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Ukraine, Russia sign economic deal despite protests

By Laura Smith-Spark. Marie-Louise Gumuchian and Diana Magnay, CNN
January 23, 2014 -- Updated 1643 GMT (0043 HKT)
Newlyweds Mikhail and Margarita Nakonechniy kiss in front of barricades on Independence Square in a gesture of support for pro-Europe activists in Kiev, Ukraine, on Saturday, December 21. Protesters have poured into the streets of the Ukrainian capital, angered by their government's move away from the European Union in favor of closer ties with Russia. Newlyweds Mikhail and Margarita Nakonechniy kiss in front of barricades on Independence Square in a gesture of support for pro-Europe activists in Kiev, Ukraine, on Saturday, December 21. Protesters have poured into the streets of the Ukrainian capital, angered by their government's move away from the European Union in favor of closer ties with Russia.
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STORY HIGHLIGHTS
  • NEW: Putin says Russia to buy Ukrainian debt, cut price its neighbor pays for its gas
  • Viktor Yanukovych says Ukraine and Russia will deepen their strategic cooperation
  • Yanukovych and Putin meet as protesters rally in Ukraine against closer ties with Russia
  • Yanukovych angered many in Ukraine by backpedaling on signing an EU trade deal

Kiev, Ukraine (CNN) -- Russia will buy Ukrainian debt and slash the price Kiev pays for its gas, President Vladimir Putin says, throwing an economic lifeline to its neighbor, rattled by protests calling for closer economic ties with Europe instead.

Amid a backdrop of continuous demonstrations in Kiev, Ukrainian President Viktor Yanukovych met Putin in Moscow on Tuesday, where the deal was announced.

There, he said they agreed on a joint economic plan of action, covering areas such as industry, agriculture, defense, construction and transport.

"We need to continue our joint work of our governments, our working groups," Yanukovych said in a televised news conference.

Under the deal, Putin said Moscow would buy $15 billion in Ukrainian debt by investing in its national welfare fund.

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The cost of Russian gas supplied to Ukraine was cut from more than $400 per 1,000 cubic meters to $268.50.

The deal may inflame the tens of thousands of protesters, who have poured into the streets of the Ukrainian capital for weeks, angry at Yanukovych for spurning a trade deal with the European Union last month and turning to Moscow for help.

"He (Yanukovych) did not communicate with us, so how can he sign documents on our behalf?" one protester occupying the central Independence Square, or Maidan, told CNN before the deal was announced.

Despite the sub-zero temperatures, the demonstrators opposed to closer ties with Russia have stood their ground, setting up tents and barricades, paralyzing the city center.

They were out in the tens of thousands Sunday -- the fourth weekend in a row -- urging their leaders to mend ties with Europe.

Boosting trade

The agreements are intended to reverse a decline in trade between the two nations over the past two years, the leaders said, adding that the planned cooperation would be "mutually beneficial" to both economies.

Yanukovych said the focus was on "economic areas, which is basis of our working together in a bilateral way."

"We are ready to look at the possibility of rapprochement in economic and political spheres," Putin said.

Ahead of Tuesday's talks, Prime Minister Mykola Azarov rejected claims that Ukraine was leaning toward joining Russia and two other former Soviet republics, Belarus and Kazakhstan, in a Customs Union.

"These are speculations. None of the papers we have prepared are in any way related to the Customs Union," he said.

Ukraine, Russia to sign trade road map, Prime Minister Mykola Azarov says

Economic issues

EU foreign ministers held talks with Russian Foreign Minister Sergey Lavrov on Monday in Brussels, Belgium.

EU foreign policy chief Catherine Ashton said Moscow should not fear "a detrimental effect on Russia" as a result of Ukraine's signature of the EU deal.

"I don't believe that the crisis in Ukraine should have a negative impact on our relations with Russia. It does mean, though, that we have to look very seriously about the way in which countries make their decision and are entitled to make their decision," she said.

Ahead of the talks, Ashton told reporters she believed the bloc could work with Yanukovych on Kiev's concerns, voiced since the Eastern European country backpedaled on signing the Association Agreement.

"We are very concerned when we look at some of the things that are being said, and my purpose in talking to President Yanukovych was to discover what these short-term economic issues are that have prevented him from signing," Ashton said.

"I feel that we can work with him to resolve those. Some of them can be done through the support of the European Union, others through financial institutions, some of them through the private sector. All of them are possible."

Stefan Fule, European commissioner for enlargement and European neighborhood policy, said a day earlier on Twitter that efforts were being halted amid growing doubts that any deal could be done with Kiev.

Ukraine, a key transit region for Russian gas going to Western Europe, has desperately needed a cash injection.

Azarov last week told a government meeting that Ukraine was still open to signing the European integration deal, if the European Union would agree to provide financial assistance to Ukraine of around 20 billion euros ($27.5 billion).

Future ties

Some in Europe have accused Moscow of using strong-arm tactics to try to influence Ukraine's course, but Russia denies that charge.

The tumult in Ukraine goes to the heart of its future ties with Russia and the rest of Europe.

Ukraine is split between pro-European regions in the west and a more Russia-oriented east.

The protests have unfolded since November 21, when Yanukovych changed his stance on the EU trade pact, which had been years in the making.

The demonstrators say an EU agreement would open borders to trade and set the stage for modernization and inclusion.

CNN's Diana Magnay reported from Kiev, while Marie-Louise Gumuchian and Laura Smith-Spark wrote and reported in London. CNN's Polina Marinova contributed to this report.

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