Has Ukraine’s chance slipped away?

Alexander Kwasniewski played a critical role in the success in 2004 of Ukraine's Orange Revolution. Kwasniewski, who at that time was president of Poland, had some harsh words this month for his Ukrainian friends.

Speaking at a seminar in the Livadia Palace at the Black Sea resort of Yalta, just a few metres from the table where in 1945 Franklin Roosevelt, Josef Stalin and Winston Churchill agreed in effect to cleave Europe into two, Kwasniewski warned that Ukraine was paying a high price for the political paralysis which has prevented the formation of an effective government in the four months since Parliamentary elections in March. "You Ukrainians don't seem to have a sense of the time you are wasting; you need to learn the art of compromise, it is not a sign of weakness," he said.

At the same time, a few hundred miles to the north, one of the people indirectly responsible for Ukraine's political crisis, Vladimir Putin, president of Russia, was basking in the illusion of great power status which came from presiding over the G8 summit in St Petersburg.

Russia is using its energy bonanza to underpin a more assertive foreign policy aimed in part at extending its influence among its neighbours. As one EU ambassador to Kiev remarked privately, establishing Russian hegemony over Ukraine would be "the jewel in the crown" of this strategy. When Russia cut off vital supplies of gas to its Ukrainian neighbour in January it not only triggered European concerns about energy security. It also served to remind Ukrainians of the two countries' historic interdependence.

A nation of 50 million overwhelmingly poverty-stricken people, with a gross domestic product of around $100 billion, Ukraine is today a classic buffer state, albeit an extremely large one. Russia wants to make sure it does not join either NATO, as the US and influential Europeans such as Kwasniewski want, or the EU. The EU sees Ukraine's considerable geo-strategic significance. But, gripped now by what Pierre Lellouche, chairman of the NATO Parliamentary Assembly, calls "enlargement fatigue", the EU cannot bring itself to send the unambiguous signal about eventual membership which would help to resolve Ukraine's identity crisis and underpin political and economic reform.

The Ukrainian-speaking west of the nation, and its political elites, see Ukraine as European. The Russian-speaking east leans to its giant Muscovite neighbour. Charles Grant, director of the Centre for European Reform, even wonders whether splitting the country into two in the manner of Czechoslovakia might be an option.

"My fear," says one senior European official, "is that Ukraine may have missed its opportunity to lean decisively towards the EU when, a couple of years ago, oil prices were low and Russia was weak." At the Yalta conference, the pro-European lobby group, Yalta European Strategy (YES), issued a road-map for Ukraine's eventual EU membership. It selected (optimistically) a distant 2020 as the target date for EU membership.

In the past two years, global (and Russian) economic growth has underpinned Ukraine's industrial expansion. Igor Burakovsky, director of its Institute for Economic Studies, thinks Ukraine's gross domestic product could continue to expand at 5% a year in the medium term. But, if it is to get anywhere near this minimal figure in the longer term, root and branch reforms are needed.

Anders Aslund of Sweden's Institute for International Economy points out that Ukraine is one of the least energy-efficient nations in the world.

Dependent on still cheap and subsidised Russian gas, whose price is expected to rise sharply in the next few years, in an economy too biased towards heavy, especially metallurgical, industries such as steel production, it uses, he says, four times as much energy per unit of output as Italy and twice as much as the US.

Aslund ticks off a long list of structural reforms needed if Ukraine's economy is to become globally competitive. They include the creation of an efficient government administration, a reliable judiciary free of corruption, tax reform, reforms to bloated social welfare systems and also to its medical and educational systems.

Above all, the Yalta conference heard that what was required was a stable democratic government with the vision and determination to make the most of the links to the west, which alone can provide the markets, foreign direct investment and technology transfers without which its economy will stagnate. At the same time, its government must have the political skill to avoid alienating either the Kremlin, or its own Russian-speaking, population.

Transforming Ukraine will be an Herculean task, without the carrot of assured EU membership which was so vital for the reform processes in the formerly communist countries of eastern Europe. So, Grant says, the EU must find innovative ways to help.

Germany is known to be examining whether to make a re-orientation of the Union's ineffectual neighbourhood policy a top priority of its presidency of the EU next year, partly to provide greater support for Ukraine. The European Commission is examining the prospects for a free trade agreement which is likely to be discussed at the EU-Ukraine summit in late October. Implementation would have to await Ukraine's membership of the World Trade Organization (WTO). Russia is perceived to be holding this step hostage to its own entry into the WTO, and that was put on hold again at this month's G8 summit.

The US is seen to be among those countries which are pressing for Ukraine to ask for membership of NATO. But such a step would be hugely divisive within Ukraine and would infuriate Russia, something EU members such as Germany certainly do not want to risk.

With the Middle East in flames, Russia flexing its muscles, Turkey's EU membership talks in trouble and Ukraine enduring a protracted political crisis, the EU's foreign policy challenges on its eastern flank have rarely looked so daunting or needed so much internal co-ordination.

• Stewart Fleming is a freelance journalist based in Brussels.

Alexander Kwasniewski played a critical role in the success in 2004 of Ukraine's Orange Revolution. Kwasniewski, who at that time was president of Poland, had some harsh words this month for his Ukrainian friends.