UPDATE 3-Ukraine’s Yanukovich vetoes EU push to save trade deal


* EU and Russia in tug of war over Ukraine and ex-Soviet
republics

* Ukraine turns to Moscow, citing dire economic straits

* Future of EU trade deal with Kyiv uncertain

By Justyna Pawlak and Adrian Croft

VILNIUS, Nov 29 (Reuters) – Ukrainian President Viktor
Yanukovich vetoed last-minute attempts by the European Union to
rescue a trade deal that could have been signed at a summit on
Friday and would have signalled a historic shift away from
Russia, EU diplomats said.

Under pressure from Moscow, Yanukovich abandoned plans last
week to sign the agreement, preferring closer ties with
Ukraine’s former Soviet master and dealing a blow to EU efforts
to build closer relations with its eastern neighbours.

As EU leaders gathered in Vilnius on Thursday for a summit
with six countries in eastern Europe and the southern Caucasus,
officials from the EU and Ukraine tried to work out a
last-minute compromise that could have allowed Yanukovich to
sign the trade deal in the near future.

EU diplomats told Reuters a preliminary understanding had
been reached, but Yanukovich had refused to sign off on it.

“I see this as a defeat for Ukraine,” said President Dalia
Grybauskaite of ex-Soviet Lithuania, host of the summit. “The
current choice of the Ukrainian leadership means putting limits
on the Ukrainian people’s chances of achieving a better life.”

German Chancellor Angela Merkel and French President
Francois Hollande both blamed Yanukovich for the failure of the
talks, but said the door remained open.

Donald Tusk, prime minister of Poland, one of Ukraine’s
neighbours, said that “history did not come to an end in
Vilnius”, and both sides would keep working on closer ties.

In comments reported on his website on Friday, Yanukovich
said Ukraine still intended to sign the agreement in the future,
but for now needed a financial aid package from the West to help
its fragile economy move closer to the EU.

He said this should include macroeconomic assistance,
re-establishing a working relationship with the International
Monetary Fund and the World Bank on “acceptable terms”, a review
of EU limitations on some Ukrainian exports, and help with
modernising Ukraine’s vast gas pipeline network.

“HUMILIATING” OFFER

He had detailed Ukraine’s economic woes to EU leaders on
Thursday, citing the high prices it has to pay for Russian gas.

Yanukovich had also called an earlier EU offer of 600
million euros ($800 million) in aid “humiliating”.

Merkel said the EU would re-export natural gas to Ukraine,
which is dependent on Russia for its energy supplies, if Ukraine
wanted it – although Europe’s current ability to do so for long
periods is limited.

European Commission President Jose Manuel Barroso said
Ukraine’s call for three-way talks on the trade pact between
Ukraine, the EU and Russia was unacceptable.

“The times of limited sovereignty are over in Europe,” he
told a news conference after the summit.

Yanukovich’s decision to walk away from the EU deal has
brought thousands of protesters onto the streets of Kyiv.

Silence fell over about 400 pro-Europe protesters in Kyiv’s
Independence Square when news was announced from Vilnius that
Ukraine had not signed the agreement. Demonstrators then began
chanting “Coward! Coward!” – a reference to Yanukovich.

“I have no words,” said Yuri Litonchenko, 29, wiping away
tears. “I wanted our country to get out from under the thumb of
the people running it.”

By the end of the day, the numbers in the square, theatre of
the Orange Revolution of 2004-5 that thwarted Yanukovich’s first
presidential bid, had swelled to nearly 10,000.

In a brief episode of violence late in the evening, at least
four people were beaten by police, including a Reuters cameraman
and a Reuters photographer, who was bloodied by blows to the
head.

The scuffle occurred as police tried to remove passersby
near Independence Square to clear a pro-EU demonstrator’s
vehicle from the road. Protesters instead crowded around the
vehicle.

Earlier, some 3,000-4,000 Yanukovich supporters, many bussed
in from his Russian-speaking strongholds in eastern Ukraine,
took to a square 150 metres (500 feet) away to hail his move as
a favour to Ukrainian producers.

Several Ukrainian opposition leaders, including former boxer
Vitaly Klitschko, told a news conference in Vilnius that they
would sign the agreement with the EU if elected.

ECONOMIC BOOST

EU leaders said a trade pact would boost Ukraine’s economy
by more than 6 percent and save Ukrainian business 500 million
euros a year in import duties.

Having failed to include Ukraine’s 46 million people in its
project to build influence in eastern Europe and the southern
Caucasus, the EU nevertheless initialled political association
agreements with two other former Soviet republics: Georgia and
Moldova. The pacts should be signed formally in around a year.

Ukraine, with its mineral riches, large land mass bordering
four EU member states and annual output of more than $300
billion, is an attractive trading partner to both Moscow and
Brussels.

However, it has heavy financing needs in the coming 18
months and must find more than $17 billion next year to meet gas
bills and debt repayments.

Russia, keen to maintain its grip over the former Soviet
republics that it considers part of its sphere of influence,
wants Kyiv to join the Russian-led trade bloc and had put heavy
pressure on Yanukovich not to sign the pact with the EU.

In Thursday’s lower-level talks, the EU offered technical
help to meet conditions for IMF assistance, and suggested that
new EU aid money could be put on the table.

Among its conditions for a deal, the EU had asked that
Ukraine tackle the issue of “selective justice”, an implicit
demand that it address the fate of jailed former prime minister
Yulia Tymoshenko, Yanukovich’s rival. She declared a hunger
strike on Monday over the failure to sign the agreement.