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Russia Makes New Attempt to Woo Ukraine

Russia's President Vladimir Putin speaks during his annual state of the nation address at the Kremlin in Moscow, Dec. 12, 2013.
Russian President Vladimir Putin made a new attempt to woo Ukraine on Thursday after the European Union and United States stepped up efforts to pull Kyiv out of its former Soviet master's orbit.

A day after European and U.S. officials held talks with Ukrainian President Viktor Yanukovych in Kiev, Putin used a state of the nation address to tout the economic benefits of joining a customs union that he wants Ukraine to be part of.

Yanukovych - who is seeking the best possible deal for his country of 46 million as it tries to stave off bankruptcy - provoked street protests in Kiev by spurning the chance to sign a free-trade pact with the EU last month and saying he wanted to revive ties with Russia instead.

But he has hedged his bets by making no commitment to join the Moscow-led customs union and holding out the possibility that Kiev could still sign an association agreement that would deepen cooperation with the EU.

"Our integration project is based on equal rights and real economic interests,'' Putin said of the customs union with Belarus and Kazakhstan, which he wants to turn into a political and trading bloc to match the United States and China.

"I'm sure achieving Eurasian integration will only increase interest (in it) from our other neighbors, including from our Ukrainian partners.''

Putin's ambition to create a Eurasian Union stretching from the Pacific to the EU's eastern borders depends largely on whether Ukraine signs up, bringing in its rich mineral resources and its large market, a bridge to the 28-nation bloc.

With thousands of people on the streets of Kiev demanding Yanukovych's resignation, the diplomatic battle over Ukraine's fate is heating up.

Yanukovych stands firm

EU foreign policy chief Catherine Ashton and U.S. Assistant Secretary of State Victoria Nuland came away with no obvious sign of a breakthrough after Wednesday's talks with Yanukovych.

Ukrainian President Viktor Yanukovych, left, greets EU foreign policy chief Catherine Ashton in Kiev, Ukraine, Tuesday, Dec. 10, 2013.
Ukrainian President Viktor Yanukovych, left, greets EU foreign policy chief Catherine Ashton in Kiev, Ukraine, Tuesday, Dec. 10, 2013.
"Yanukovych made it clear to me he intends to sign the association agreement,'' Ashton told reporters in Brussels.

But making clear that Yanukovych was holding out for money to help repay Ukraine's debts, she said: "What he talked about were the short-term economic issues that the country faces.''

Another EU official said there had been no change in Yanukovych's position. If anything, he said, the president's stance had toughened.

Nuland's visit was followed by a tough statement from Washington condemning the Ukrainian authorities over action by riot police who moved against a protest camp in the heart of Kyiv but later withdrew without ousting them.

"All policy options, including sanctions, are on the table, in our view, obviously that still is being evaluated,'' State Department spokeswoman Jen Psaki told reporters.

She declined to specify what kinds of sanctions may be under consideration. But U.S. lawmakers are considering legislation to deny visas to Ukrainian officials or freeze their U.S. assets if violence against the demonstrators worsens.

European leaders say the trade pact with Ukraine would have brought investment. But the country's Soviet-era industry relies on Russian natural gas, giving Moscow enormous leverage.

Moscow has condemned what it sees as fierce foreign pressure on Ukraine, and the EU has accused Russia of using economic blackmail against Kyiv. Russian media have raised the specter of civil war in Ukraine to wave the flag for Putin.

Russia is widely thought to have been trying to attract Ukraine with the promise of cheap credits, reduced prices for natural gas and the promise of trade benefits. The alternative would be crippling trade sanctions and energy prices.

Asked what Ukraine was seeking at talks, one Russian official said bluntly: "Money!''

Without international aid, investors fear Ukraine will struggle to repay $7 billion of hard currency debt falling due next year, while it is also dealing with a large balance of payments deficit and unpaid gas bills from Russia.

The most Brussels has so far offered Ukraine is 610 million euros but EU officials are in discussion with the International Monetary Fund, the World Bank and other major financial institutions on ways to help Ukraine.