Who’s Going to Foot the Bill for Ukraine?
Photo by Kyrylo Kalugin. Originally published on Flickr under CC BY-NC-ND 2.0
By Editors August 17, 04:58
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The standoff with Russia over Ukraine is, on the one hand, generally acknowledged to be “the most serious security crisis in a generation.” Military tensions between NATO and Russia are now sharper than they’ve been since before Gorbachev came to power, and arguably even before that. Barely a day goes by without some Western diplomat or politician intoning solemnly about the need to “stand up to Russian aggression” or “support Western values.” I hope this doesn’t come across as glib, because the reality is that, largely due to Ukraine, Russia and the West are further apart than they have been in my entire lifetime. That is a big deal.

Indeed the need to thwart Moscow’s meddling in Eastern Ukraine is one of those rare issues on which there is no partisan disagreement. The Labour party’s statements could easily be confused for the Tory party’s, just as Republicans and Democrats are reading from identical scripts. Even Germany and France have consolidated around a consensus position that, a year or two ago, would have seemed radically hawkish. Anti-Russia economic sanctions have gone further for longer than I would have ever thought possible, and the odds of them getting even tighter are much greater than the odds of their being loosened.  

Truth be told Russia has never been a topic of particularly deep partisan discord in the West. But while there has tended to be agreement on the big picture issues (NATO expansion, missile defense, democracy promotion) there used to be a caucus in favor of limited engagement with Moscow. This group was alternately called “Doves,” “realists,” or, in a rather less flattering term, “Russia understanders,” but ever since the annexation of Crimea they have virtually disappeared from the halls of power. To suggest engagement with the Kremlin now is somewhat akin to suggesting accommodation with ISIS. Russia is now politically toxic in a way few other countries are. 

But while the West has been in virtual unanimity in its rhetoric about Ukraine and its searing condemnations of Russia, its actions have been… well, rather less impressive. 

Ukraine, in case anyone has somehow forgotten, is in the midst of a harrowing economic collapse. Driven by a combination of a weakened currency (down more than 60% against the dollar) and a shrinking economy (down more than 20% since Maidan) Kiev’s sovereign debt has exploded from a respectable 40% of total output in 2013 to a harrowing 95% of total output in 2015 (debt is forecast to start decreasing by 2016, but I’ll believe that when I see it). Inflation can be difficult to track in what amounts to a wartime environment, but it’s currently somewhere around 50% and heading higher. The impact on popular living standards is almost beyond comprehension. It’s a total disaster. 

And yet, to confront this disaster, the EU has done almost nothing. It has dispensed roughly 200 million Euros in aid to internally displaced people. It recently issued a 600 million Euro bond, apparently the first installment from a new 1.8 billion euro loans package. The total amount of aid offered to Ukraine is a bit harder to peg, it is a moving target after all, but let’s give a very generous estimate and suggest roughly $5 billion. For an entity with a population of more than 500 million and a more than $16 trillion economy, five billion dollars isn’t even a rounding error. It’s a rounding error of a rounding error. 

What’s particularly enlightening, though, is to compare the paltry sums of official assistance with the much larger sums that are being demanded from Ukraine’s private bondholders. Recall that more than a third of Ukraine’s highly-touted “$40 billion bailout” from the IMF (which was developed in close consultation with officials from the EU) was supposed to come from debt relief, or from Ukraine’s bondholders to agree that it owed them less money than was previously the case. 

Stripped of all of the airy rhetoric and dissembling, then, the European Union is essentially demanding that other people put up about three dollars for every dollar that it commits to subsidizing Kiev’s “European choice.” If there is a clearer example of just how little Europe cares about Ukraine I’m not sure I’ve seen it. 

Please note that this is not in any way an endorsement of Europe’s Ukraine policy, which has been a mess from the very beginning. It is simply a factual observation that, based on the amount of money it is willing to commit and its constant attempts to pawn off costs on anyone and everyone else, Europe cares little about Ukraine’s future. 

Whether Europe should be invested in Ukraine’s future is a very different question, but on all sides of the crisis (European, Ukrainian, and Russian alike) there has been an assumption that Europe is, that the West is “meddling” in Ukraine with the full financial arsenal at its disposal. This simply is not true. Despite a seeming flurry of activity, Europe has actually been remarkably passive when it comes to assisting Ukraine. 

Given the way things have worked out so far it doesn’t seem radical to suggest that the EU’s policy of “speak loudly but ask someone else to pay for a small stick” isn’t working and needs to be modified. 

Editors August 17, 04:58
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