The crisis is the biggest test for EU ability to maintain cohesion and peace in the region. With the threat on Crimea, the European nations will have to enhance their defence and increase cooperation in matters of security. The implications of Russia takeover on Crimea will continue to be felt for a long time by both sides. This is through the sanctions imposed by EU on Russia and the economic interdependence of the region40. Conclusion The Crimea crisis had a great impact on the European Union. The annexing of Crimea occurred in 2014 when Russia invaded Ukraine. In February 2014 when high Ukrainian officials connected to Russia started fleeing Ukraine to Russian claiming fear for their lives. This led to power vacuum in Ukraine and gave Russia an ideal opportunity to annex Crimea. It is important to realise the importance of Crimea to Russia both economically and in the defence. Crimea serves as a gateway for the Russian fleet in black sea and beyond. The EU responded to the crisis through sanctions to Russia. The sanctions were first imposed on some of the government officials and individuals connected to Russian president Vladimir Putin. The impacts of the sanctions have been under debate. Some sees the sanctions not to have worked while others claim that the sanctions have helped in ensuring that Russia does not seize any other territory. The annexation has led to economic crisis in Crimea. Sector such as tourism and naming have been affected a lot. After annexation of Crimea, Russia –EU relationships have deteriorated. Russian export sector have been affected a lot. Through continuous support from EU, Ukraine will be able to focus on building its future. 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