Can Kiev make face to mounting economic problems and social unrest?

Federica Mogherini, High Representative of the Union for Foreign Affairs and Security Policy and Vice-President of the EC, went to Kiev where she met with Petro Poroshenko, President of Ukraine. (On the left side) Petro Poroshenko, in the centre, and Pavlo Klimkin, Ukrainian Minister for Foreign Affairs, on the left. (On the right side) Federica Mogherini, in the centre, and Jan Tombiński, Head of the Delegation of the EU to Ukraine, on the left. (EC Audio-visual Services, 16/12/2014).

The time of truth for the European Union’s strategy on the Ukrainian question finally came. Brussels is about to let the poor country not only be dismembered, but what will be left of it will be pushed into an economic and political inferno. As it happens, Commission President Jean-Claude Juncker essentially ‘ordered’ Kiev to “bring peace to Donetsk and Lugansk”, knowing that the only way the Ukrainian government can achieve this, is to accept the separatists’ demands for autonomy.

Then, Juncker asked the new administration to correct the country’s deeply rooted macroeconomic and structural problems, recognising at the same time that despite the fact, “Ukraine will need USD 15 billion in addition to what is already planned. The EU can only help within its budget”. This plainly means that the EU simply cannot afford that kind of money, while the US has made clear that it’s Europe’s responsibility to economically support Ukraine. Let’s take a closer look.

Ukraine out in the cold

As a result Ukraine will be left out in the cold. Without all those billions, Kiev cannot subsidise the household and business natural gas bills, because Russia stopped to subsidise them herself. Moscow now sells its fuel to the ex-protégé more expensively at costs close to market prices but still Kiev cannot afford it without the West’s help. The interim solution agreed for this winter has cost dearly to the EU and cannot serve as a long-term arrangement. Juncker clarified that also. Add to that the lack of the needed financing to avoid mass layoffs and disintegration in the government sector, Ukraine’s social structures and state services would be soon dismantled.

There is no need to go through the EU-Ukraine relations history. It’s very well-known to be repeated. Brussels and the other major EU capitals supported, if not stirred up, the pro-western insurrection of various groups that ended up in the Kiev Maidan revolution. Now the country is definitively divided in the pro-western part under the Kiev government and the eastern region under the spell of Moscow.

Definitely estranged with Russia

The above mentioned Juncker quote is a direct recognition of this division. Of course the West doesn’t officially accept the annexation of Crimea by Russia nor does it consent to a full self-rule for Donetsk and Lugansk. If it did this would have amounted to a free gift to Vladimir Putin, the autocratic ruler of Kremlin. Understandably, the West saves this concession to be traded with Moscow.

The definite detachment of Kiev from Moscow leaves it out in the cold, at least energy and trade wise. Kiev is to lose billions from the hostilities with Russia, relating to the energy and trade sectors. If you add to that the costs to correct the structural distortions of an economy politically and fraudulently managed, the needs of Kiev amount to so many billions, that the West is unwilling and rather unable to provide. Instead, Brussels offers advice and a completely inadequate economic backing, compared to the immediate needs of Ukraine.

In need of billions and offered millions

On 3 December the EU disbursed €500 million. This was the second and final loan tranche of the EU’s €1 billion Macro-Financial Assistance (MFA II) programme for Ukraine, approved earlier in 2013. According to Juncker, prior to the 3 December disbursement, three transfers under this instrument were made earlier in 2013: “€100 million on 20 May, €500 million on 17 June and €260 million on 12 November. The final disbursement of €250 million is expected to be made by spring 2015, provided that Ukraine shows satisfactory progress with the accompanying reforms”. It’s as if the EU wants to buy Ukraine cheaply and by instalments.

There is no doubt that Kiev apart from its military difficulties in the east, it already encounters grave social problems in the heart of the country. The Brussels instructions to restructure the economy and reform the state machine to make the package more efficient and able to stand on its own feet, cannot be undertaken on the cheap nor can it be accomplished easily. Not without a deep incision on the Ukrainian society and major social unrest.

Then how is the Ukrainian government to encounter the multiple economic problems and the social turbulences that go along? Probably Kiev and Brussels have in mind to employ the services of the armed right-wing groups to suppress the social discontent which is already visible and surely bound to grow further. Of course, such an undemocratic prospect would not bother Moscow, for as long as Donetsk and Lugansk remain under her spell. This is probably the base of the recently restored warmer winter climate between Russia and the EU.