Will Ukraine be the next Greece or Spain? Austerity May Come Without US Diplomacy

Ukraine East and West

When you watch the toppling of statues of Lenin by the opposition movement in Ukraine, they are making a clear statement. According to the Daily Mail, “Around 100 of the so-called ‘reclining Lenins’ have reportedly been destroyed according to an interactive map released by Euromaidan, the opposition movement organisers.” A statue is easy to topple but a relationship is hard to change when it is mutually beneficial.

According to the CIA World Factbook, 25.6% of all Ukrainian exports are to Russia with 32.4% of its imports being from Russia. In addition the majority of the debt of the country is held by Russia including $3 billion recently provided of the $15 Billion promised in aide last year.

“Interim Ukrainian finance minister Yuriy Kolobov has warned that the “planned volume of macroeconomic assistance for Ukraine may reach around $35 billion (25 billion euros)” by the end of next year,” according to an article by AFP.

With that much debt expected and the potential for reduced exports and higher prices oil and gas, if Russia employs these tactics, the country could be in a very severe financial situation that may force extreme reforms which may be “suggested” by the International Monetary Fund such as those that have been imposed on Spain or Greece, which spurred austerity measures focused on the average citizen, not the billionaires.

The current leadership in the Ukraine seems to be waiting for a western bailout. Acting President Oleksandr Turchynov said the new government should be formed quickly so that the country can secure as much as $35 billion in financial aid.

What guarantees lie ahead for investors are unclear because of the precarious situation with Russia and also potential issues with the Euro itself.

Greg Palast, author of Billionaires and Bandits, said in 2012, “The Euro was the ultimate in supply side economics, designed to perform exactly as it has done in an economic crisis – strip away traditional economic tools of recovery and push states into “internal devaluation”, privatisation and attacks on labour rights. It’s performing perfectly.”

This makes you wonder if that is what the revolutionaries want for their economy? Or are they just not aware, yet.

Is there a solution that no one is discussing?

Back in November 2013, Trilateral talks were briefly mentioned between the European Union, Ukraine and Russia.

“Ukraine had hoped to act as a “bridge” between Russia and the EU, President Viktor Yanukovych said many times publicly,” according to ETN in an article on November 21, 2013. “Russia made it clear there will be no ‘bridge’ if Ukraine stepped west; they would have to give up their ‘exclusive relationship’ with Russia.”

Perhaps now in the chaos, there may be more opportunity for negotiation because even though the country did go west, it is early yet, and Russia had planned in investing an additional $12 billion on the Ukraine.

The leadership and the IMF may not realize how dependent Ukraine is on the East, but in a few months Russia may tell the Ukrainian people, who are not afraid to protest, “I told you so.” At that point there will be little hope in negotiating, because the Ukrainian people will not respond well to Western austerity.

The IMF has a lot to gain if and when it invests in Ukraine, but they will gain much less without Russian involvement because if exports go down and import prices go up from the country’s largest trading partner, the entire financial market may change very rapidly and become extremely unstable. They may even loose more than they gain, both because of volatility and instability. This does not seem to be clear to the international community. Russia has a lot invested in Ukraine and wants to continue to benefit from Ukrainian imports and exports, as well as see their financial investments repaid.

American interests should be to build the diplomatic bridge with all parties, and even perhaps support a power sharing agreement that involves both Western and Eastern Ukraine. This may give respite to an economically weary world that is still recovering from the economic crash in 2008. All parties including Russia are in this position.

Perhaps this would also restore American ideal of the diplomat, negotiator and peace maker, not just a corporately motivated special interest lobbyist.

What is amazing is that there is so much talk of sovereignty of the Ukrainian people but those same protestors may face unemployment, increased taxation and austerity measures if their leaders do not pay attention to all sides at the table.

With our current financial situation, one where more aide to Ukraine takes away from a US budget that just reduced food stamps, perhaps American interests will finally change to focus on inclusive diplomacy, and this will help secure everyone’s interests because we know where at least some aide will come from, our American tax dollars.

Or maybe, they should build new statues using the Euro as an umbrella, that way when austerity comes at least a few people will keep dry.

Further reading on the Financial Implications of the situation can be found in the following articles, sited in this one.

AFP: Russia ‘not obliged’ to disburse Ukraine funds: minister

Ukraine Bonds Re-Collapse As Russia Warns Of “High Chance Of Default” | Zero Hedge

Financial crisis threatens Russia as Ukraine spins out of control – Telegraph Franklin Templeton’s Ukraine bond bet in the red – Ukraine says no to the EU and yes to Russia –

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