‘Dear Mr. Arbuzov,’ Moghadam wrote with barely disguised condescension, ‘thank you for sharing with us the Ukrainian authorities’ latest proposals for policies that could be supported by a possible Stand-By Arrangement with the IMF.’ The fund, he wrote dismissively, was pleased that the Ukrainian government had recognized the need for a change in course. But Moghadam required just a single sentence to dismantle Kiev’s counterproposal. ‘In our view, overall the proposals still fall short of the decisive and comprehensive policy turnaround that is needed to reduce Ukraine’s macroeconomic imbalances,’ he wrote.
Kiev, Presidential Palace
Nov. 19, 2013
At Barroso’s behest, Füle travelled to Kiev once again to meet with Yanukovych and the Ukrainian president got straight to the point. In talks with Putin, Yanukovych told Füle, the Russian president explained just how deeply the Russian and Ukrainian economies are interconnected. ‘I was really surprised to learn about it,’ Yanukovych said.
Füle couldn’t believe what he was being told. ‘But Mr. President, you have been governor, you have been prime minister, you have been president for a number of years now. Certainly you are the last person who needs to be told about the level of cooperation, interconnection and interdependence of the Ukrainian and Russian economies. Needless to say, the association agreement does not have any negative impact on that,’ Füle said.
‘But there are the costs that our experts have calculated,’ Yanukovych replied. ‘What experts?’ Füle demanded to know. The Ukrainian president described to his bewildered guest the size of the losses allegedly threatening Ukraine should it sign the agreement with the EU.
Later, the number $160 billion found its way into the press, more than 50 times greater than the $3 billion calculated by the German advisory group. The total came from a study conducted by the Institute for Economics and Forecasting at the National Academy of Sciences of Ukraine and it was a number that Yanukovych would refer to from then on.
‘Stefan, if we sign, will you help us?’ Yanukovych asked. Füle was speechless. ‘Sorry, we aren’t the IMF. Where do these numbers come from?’ he finally demanded. ‘I am hearing them for the first time.’ They are secret numbers, Yanukovych replied. ‘Can you imagine what would happen if our people were to learn of these numbers, were they to find out what convergence with the EU would cost our country?’
Brussels, Residence of the Ukrainian Ambassador to the EU
Nov. 19, 2013, 10:15 pm
Konstantin Yeliseyev withdrew to his residence to watch Ukraine play France in the second leg of their qualifying battle for the World Cup in Brazil. Ukraine had won the first leg 2:0 in Kiev and now it was Paris’ turn to host. It was the 75th minute, just after France had scored to go up 3:0, when Yeliseyev’s mobile phone rang. An enraged Füle was on the line, having just left his meeting with Yanukovych. ‘Listen,’ he said to Yeliseyev, ‘I now have the feeling that you aren’t going to sign the association agreement in Vilnius.’
Paris, Stade de France, VIP Seats
Nov. 19, 2013, 10:45 pm
The game had come to end with a French victory, meaning Ukraine would not be heading to Brazil. Pinchuk, the Ukrainian oligarch, was standing in the VIP section of the stadium not far from French President François Hollande when his telephone rang. It was Aleksander Kwasniewski, the former president of Poland. Kwasniewski had also just come from a meeting with Yanukovych in Kiev’s presidential palace and he too was furious. ‘He tricked us!’ Kwasniewski shouted into the phone. ‘Yanukovych isn’t going to sign. He is a swindler, a notorious liar!’
Kiev, Deputy Prime Minister’s Residence
Nov. 20, 2013
Deputy Prime Minister Arbuzov and his advisors were examining the letter from the IMF, unaware for the moment that negotiations were headed toward failure. Inside the government in Kiev, Arbuzov had spent months promoting Europe against the pro-Russian faction surrounding Prime Minister Mykola Azarov and now he looked like a fool. Every sentence he read sounded like a personal indignity. The IMF European Department director hadn’t even addressed Ukraine’s deputy prime minister with his correct title. Arbuzov was fully aware that his opponents would jump all over him at the next cabinet meeting.
Kiev, On the Way To the Airport
Nov. 21, 2013
Yanukovych was on the way to the government terminal of Kiev’s Boryspil International Airport ahead of a state visit to Vienna when he finally found the time to deal with legal ordinance Nr. 905-r. The ordinance contained instructions to his government to cease working towards the association agreement with the EU for ‘reasons of Ukrainian national security.’ Andriy Klyuyev, secretary of Ukraine’s national security council, was sitting next to him in the government Mercedes.
Yanukovych undertook a few minor changes to the ordinance focused on his wish to establish a trilateral commission made up of representatives from Ukraine, Russia and the EU to determine the economic damages an EU association agreement might cause. At the airport, he handed the document to Klyuyev, ordering him to hurry back to the cabinet to change the day’s agenda. It would spell the end of the negotiations aimed at signing an EU association agreement in Vilnius. It would be the final rebuff of the EU.
Vienna, Presidential Suite in Hotel Sacher
Nov. 21, 2013, 7:30 pm
Yanukovych was sitting at a Rococo table waiting for the glasses to be filled. ‘Mr. President,’ Yanukovych said, ‘I am grateful that you took the time. I didn’t want to tell you about what happened today in passing.’
The president he was speaking to was Heinz Fischer, Austria’s head of state. Fischer was still reeling from an incident that had taken place a few hours earlier, when the two were sitting across from one another at lunch in the Hofburg, the president’s official residence and one-time home of Austro-Hungarian royalty. They had just been served coffee with their dessert when each was simultaneously handed a slip of paper by their aides. Fischer’s slip read: ‘Ukraine stops preparations for agreement with the EU.’ It was a news alert from the Austrian news agency APA.
Fischer was genuinely flabbergasted; the news invalidated everything they had been discussing up to that point. He leaned over to Yanukovych and said: ‘Now I really don’t know what is going on anymore. Has this happened with your knowledge?’
‘It was an unavoidable decision,’ Yanukovych said later that evening in the Sacher Hotel. The two of them were now alone with an interpreter in the best suite that the Austrian president’s office had been able to book that afternoon on such short notice. It was a last, desperate effort to establish a sense of proximity that had long since vanished.
‘Please understand me. I simply can’t sign it now,’ Yanukovych said. ‘I had to urgently turn towards Moscow, but I want to keep the doors to Europe open. Please don’t see this as a rejection of Europe.’
The two presidents spoke until just before midnight, with Yanukovych doing most of the talking in the over four-hour-long meeting. An official notice on the meeting compiled later by Fischer’s office mentioned the verbose explanations offered by Yanukovych: ‘His remarks were repeatedly complemented or interrupted by very long and elaborate comments on the historical and political developments of the last 20 years,’ the note read.
Vilnius, European Union Representation
Nov. 28, 2013, Midday
For a brief moment, Serhiy Arbuzov thought there might still be hope. Yanukovych’s negotiator had headed to Lithuania’s EU representation to launch one last attempt to reach agreement with Füle and his aides. ‘Today, we are going to make a bold chess move,’ one of Füle’s people said, refusing to elaborate. Were the Europeans going to offer Ukraine financial assistance after all?
Vilnius, Kempinski Hotel
Nov. 28, 2013, 6:30 pm to 8:30 pm
They were all waiting for Yanukovych. It was the last chance they had to meet with the Ukrainian president to try and convince him to sign the agreement despite all that had happened. Though it was essentially
a hopeless attempt, Barroso and European Council President Van Rompuy had resolved to try the impossible. Van Rompuy had brought two copies of the association agreement with him to Vilnius, ready to be signed.
After a few minutes, Yanukovych showed up with his interpreter, the Ukrainian ambassador to the EU and a handful of aides. That was unusual; in the past, Yanukovych had always conducted the most important talks on his own. The greeting was brief and the roles were reversed. This time around it was the EU that wanted something: Yanukovych’s signature.
Barroso was visibly nervous. Ukraine’s economy, he said, would profit considerably in the long term from closer ties with the EU. ‘Poland and Ukraine had roughly the same gross domestic product when the Berlin Wall fell. Now, Poland’s is roughly three times as large,’ he said. And then came the ‘bold chess move’ that had previously been hinted at. Barroso said that Brussels would be willing to abandon its demand that Tymoshenko be released.
Yanukovych was dumbfounded. Didn’t Brussels understand that other issues had long since become more important? The talks became heated and Van Rompuy, not exactly known for his quick temper, lost his cool. ‘You are acting short-sightedly,’ he growled at Yanukovych. ‘Ukraine has been negotiating for seven years because it thought that it was advantageous. Why should that no longer be the case?’
Outside, the reception for the heads of state and government had long since gotten underway and EU negotiators understood that Yanukovych could no longer be budged. After two hours, Barroso said: ‘We have to go.’ He and Van Rompuy briefly shook Yanukovych’s hand and shut the door behind them.
When the German delegation, under Merkel’s leadership, met with Yanukovych the next morning for one final meeting, everything had already been decided. They exchanged their well-known positions one last time, but the meeting was nothing more than a farce. In one of the most important questions facing European foreign policy, Germany had failed.
Thus it was November 21, 2013, when the fuse was light, when Viktor Yanukovych, gave the green light to the legal ordinance that put an end the association agreement with the EU, in favour of Moscow.
Some weeks later Yanukovych fled Kiev, stealing out through the back door of his sprawling estate on the outskirts of the Ukrainian capital, like a fugitive in the night, escaping mob justice by the skin of his teeth and a sticky Ceaușescu-like end.
Putin’s intervention in the Crimea earned him a positive eighty five percent rating in opinion polls. As for the economic debacle that followed there was a sheepish acceptance from the Russian public: clearly many had not forgotten the penalties for dissension in Soviet times.
SOCHI
“Pat!”
“Hello Michael.”
“How are things in Sochi?”
“Great,’ announced Pat enthusiastically.
“And Sergei?”
“We were at a diner with Vladimir.”
“Is that so?” Fitzwilliams replied with an air of false bonhomie.
“Yesh,” acknowledge Pat suspiciously. Knowing Fitzwilliams as well as he did he sensed the bankers mood.
“Isn’t he worried about what’s happening next door?”
“Next door?”
“Yes, next fuckin door in the Ukraine!”
“Sergei said it’ll blow over in a few days,” Pat replied defensively.
“Well I don’t know if he’s looking at the same news channel as me. This time it’s dead Slavs, not Arabs.”
“I haven’t seen the news.”
“That surprises me Pat, there’s no connection in Sochi?”
There was silence at the other end of the line.
“Tell your friends it’s getting out of hand, their bond markets are taking a beating and the rouble is in serious trouble!”
“It’s extremists.”
“I don’t fuckin care who it is, all I know is it’s looking bad for our Russian business!”
Pat said nothing.
“Look, speak to Sergei and try to find out what his luvvies think, then call me back.”
“Yes Michael, I’ll do that,” agreed Pat crestfallen and wondering what luvvies were.
*
It was true, things were not looking good. The crisis was ballooning out of control and the effects were spilling over into financial markets just as it seemed business was looking good and the worse of the financial crisis was. The German foreign minister called it a powder keg with the gravity of a Cold War style confrontation.
Putin’s hard line in Syria had led to a disastrous stalemate and Russia could face huge losses in the case of a Ukrainian default. Of course Moscow held huge reserves, over five hundred billion dollars, though compared to their Georgian adventure in 2008, which had cost them two hundred billion, Ukraine represented a much greater risk.
John Francis watched Fitzwilliams talking to Kennedy on the phone. He said nothing though he felt Fitzwilliams was being overly harsh. The Machiavellian like manoeuvres on the global check-board made by Moscow or Washington were not of Kennedy’s making.
Russia had become too reliant on energy exports and a geopolitical crisis was not good for business, especially as the US was quickly reaching self-reliance in oil and gas. Any further stress, especially in China, would be cause for concern with serious ramifications for the global economy.
The banker had reason to be concerned. Over the past five years INI had expanded into Russia and China, and their whole business could come tumbling down if the Chinese bubble suddenly burst, or if civil war broke out on Europe’s own doorstep.
“Suddenly it seems flashpoints are sprouting up everywhere,” moaned Fitzwilliams, “Egypt, Syria, Thailand, Venezuela, Turkey, Ukraine, Argentina.... Perhaps I’m just getting paranoid.”
“I’m afraid it’s always been like that Michael,” Francis reminded him.
“Hmm.”
“A quick look at history,” said Francis speaking of Russia, “shows the Slavic world to be a permanent story of war and strife.”
V
ladimir Putin and Dmitri Medvedev in Sochi
Fitzwilliams opened the drinks cabinet and poured a good glass of Irish whisky, then zapped the TV to follow the unfolding drama in Kiev.
“Not all the new is bad,” Fitzwilliams said, pointing to the breaking news that flashed by at the bottom of the screen, “England has won a bronze medal for kurling!”
“Apart from the humour Michael, I’d say Putin’s sincerity is about as good as Kaiser Wilhelm’s was in 1908.”
“Oh?”
“He said: ‘You English, are mad, mad, mad as March hares. What has come over you that you are so completely given over to suspicions quite unworthy of a great nation? What more can I do than I have done? I declared with all the emphasis at my command, in my speech at Guildhall, that my heart is set upon peace, and that it is one of my dearest wishes to live on the best of terms with England. Have I ever been false to my word….’
“That about sums up Putin’s intentions.’
*
The phone rang. It was Kennedy.
“Sergei said he’ll speak to you next week when he’s back in London,” Pat told the CEO hoping to mollify him. “Everything is under control.”
“I hope so. What about China then?”
“I don’t understand Michael,” replied Kennedy.
There was a three hour time difference with London which meant it was six in the evening in the City. Michael was still in his office and was obviously still very tense. Perhaps he was feeling peeved about having let Pat go in his place, though watching kurling or whatever and drinking Vodka wasn’t really his idea of fun or doing business.
“What I’m saying is China is not all that it seems. Perhaps we’re taking a big risk with all of those dodgy wealth management products floating around?”
“We’re not into that kind of stuff.”
“Maybe not, but perhaps our customers are with all that loose shadow banking stuff, not forgetting the Chinese dispute with Japan over t
hose rocks.”
“Well, Lily’s father said ...”
“He’s Chinese Pat and defends their interests.”
Pat said nothing for a moment.
“If we’re objective there are risks everywhere. Europe, Russia, America, China, and what with Brexit even in the UK. It’s part of our business, it’s how we’ve grown over the last ten or more years.”
Fitzwilliams could not refute Kennedy’s words, but it could not stop his growing feeling of unease. There were too many examples of fast growth ending badly whenever risks were not carefully weighed.
LONDON
A week later following the worst market fall since the height of the banking crisis, José Manuel Barroso called for urgent measures to reinforce the eurozone’s bail-out mechanism. Markets continued their downward plunge with trading suspended on several European markets despite the efforts of Jean-Claude Trichet, President of the ECB.
Fitzwilliams concerns grew when like many other bankers he saw the shares of his bank come heavy pressure and hedge funds suffer heavy losses. A strange atmosphere reigned as the CEO gathered his men around him to discuss the growing crisis in the Ukraine and the implications it held for the bank.
The world was not unlike the summer of 1914 described by history books. Politicians ran from one meeting to another and declarations were made on the need for action, urgent decisions, but nothing seemed to happen as the world drifted towards some kind of disaster. Would the flame be ignited by Vladimir Putin, a systemic collapse of the financial system, or would Israel attack Iran?
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