KIEV - Ukraine is being pulled in two directions -- on the one hand, towards Russia and its so-called Customs Unions, on the other towards the European Union. Time is running out for Kiev to decide which path to take.

According to Christopher Weil, the German ambassador in Ukraine, freeing Yulia Tymoshenko would be extremely welcome to EU members, and would likely be a major step towards an agreement between Brussels and Kiev -- a precursor to Ukraine’s integration into the European Union.

Weil said that if Tymoshenko is released, an agreement could be signed as soon as November, during a planned summit of the “Eastern Partnership,” an organization of former Soviet-block countries that are potential candidates for EU members.

This would only be the first step in a long process towards membership in the European Union. It’s not clear how many years, or decades, eventual membership might take for Ukraine. Right now, Europe is only offering initial observer status, rather than full participation in the elite club, and with uncertainty about the longterm conditions of joining. On the other hand, if Ukraine were to sign on to Russia's trade pact, it would immediately have the same rights and standing as all of the other members.

It might seem natural to opt for the latter, but there are good arguments in favor of Europe, starting with the fact that the total market of the EU is nearly ten times as large as that of the Customs Union, which is made up of Russia, Belarus and Kazakhstan. Still, there is no existing market for Ukrainian goods in the European market, and the country’s large agricultural sector would likely come under strict control, while there are still economic connections that date back to Soviet times between Russia, Ukraine and Belarus. Finally, Russia has made it very clear that entering its Customs Union is absolutely necessary if Ukraine wants lower gas prices.

While all this is going on, the country’s economic situation grows desperate. Although politicians strike an optimistic tone in public, in conversations with Kommersant, local and national leaders all admitted the dire situation.

“There is no money in the country. Pretty soon the government won’t have the resources to pay salaries or pensions," said political scientist Konstantin Matvienko. "Neither the IMF or Russia is in a rush to provide a line of credit. The European Union also has its own problems to worry about. The situation is looking like a dead end.”

Dictating conditions

Viktor Yanukovich continues to negotiate between Moscow and Brussels, looking for the best conditions. But the problem is that nobody is that excited to be negotiating with Kiev. Both Russia and the EU are just dictating their conditions -- the Kremlin wants Ukraine to enter the Customs Union, the EU wants political liberalization and freedom for Yulia Tymoshenko.

According to experts, mercy for his most important political competitor is not part of Yanukovich’s plans. Instead, he is already looking ahead to the next national elections, which aren't until 2015. “In a situation where the standard of living is falling and discontent is rising, the only way to win the election is to shatter the opposition, weaken it, and bring the most odious of the opposition representatives to the second round of voting, so that next to him or her Yanukovich will seem like the lesser evil,” says Ukrainian political scientist Dmitrii Ponamarchuk.

Of all the opposition figures, the most “odious” is obviously Oleg Tyagnyibok, the head of the ultra-nationalist movement called "Freedom", which got more than 10 percent of the vote in the parliamentary elections last October. With his extreme anti-Russian sentiments, Tyagnyibok undoubtedly will repel most of the electorate in the Russian-speaking southeast, as well as a large part of the Ukrainian-speaking center.

Freeing Tymoshenko, as the EU insists, could spoil everything. The "Princess" of Ukraine’s 2004 Orange Revolution is still the most important symbol of opposition to Yankovich and his partners. If allowed to run, she has a decent chance of coming out ahead of Tyagnyibok, making it to the second round and winning over Yanukovich. That is why Ukrainian President is unlikely to play by the rules Berlin and Brussels are dictating. Alternative solutions include Yanukovich agreeing to let Tymoshenko off, but delaying her release until after the elections are over.

Either way, we can be sure that Europe will be watching -- and Russia too.