EU promises loans to Ukraine for Greek-style austerity

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Faced with the country's enormous economic problems, several European foreign affairs ministers are promising to help Ukraine obtain a loan from the International Monetary Fund.

The European Union has tried to support the demonstrators demanding change in Ukraine. But will it keep its promises in the months to come? The question is urgent.

On Nov. 21, when President Viktor Yanukovich turned his back on the European Union in order to join the Russian customs union, it was no great secret that his choice was driven by the catastrophic condition of his country's finances. On Dec. 17, Russia offered a lifeline: a loan of $15 billion and a reduction in gas prices. Three billion dollars were disbursed at the end of December. A further $2 billion should have been given out in January, but Moscow preferred to await a return to calm.

In this area, what does Brussels propose? Nothing, unless you count 610 million euros planned since at least 2012, conditional on Kiev's signing an association agreement with the EU. For the emergency, Europeans seem to have in store the same fate as Greece for the Ukrainians, summoning the IMF.

On Saturday, British Foreign Secretary William Hague revealed an agreement with his German counterpart Frank-Walter Steinmeister to "press for vital financial assistance from the IMF."

On Feb. 21, Standard & Poor's downgraded Ukraine's credit rating to triple C, a score close to default. Kiev must repay $13 billion in 2014. Without Russian help, this is an impossible task. Short-term bonds are being traded at a prohibitive rate of 34.5 percent, compared with 5 percent five months ago. And that is without taking into account the currency, the hryvnia, which has lost 10 per cent of its value. Ukraine's currency reserves will last only two months, according to Thomas Baumann of the German Association of Chambers of Commerce. If the IMF offers Ukraine a loan, it will be at the price of neoliberal structural reforms (austerity).

In the long term, EU countries hope to take advantage of Ukraine's current weak situation in order to impose the EU association agreement that Yanukovich refused to sign in November.

"I believe that, yes, they're going to sign this agreement," the EU's Trade Commissioner, Karel De Gucht, said happily yesterday - while Lithuania sought "a signature without delay."

However, this agreement could well accelerate Ukraine's disintegration. It is essentially a free-trade treaty, which pushes Kiev to take on large amounts of EU law. Once Ukraine has adopted European directives, 99 percent of customs tariffs will fall away. This model had a catastrophic effect for countries such as Tunisia before the Arab Spring.

In order to survive, Ukrainian industry would have to become just as competitive as that of the EU. This is far from being the case. The country's industry is situated for the most part in the Russian-speaking east of the country and is oriented towards Moscow. Since 2004, exports to Russia have leapt by 58 percent, notes the economist Jacques Sapri on his blog. Ukraine needs to orient itself equally westwards and eastwards in order to develop its economy - a fact that European leaders should not forget, or else they risk playing with fire.

This article was reposted from L'Humanité and translated by Richard Pond.

Photo: L'Humanité

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  • Ukrainian problems are far more complicated and evolving hour by hour than this article indicates. The origin is the interferring by EU and US. Note neocon fascist Nulan talk with US embassador and what she was doing in Kiev and Germans also sent their politicians into Kiev. Normal governments will not tolerate, but Yanukovich tolerated, embolding the West, leading to his fall. Probably he, being a very corrupt president, wanted to balance the West and Russia, and to make his corrupt money safe in Swiss banks. Then the EU tries to impose the association pact, which contains 2 parts, one economic, and another military. If Ukraine signed this pact, Nato would come right to the border with Russia, which Russian can not tolerate and this greatly increase a possibility of WWIII, as discussed by Prof. emeritis of NY University, Prof. Cohen, Soviet and Russian specialist. By the way, it was reveled in the telephone conversation between Ashton, foreign affairs chief of the EU and FM of Estonia,Paet, that the snipers shooting in Kiev which killed about 80 people, both police and demostrators,were not used by Yanukovich. But there are some evidences that the snipers were employed by some members of the current "Kiev government", illegal as it was not formed under the Ukrainian constitution. Soon Crimia may become a Russian territory (which was Russia until Krusichov gave it to Ukraine in 1954 as Krusichov is an Ukrainian), as there will be referendom voting to approve this move on 3/16. The southern and eastern Ukraine are mostly pro-Russian. And they may become autonomous regions or even Russian territory. The eastern and southern Ukraine is most developed, having many important industries, while the western Ukraine is underdeveloped and mainly agriculture but the EU does not allow its wheat to be exported to EU countries, especially to France, where farmers are committing suicides, one every 2 days or something like that. Also Ukraine is 100% bankrupt, and the EU is also bankrupt. Euro and the EU will disappear probably in several years, at least in the curret form. The financial aids the EU talking are joke:first Ukraine has to get IMF loans which impose austerities which Greek, Spain, etc. are currently enjoying? Then the EU has to come up with the money from empty "coffin". The offer of US is just a loan gurantee, not loan.
    One thing good under the current situation is the presence of Putin who has strong will, intelligence and ability, and can handle the current situation to prevent WWIII.

    Posted by yasuyuki, 03/07/2014 6:50am (7 months ago)

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