Russia, Belarus and Kazakhstan create economic union over which Ukraine crisis exploded

MOSCOW – The leaders of Russia, Belarus and Kazakhstan on Thursday created an economic union that intends to boost co-operation between the ex-Soviet neighbours, a pact which was at the source of the crisis in Ukraine.

Russian President Vladimir Putin said the Eurasian Economic Union — which Moscow had pushed Ukraine to join, helping spark the worst crisis in relations between Russia and the West since the Cold War — takes the countries’ co-operation to a “new level” while respecting their sovereignty.

“We are creating a powerful and attractive centre of economic development, a major regional market bringing together over 170 million people,” Putin said during talks in Kazakhstan’s capital, Astana. He added that the pact would allow the countries to exploit their economic potential and strengthen their positions in global markets.

With a combined annual economic output of $2.2 trillion a year, the alliance’s economic size would be close to that of Britain and well below that of the U.S.’s $17 trillion.

The union is the development of the existing Customs Union including the same nations. In addition to free trade, it co-ordinates the members’ financial systems and regulates industrial and agricultural policies along with their labour markets and transport systems. The deal stops short of introducing a single currency and delays the creation of a common energy market.

The signing followed years of tense negotiations, and many differences have remained.

Moscow will host the top executive body of the new alliance. Its high court will be based in Belarus, and the top financial regulator will be located in Kazakhstan.

Belarus’ authoritarian President Alexander Lukashenko, who has depended on cheap Russian energy and other subsidies to keep his nation’s Soviet-style economy afloat, said before the signing he wasn’t fully happy with the deal, but hailed it reflected a mutually acceptable compromise.

Kazakhstan, led by autocratic President Nursultan Nazarbayev, is the second largest country by territory and economy among the ex-Soviet nations. Nazarbayev has manoeuvred between Russia and the West during more than two decades in power. But Russia has little leverage over Kazakhstan, whose energy riches and booming economy make it an equal partner.

Nazarbayev said the new pact is based on consensus and well-balanced. He voiced hope that the new alliance “will become a powerful incentive for modernizing our economies and helping making them global leaders.”

Armenian President Serge Sarkisian said his nation will be ready to join the union as early as next month after completing final preparations. Kyrgyzstan said it hopes to join the Customs Union, the precursor to the new alliance, before the year’s end.

Russia tried to have Ukraine join the integration project and spike an association agreement with the European Union. But Ukraine’s pro-Russia president, who spurned the deal with the EU in favour of closer ties with Moscow, was chased from power in February following months of protests. Russia then annexed Ukraine’s Black Sea peninsula of Crimea, and a pro-Russia mutiny has engulfed eastern Ukraine, where rebels have seized government buildings and fought government troops.

The United States and the EU have responded to the Russian annexation of Crimea by slashing travel bans and asset freezes on members of Putin’s entourage, and threatened to introduce further sanctions if Russia further tries to destabilize Ukraine.

Petro Poroshenko, a billionaire candy magnate who won Ukraine’s presidential election on Sunday, vowed to integrate more closely into Europe. Ukraine’s foreign minister told journalists Thursday that the country hopes to meet with EU officials before June 27 to determine when Ukraine would be able to sign an association agreement with the 28-member bloc.

In Astana, Lukashenko, known for his blunt statements, said that “sooner or later the Ukrainian leadership will understand where the nation’s happiness lies.”

Moscow’s annexation of Crimea, which it explained by the need to protect ethnic Russians, has spooked many of its neighbours, including Kazakhstan, which has a significant Russian minority.

The Kremlin has sought to assuage such fears, and Lukashenko used Russia’s desire to sign the pact to bargain for some last-minute economic advantages. Russia has agreed to allow Belarus to keep a greater share of revenues from selling oil products made from Russian crude, a deal that would add $1.5 billion to Belarusian state coffers this year.