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Economics & Finance - BLOG

The Ukrainian Crisis: The Finland Option

Jonathan Story, INSEAD Emeritus Professor of International Political Economy  |

During the Cold War, both Russia and the West agreed to keep Finland out of the fight. Ukraine should be granted the same neutrality.

Talks on Sunday night between the U.S. Secretary of State, John Kerry and his Russian opposite, Sergeï Lavrov mark a diplomatic turning point in the standoff over Ukraine.  Both sides are at least at the table. But the demands Russia brought to that table, especially the suggestion of a federal solution for Ukraine are likely to hobble further progress. The only outcome that we should wish for is a “Finlandisation” of the Ukraine.

The word “Finlandisation” in this context refers to the agreement in the late 1940s between the Western allies, primarily the U.S., the U.K. and the U.S.S.R. to keep Finland out of the Cold War, which was gathering in intensity at the time.

Rather than absorb Finland back into the bosom of Mother Russia, or to convert it into a client, Communist state as in Poland, and elsewhere in Central and South Eastern Europe, Stalin agreed to accept Finland’s neutrality status.

It lasted for forty years. The rules of the game were clear: Finland could neither tilt to the Soviet Union nor to the Western powers. Internally, politics and language had to be neutered to hold the fort. Within those constraints, the Finns set about constructing what has become one of the world’s exemplars of a well-functioning market democracy.

This ongoing tug of war between Ukraine’s Western and Eastern orientation culminated in the proposal last autumn for Ukraine to enter into a closer arrangement with the European Union. Its proponents in Kiev, Warsaw, Berlin and Vienna saw this as proving an incentive for the necessary reforms to be pushed through in Kiev. But Putin interposed his veto. If we make Ukraine lean one way or the other, these stresses and strains are more than likely to continue.

The limits of sanctions

A Western boycott of Russia in any case could prove damaging for both sides and is likely to have limited impact. Germany accounts for one third of EU exports to Russia; Siberia sources 40 percent of Germany’s gas supplies; and the EU provides 80 percent of Russian foreign exchange. Visibly, none of the 28 member states are eager to confront Russia, given their own numerous problems at home.

“Finlandisation” does not mean that the EU should appease Moscow. Sanctions and boycotts have their modest role, as does EU underwriting of a strengthened association with the Ukraine. But the EU has to realise that speaking firmly to Putin requires that its members carry a collective big stick of European warfare capabilities, along with active development of a more coherent energy policy that reduces massive overdependence of Germany and its Eastern European neighbours on Russian sources.

What’s achievable and what is not

This will take time. Consequently, the EU response to Putin’s unilateral occupation of the Crimea has to be calibrated in terms of what can be achieved; of what cannot be achieved; of what we do not want to achieve; and what may or may not be achievable.

What can be achieved is that the EU collectively backs the new government in Kiev. What is probably not achievable is to dislodge Putin from the Crimea, where he has placed Russian boots on the ground in clear contravention of international best practice; what we do not want to achieve is to push Russia into ever closer relations with China; what may or may not be achievable is to stabilise domestic Ukrainian politics.

Failure to rise to the opportunity of entrenching a European peace will not just further hammer a nail into the EU’s coffin: the undertakers hammers are already audible.  It may avoid a prolongation of Ukraine’s political no man’s land, or worse its descent into civil war, with one half of the Ukraine backed by a bombastic and nuclear powered state, and the other supported by Brussels.

The stakes may scarcely be exaggerated: we have a chance to cement a European peace. The model should not be the Stalin-Hitler Pact of August 1939, which effectively divided what became the blood lands of Europe as the clash of titans unfurled. The model should be Finland of 1948. We must not strive for perfection, but for the realisable. In order to negotiate with Moscow, we have to prepare for the worst. This is not the time for prevarication, the EU’s favourite mode.

A full version of this post is available on my blog, Context Matters, where I examine how we get to where we are, whether we want to be there and where we are going.


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