The Prime Minister's announcement to Parliament on the Ukraine situation 2.9.2014
Prime Minister Alexander Stubb
The Europe around us looks very different today than six months ago. The Ukraine crisis has intensified in a way that none of us could have anticipated. Russia has violated the principles of international law and the territorial integrity of Ukraine by annexing the Crimean Peninsula and by destabilising Eastern Ukraine.
Finland has condemned Russia’s actions both nationally and via the European Union. We have done so because of our values and our security. We know the history of our continent – we have seen enough of the justice of the stronger in Europe.
From the beginning, we considered the path of negotiation to be the only possible way to resolve the Ukraine crisis. However, to press for a solution, we have also had to use economic means, which have not been easy for us. Even so, they have been necessary – our fundamental values are not for sale.
The Ukraine crisis came to a head in late February/early March, when Russia annexed the Crimean Peninsula, which is part of Ukraine. The European Union reacted quickly to this; the European Council decided on the first measures targeted at Russia on 6 March. At that time, it was decided, among other things, to suspend the EU-Russia visa dialogue as well as discussions on the new EU-Russia Partnership and Cooperation Agreement. The first actual sanctions measures – asset freezes and travel restrictions targeted at individuals – were decided in a European Council meeting on 20 March. At that time, it was also decided that the EU Member States refrain from organising bilateral summits with Russia. At that meeting, the European Council also asked the Commission and Member States to initiate the preparation of possible economic sanctions.
After the annexation of Crimea, Russia has undermined the stability of Eastern Ukraine by, among other things, supporting separatists in the region. It has promoted the movement of both defence equipment and people across the border from Russia to Ukraine.
The European Union’s Foreign Affairs Council decided at its meeting on 12 May to extend the sanctions criteria so that legal entities could be added to lists in addition to natural persons. Both natural and legal persons have been added to sanctions lists on several occasions so that within the sphere of the EU’s asset freezes and travel restrictions there are currently a total of 95 Russian and Ukrainian natural persons as well as 23 Russian and Ukrainian legal entities. In connection with listings, the EU has published clear, concrete and detailed justifications for the listing of each individual or entity.
The European Union has also imposed restrictive measures on products and investments of the areas of Crimea and Sevastopol annexed by Russia. In addition, on 16 July the EU decided on restrictions on the EU’s financing in Russia; new financing decisions relating to Russia by the European Investment Bank were frozen, and the suspension of new financing operations in Russia of the European Bank for Reconstruction and Development was agreed.
The preparation of actual economic sanctions was therefore initiated in March, but there was a desire to keep the threshold for their introduction high. To us it was clear that the economic interdependence of the European Union and Russia would make sanction decisions difficult.
On 17 July, a Malaysian airliner on its way from Amsterdam to Kuala Lumpur was shot down in Eastern Ukraine. 298 people died in the incident, 193 of them from the Netherlands. Through this tragedy, the Ukraine crisis finally became truly European.
It is obvious that the missile that shot the aircraft was fired from the separatist region of Eastern Ukraine. There is strong evidence that Russia has supported the separatists of Eastern Ukraine. It was clear that the European Union had to react strongly to what happened.
On 22 July, the European Union’s Foreign Affairs Council specified the sectors of the economy at which the EU would direct new restrictive measures against Russia. The decisions on the measures were made in the Committee of Permanent Representatives, authorised by the European Council, on 29 July. The measures were directed at capital markets, export and import of defence equipment, export of dual-use goods to military end users, and export of equipment for use in Russia’s oil industry. The measures came into force on 1 August.
On 7 August, Russia announced its own counter measures directed at the import of agricultural products and foodstuffs. It was to be expected that Russia would react with counter measures to the sanctions imposed by the EU. It was also to be expected that Russia’s reaction would be directed at different areas than the EU measures. While the EU sanctions have been targeted at sectors strategically important for the Russian economy, Russia’s counter sanctions hit consumer products – and Russian consumers.
The flows of fighters and weapons from Russian territory into Eastern Ukraine have grown further. Russia has also extended its military actions to the Ukrainian side of the border. In its meeting held last Saturday, 30 August, the European Council condemned these events and requested the Commission and the European External Action Service to prepare new sanctions directed at Russia. Proposals for new sanctions will probably be presented this week.
The European Union is not engaged in a trade war with Russia. The EU has imposed sanctions against Russia for foreign and security policy reasons. Furthermore, any future decisions on sanctions – tightening or loosening – must also be based only on whether Russia will act to ease the Ukraine crisis. Russia must stop destabilising Eastern Ukraine and supporting the separatists in the region.
The European Union’s power is based on trade and the economy. It is therefore natural that the Union is using economic instruments to put pressure on Russia to resolve the Ukraine crisis. Economic sanctions are not easy for anyone – not any Member State nor the Union as a whole – but the EU has, even so, been able to maintain coherent decision-making and actions in the situation.
Sanction decisions alone will not, of course, resolve the Ukraine crisis. They do, however, increase the price that Russia will have to pay for destabilising Ukraine.
The European Union is not alone in its actions. Sanctions against Russia have also been imposed by other Nordic countries, namely Norway and Iceland, as well as by the USA, Canada, Australia, New Zealand, Japan, Switzerland and Albania.
As a member of the EU, Finland has actively contributed to the Union’s sanction preparations and decisions. We have worked hard to ensure that the impact of sanctions on Finland would be limited and proportional to the adverse impacts experienced by the other EU countries. The task has been challenging, because the Finnish and Russian economies are interconnected in very many ways.
I am satisfied with the success of our advocacy within the EU. The border area cooperation programmes important for our regions will continue. The sanctions against Russia introduced by the EU on 1 August will affect only a very small part of trade between Finland and Russia, even though they may, of course, impact individual companies significantly. Moreover, the impact in Finland of the food sector import bans directed by Russia at the EU is also significant for certain companies.
In terms of the impact of Russia’s import bans, Finland’s food exports to Russia are expected to decline to less than a quarter of the normal situation. The direct impact is greatest on dairy products, which accounted for more than 80% of our food exports to Russia in 2013. Other sectors suffering from Russia’s counter sanctions include the meat and fish sectors.
Immediately on being informed about the import bans, the Ministry of Agriculture and Forestry initiated measures to minimise and compensate for the losses arising from them. We have been in close contact with the European Commission in order to accelerate EU-level measures. The Commission has already announced the introduction of measures to stabilise the price level of agricultural products in the fruit, vegetable and dairy product sectors. Further actions will be discussed this week. We have also prepared, in a supplementary budget, for compensation of losses arising to the food sector and agriculture from the import bans. We decided in the budget session to allocate to agriculture one-off assistance of EUR 20 million for this.
According to our estimate published on 27 August, the direct effects of the EU’s sanctions against Russia and of Russia’s counter sanctions on the overall economic activity of Russia and its trading partners – including Finland – will be limited. According to the Ministry of Finance’s analysis, the cumulative direct impact of Russia’s import bans on Finland’s GDP will this year be around 0.1% and on unemployment very marginal.
With respect to Russia, Finland’s economic development will be affected above all by Russia’s weak economic growth, which had already slowed. This will reduce Finland’s total output in 2014–2015 by a total of around one half of one per cent and will increase the unemployment rate by the end of 2015 by around 0.2 percentage points relative to the December 2013 forecast. The effects are included in a forecast prepared as the basis for Government’s budget proposal.
No matter how skilfully economic sanctions would be prepared, they would never benefit the economy – anyone’s economy. Assessment must be done analytically. Cool heads are required in a crisis. Diplomacy and sanctions are not mutually exclusive options. To solve crises, sometimes various complementary means are required. This has also been the case in this situation.
The goal of all of our actions is to resolve the Ukraine crisis. The Ukraine crisis can only be resolved at the negotiating table. Finland has also strongly and consistently emphasised this. We have kept in touch with our European colleagues as well as the Russian and Ukrainian leadership through the President of the Republic, the Prime Minister and the Minister for Foreign Affairs.
Negotiations to resolve the Ukraine crisis have taken place through a number of international channels. Back in April, the Geneva Accord was reached between Ukraine, Russia, the USA and the European Union. This helped above all to strengthen the role of the Organisation for Security and Cooperation in Europe (OSCE) in managing the crisis. The OSCE’s role in bringing all of the parties together has been important.
Around the OSCE, a contact group has been assembled within whose framework Ukraine and Russia have been able to hold discussions. The discussions held in Minsk a week ago brought together not only Ukraine and Russia but also the other members of the Eurasian Economic Union, Belarus and Kazakhstan, and the European Union. Representatives of Ukraine, Russia, Germany and France have met in the “Normandy Format”. In addition, a number of European Union Member States have kept open a bilateral dialogue with both Ukraine and Russia. The President of the Republic’s visits to Sochi and Kiev contributed to opening up negotiation links.
All negotiation efforts are important – the parties must discuss and listen to each other. Equally important, however, is that words lead to actions. Negotiation contacts have not yet created a permanent mechanism that would act as a solid framework for further discussions.
The most important thing at this stage is to achieve a cease-fire and effective border control on the border between Ukraine and Russia. We must be able to alleviate the humanitarian emergency in Eastern Ukraine.
The situation in Eastern Ukraine continues to be very difficult. Conflict in the Donetsk and Luhansk regions has intensified and the area of conflict has also expanded. Russia’s military presence in the immediate vicinity of the Ukrainian border continues to be strong, and there is also evidence of Russian soldiers operating within the territory of Ukraine. Deliveries of defence materiel from Russia to Ukraine continue. A negotiated solution to the military conflict in Eastern Ukraine remains some way off.
The situation in Eastern Ukraine has also caused great harm to the civilian population. Due to the actions of different parties, the humanitarian situation in Eastern Ukraine is very difficult. Humanitarian aid supplied to the region must be approved by the Government of Ukraine and the International Red Cross. Russia’s unilateral actions to deliver so-called humanitarian supplies are unacceptable.
Russia has an important role in resolving the Ukraine crisis, but Ukraine must also play its part. Its tasks, moreover, do not end at resolving the military solution itself; it also faces major political and economic challenges. One of the most important is the secure and fair organisation of the parliamentary elections announced for the end of October.
The key issue for the EU-Ukraine relationship is the implementation of the Association and Free Trade Agreement. We expect Ukraine to ratify the agreement by the end of September. Ukraine, however, must make its own decisions. Closer relations with the EU do not exclude the maintenance and development of trade, economic and neighbourly relations with Russia. The EU must be consistent in its Eastern Partnership policy. The goal of Eastern Partnership is to promote European stability, prosperity and democracy. For us, this not about spheres of interest or a zero-sum game, and I would also hope that Russia approaches the issue in this way.
The Ukraine crisis has deeply affected EU-Russia relations, which are now being put to the test. Russia has moved increasingly further from the principles of the EU. The EU needs to respond to this, on the one hand, with strong concerted action but, on the other hand, also with a readiness for dialogue.
This crisis, too, will end someday, although not necessarily very soon. Afterwards, Russia will still be Finland’s neighbour. We must therefore also keep discussion channels open with Russia now, when times are difficult. We must also remember that in most of our everyday contacts – in tourism, commerce, regional level interactions, contacts at the level of officials – we are operating quite normally, even now. High-level policy is not the whole picture in our Russian relations. It is not in anyone’s interests if Russia isolates itself from cooperation with Europe.
The Cabinet Committee on Foreign and Security Policy and the President of the Republic have discussed the situation in the Ukraine at length in their joint meetings throughout the spring and summer. The Government has been working in cooperation with Parliament and has kept it informed in accordance with the Constitution via the responsible committees – the Grand Committee and the Foreign Affairs Committee. A number of ministers have attended hearings of the various committees.
Finland’s line in the Ukraine crisis has been clear from the beginning. We have been firmly involved in the EU’s decisions. In such cases there are no grey areas. We must defend our line. It is clear that Finland cannot afterwards seek exemptions from jointly made decisions – we cannot be behind joint decisions in the morning and distance ourselves from them in the evening.
The Ukraine situation does not pose a direct security threat to Finland. The economic multiplier effects, however, will reach us. It is in our interests to promote a rapid solution to the Ukraine crisis through negotiation, both bilaterally and via the European Union.