Who's the Biggest Loser in the Ukraine-Russia Deal?

It's not Putin, Yanukovych, or even the EU. It's the Ukrainian people.

Vladimir Putin's Dec. 17 meeting in Moscow with Ukraine's politically besieged president, Viktor Yanukovych, must be viewed as quite a victory for Putin. The Russian president's first feat was to tie financially troubled Ukraine to the Kremlin by offering a $15 billion and a significant discount in gas prices, luring it away from the European Union. The second victory was one of authoritarianism over democracy, and the third of corruption over European legal reforms. As far as political wins go, this was the equivalent of pulling a rabbit out of a hat, magically solving several problems at once. Moreover, it didn't cost Putin anything.

Yet this deal can also be seen as a victory for Yanukovych, personally. The EU had tried to persuade him to opt for the rule of law and democracy -- freeing his prime opponent from prison, for example, in return for limited financial assistance and access to Europe's market. But Yanukovych strung the EU along, pretending to be serious about negotiating accession before turning abruptly to Moscow for the international financing he needs to sustain Ukraine's debts until the presidential elections scheduled for March 2015. Now, with Ukraine temporarily stable financially, he and his family can afford to indulge in increasingly authoritarian rule and the practice of siphoning off corrupt payments.

The main losers in this deal, clearly, are the Ukrainian people. A vast majority of Ukrainians wanted Yanukovych to sign the extensive European Association Agreement, expecting to gain from access to its markets and job opportunities, but most of all to reinforce democracy and the rule of law in Ukraine. He promised repeatedly that he would do so, for example saying in Kiev on Nov. 6: "By choosing to get closer to the European Union, we are making a pragmatic choice for optimal and rational modernization." But when the moment arrived for a decision on Nov. 29, he did not sign anything at all with the EU. The key question today is whether the Ukrainian people will accept this treatment, or whether they will be succeed in their demand that the unpopular Yanukovych is forced to resign.

The large opposition has camped out peacefully for over three weeks on the Maidan, the Independence Square in the center of Kiev. Braving cold temperatures, hundreds of thousands of protesters seized Kiev's main public square and clashed with security police, embarrassing the government and causing it to apologize for the use of force. Tensions have mounted -- though the protests are expected to remain peaceful if the government does not overplay its hand. The opposition's immediate goal is to attract a sufficient number of defectors from Yanukovych's faction in parliament so that they can oust the government. On Dec. 19, they counted 217 opposition deputies, but they need nine more defectors to reach a majority.

If the opposition fails, Ukraine may enter the sad authoritarian path of Belarus and Russia, consigning it to a bleak economic future, dependent on Russia and hobbled by a corrupt system that enriches Yanukovych's cronies. The joint announcement made by Putin and Yanukovych at a news conference at the Kremlin on Dec. 17, encompassed no fewer less than 14 bilateral agreements which took the West by surprise. After all, these two men have not agreed on anything since April 2010, when Yanukovych prolonged the Russian lease of the naval base of Sevastopol until 2042 for an illusory reduction of the price of the gas Ukraine imports from Russia.

So far, only one insubstantial agreement has been published. Both sides have maintained great secrecy about the negotiations and the details of their agreements, leaving the Ukrainian opposition to fear that its president has all but given up sovereignty to Russia in one way or the other. One suspicious agreement concerns a bridge over or tunnel under the disputed Kerch Strait at the Azov Sea.

Details will continue to emerge, perhaps pulling the bigger picture into focus, but right now it appears that this deal is heavily one-sided and greatly favors Russia. Yes, Moscow's sovereign wealth fund is supposed to buy $15 billion of Ukrainian bonds. But this is not a grant, it's merely a line of credit that will have to be repaid; the terms are not concessionary. Russian Finance Minister Anton Siluanov has stated that Russia intends to purchase two-year Ukrainian Eurobonds for $3 billion with a yield of 5 percent. International Monetary Fund loans are much cheaper and last longer, so it is clear that Ukraine's motive was political more than economic. Presumably, this means that the Russian government will sell some of its U.S. treasury bills, whose two-year yield is 0.34 percent, in order to finance the loans. Yes, Russia's risk increases, but many fund managers do deals that tap low-cost funds from one source and make money from charging higher rates on loans.

Russia has also agreed to abolish various trade sanctions against Ukrainian exports to Russia from railcars and steel pipes to chocolate. This would represent a gain for Ukrainian producers seeking Russian markets but cut off from them by the sanctions. According to World Trade Organization rules, however, the Russian-imposed sanctions were illegal and it is a shame that the United States and the EU did not act more forcefully within the WTO on behalf of Ukraine.

Russia also cut the price of its gas exports to Ukraine for the first quarter of 2014 by one third to $268.50 per 1,000 cubic meters, providing considerable cost savings for Ukraine's energy-dependent producers and consumers. But this is not a gift either; in fact, it's an approximate market price. By insisting on inflated prices, Gazprom has lost large sales to the Ukrainian market. Not surprisingly, Gazprom's shares rose on the news of this price cut. Yet, the price is to be revised each quarter -- and, given prior experience, it's far from clear that this level will hold.

Finally, a few agreements were concluded on production cooperation involving large Antonov transportation airplanes, shipbuilding, and construction of space rockets. Ukraine has valuable industrial assets, but advanced manufacturing requires cooperation with their old Russian partners, who had been instrumental in setting up production lines. Such cooperation should have occurred long ago, but Russia was more interested in punishing Ukraine than in mutual cooperation like this.

Presuming that Ukraine does not default on its bonds, Russia has not, and more likely will not, lose anything on this deal. It has only eliminated some trade sanctions against Ukraine, a step that costs Moscow little and could benefit Russian consumers. In the end, Putin's successful hardball strategy has come at very little cost and very significant gain. It has blocked Ukraine from orienting its economy toward the West and enhanced Russian power and prestige in its former territories. For Yanukovych, it's a win, too. While he might be hated on the Maidan, he's now free to continue to rule in a manner that is both corrupt and authoritarian. The big losers are the Ukrainian people, whose future he has jeopardized. The question remains whether they will tolerate being treated like this.

AFP/Getty Images


The End of Erdogan?

Why a power struggle over Turkey's deep state could bring down the government.

There's a very big story developing in Turkey that all foreign policy mavens should be watching closely. Exactly how big remains to be seen, but the stakes are huge. At issue: Will the decade-long domination of Turkish politics by Prime Minister Recep Tayyip Erdogan and his Islamist-leaning Justice and Development Party (AKP) continue? Or is the Erdogan era about to come crashing down, fatally weakened by scandal, infighting, and authoritarian overreach?

Early Tuesday morning, police in Istanbul and Ankara carried out a wave of stunning arrests that included powerful businessmen, the sons of three cabinet ministers, and the head of an important state-owned financial institution, Halkbank. The operation flowed from a series of corruption-related investigations that have apparently been underway for a year or more. All the key targets swept up in the raids are closely linked to Erdogan's government.

Erdogan, characteristically, responded by going on the offensive and hurling accusations at his opponents. He attacked the action as a "dirty operation," the goal of which was to smear his administration and undermine the progress that Turkey had made under his leadership. He alluded to a dark conspiracy launched by terrorist gangs, both foreign and domesticErdogan alluded to a dark conspiracy launched by terrorist gangs, both foreign and domestic. that were operating a state within the state. While insisting that Turkey was a democracy, not some two-bit banana republic, he proceeded to engineer within a day the sacking of more than 20 high-level police officers in Istanbul and Ankara, including those directly in charge of the units that carried out the raids. More heads seem almost certain to roll. Rumors that the lead prosecutor supervising the investigations had also been removed were vehemently denied -- though two new prosecutors were suddenly (and mysteriously) added to the probe. Howls of political interference in an ongoing judicial matter erupted. The crisis deepened.

These dramatic events were simply the latest escalation in a long-simmering battle royale within the AKP's Islamist coalition. On one side: Erdogan and his followers, whose political roots lie in the transnational Muslim Brotherhood movement founded in Egypt in 1928. On the other: the Gulenists, a secretive society whose religious ideology bears a more distinctly Turkish flavor, led by Fethullah Gulen, a septuagenarian cleric who fled Turkey in the late 1990s and now lives in exile in rural Pennsylvania. Partners for much of the past decade in the AKP's systematic efforts to undermine the foundations of Ataturk's secular republic and bring the Turkish military to heel, Erdogan and the Gulenists have now turned on each other with a vengeance.

Figuring out exactly why is no easy matter. Ultimately, it's about power, of course. More specifically, it's about Erdogan and the intensifying megalomania that has become an increasingly prominent feature of his governing style. The man now appears more or less incapable of brooking any challenge to his authority. Egged on by an inner-circle of sycophants who live in fear of his wrath, Erdogan appears genuinely convinced that his personal interests and agenda, and those of the Turkish nation, are now largely synonymous. What he wants is, ipso facto, what the Turkish people need. Anyone who disagrees with him is resisting the popular will. Anyone who criticizes him is attacking Turkey and constitutes, by definition, an enemy of the state, a traitor that must be broken and neutralized.

It's a world where independent centers of power, wealth, influence, and allegiance are always a danger. Eventually, they must be cowed into submission, co-opted, or crushed, deploying as necessary the coercive levers of the state to do so -- threats, wiretaps, blackmail, tax liens, arrests, manufactured evidence, long-term imprisonment, all are fair game. In no small part, the story of the first decade of AKP rule has been its slow but methodical march through the commanding institutions of Turkish society. One by one, by hook or by crook, they have been brought into line. The bureaucracy: check. The media: check. Business: check. The courts: check. And, of course, the big enchilada, the military: check. Or, more accurately, checkmate.

From this perspective, it was perhaps only a matter of time before Erdogan set his sights on the Gulenists. They oversee a worldwide network of schools. They control their own business and media empire. They have a charismatic leader, a distinct ideology, and, it is believed, millions of loyal followers throughout Turkey. Most threatening of all, Gulenists are said to be seeded throughout the Turkish power structure, with particular influence over the police and the judiciary. Indeed, Gulenists have almost certainly been the tip of the spear in the AKP's multi-year campaign to marginalize and subjugate Turkey's military, as well as the other former pillars of the Kemalist state. But with that task largely complete, Erdogan appears to have come to the conclusion that the time was ripe to take them down a peg -- or more. Paranoid he may be, but leave it to Erdogan to recognize a threat, or at least a potential threat, to his authoritarian ambitions when he sees one.

It's been downhill ever since. Erdogan allegedly began ousting Gulenists from positions of authority in the bureaucracy. When Turkey was rocked last summer by the Gezi Park protests, Gulen and his supporters not so subtly came out against the government's heavy-handed response. Gulen's media have kept up a steady drumbeat of criticism against many of Erdogan's most controversial policy positions, both foreign and domestic, as well as his increasingly autocratic rule. Then, in a major escalation of the conflict that amounted to more or less a declaration of all-out war, Erdogan proposed eliminating the dershanes, a system of exam-prep courses that serve as a major source of revenue and influence for Gulen's empire. In short order, the Gulenists retaliated on multiple fronts. In late November, their media published a classified 2004 memo from Turkey's National Security Council, signed by Erdogan, which recommended a series of measures targeting the Gulen movement. On Monday this week, a well-known Gulenist member of parliament resigned in protest from the AKP. And immediately thereafter came the police raids against Erdogan's allies, followed by Erdogan's purging of the police chiefs.

Where this confrontation goes from here is anyone's guess. It seems almost certain to get worse, even much worse -- especially in the run-up to a series of all-important local, presidential and parliamentary elections that are scheduled to kick off in March 2014. Gulen's allies in the police and prosecutor's office have already leaked a series of gory details about the corruption probe: Millions of dollars found stashed away in shoeboxes and safes belonging to the head of Halkbank and the Turkish interior minister's son. The leaks so far -- billions of dollars in illicit transactions with Iran, incriminating wiretaps -- are the tip of the iceberg.Tens of billions of dollars in illicit transactions with Iran. The existence of hours of incriminating wiretaps. And that's just the tip of the iceberg, we're told. There are ominous threats of more to come, including, it is said, videotape of a government minister with close ties to Erdogan accepting a seven-figure bribe. How much of a leap to suspect that the Gulenists could be holding in reserve some kind of nuclear option, a dossier of sorts that potentially touches the prime minister, himself? No one knows. But anything seems possible in this environment. In part it depends on just how far the Gulenists are prepared to go. Is their aim simply to get Erdogan to back off or are they really seeking to bring him down for good? At the moment, it sure feels like the latter, but nothing's certain. And that includes what steps an increasingly desperate Erdogan might be prepared to take against his opponents, with all the substantial powers at his command and feeling himself under siege and pushed to the wall.

One hopes this showdown will play itself out consistent with the rule of law and the democratic process, with the ultimate verdict delivered at the ballot box. But that's by no means a sure thing. Who can say that some revelation may not emerge, some provocation may not occur, some spark won't be lit that -- like Gezi last summer -- puts millions of angry people from opposing camps back into the streets? And this time with a ruling elite that appears irreversibly fractured and at each other's throats. Moreover, one has to ask: What do the police and other forces charged with maintaining public security do when Erdogan calls upon them yet again to crack heads and restore order? It's not too hard to see how this nastiness could get really out of hand.

Short of that, it's still almost certainly the case that Erdogan's political fortunes have been seriously weakened. Starting with his intolerant, imperious, and menacing response to Gezi six months ago, he's clearly lost his golden touch. He's making mistakes and miscalculations, repeatedly. He appears increasingly erratic, authoritarian, and thuggish. He's alienating enemies, to be sure, but allies as well -- not just among the Gulenists, but within his own camp, too. His aura of invincibility has been cracked. The widespread fear he induced in large swathes of Turkish society has been partially breached. For the first time in a decade, there are signs that he may be vulnerable politically.

Already, there are rumors that there soon could be further resignations of Gulenists from the AKP parliamentary coalition, including perhaps a small number of cabinet ministers. On the economic front, this week's news sent Turkey's stock market and currency tumbling, and it is entirely possible that a drawn out crisis could precipitate large-scale capital flight from the Turkish market. Depending on how bad the news gets, one can even imagine Erdogan's own comrades in the AKP starting to look for ways to distance themselves from him in an attempt to salvage their careers. The implosion of the AKP coalition, while perhaps still not likely, suddenly seems within the realm of possibility.

Nevertheless, given Erdogan's near-total mastery over Turkey's political scene for more than a decade, it's still probably a stretch at this point to bet against him -- much less count him out. Even in the wake of Gezi and other events, there's not yet a lot of hard evidence that either he or the AKP have suffered a major hit in popularity. And it's even harder to make the case that Turkey's rather hapless secular opposition parties have been major beneficiaries of the Islamists's internecine showdown.

What does seem far more probable today than six months ago, however, is the prospect of an Erdogan who has been seriously chastened, weakened, and constrained. If in upcoming elections, the AKP loses control of certain key cities and sees its majority in parliament significantly eroded, it will be viewed as a direct repudiation of Erdogan's alarming bid to become a modern-day sultan. It could empower other figures within the AKP with greater inclinations toward a more tolerant, moderate, and consensus-driven form of politics. It would signal that Turks had at long last grown fed up with Erdogan's particular brand of demagoguery, bullying, and creeping Islamist authoritarianism.Are Turks fed up with Erdogan's particular brand of demagoguery, bullying, and creeping Islamist authoritarianism? That could only be a good thing for Turkey's democracy and, most probably, for its relations with the rest of the world, including the United States.

On that note, it's worth highlighting that the Halkbank element to the current corruption probe should merit special interest in Washington. The state-owned bank has long been under suspicion for its relationship to Iran. But initial hints from the investigation suggest that it might have been much, much worse than anyone thought, involving potentially tens of billions of dollars in illicit transactions in a massive sanctions-busting scheme, the direct beneficiary of which would have been the Iranian nuclear program. If proven out, that's an international scandal of the first order, especially if one assumes, not unreasonably, that it could not have been carried out without the complicity of some very high-level officials in the Turkish government. It would certainly reinforce the concern that many have long-held about Erdogan's efforts to move Turkish foreign policy in directions decidedly unfriendly to America and the West. Let's wait and see what the evidence shows, but if there's a there there, it would be one more powerful reason for the United States to harbor hope that the Erdogan era as we've known it may now be coming to a close.