Ukraine Economic Collapse Imminent. EU Offers Much-Touted "Values"

It's having an effect on other countries in the region. They see that when the going gets tough all EU has is moral support, but won't extend real aid

MORE: Ukraine
EU deal wouldn’t work because there was simply too little money on the table.

This is an excerpt from an article that originally appeared at Business New Europe

The manifest reluctance of the West to come up with cash for Ukraine is starting to have wider effects.

Business New Europe said on the eve of the EU summit in Vilnius in November 2013 – where former Ukrainian president Viktor Yanukovych refused to sign off on a long-negotiated free trade and association agreement, which kicked off this whole fight – that the EU deal wouldn’t work because there was simply too little money on the table.

The much-touted "values" that come with the EU deal have done nothing to support the hryvna, and other countries in the region are watching the "slow-motion car crash" in Ukraine with trepidation.

The upshot for the pragmatic strongmen of the Commonwealth of Independent States (CIS) is that the EU is undermining its moral authority, as its rhetoric about "values" is not backed by cash when it's needed to stop a looming economic meltdown.

Set this against the Russians, who immediately granted Ukraine a $15bn aid package – paid out over one year, not two – when Yanukovych sided with their Eurasian Economic Union, immediately loaning Ukraine in a $3bn bond issue in December 2013 with no reform strings attached (although a very nasty 60% of GDP cap on debt "poison pill" was included in the covenant). 


The upshot is that several countries, under increasing pressure to choose sides in the conflict, are plumping to side with Russia's EEU. Kyrgyzstan's prime minister was explicit in a speech at the European Bank for Reconstruction and Development (EBRD)'s annual general meeting in Poland this year that his country has "no choice" but to join the EEU.

While Kyrgyzstan, as arguably the only real democracy in Central Asia, aspires to European values, it is simply "too far away from Europe" to expect any help from it, whereas Russia has already proven that its trade deal comes with tangible benefits and cash.

Russian President Vladimir Putin was in Uzbekistan on December 12 making the same point: Russia cancelled nearly $1bn of Uzbek debt and also signed off on deals to train six-times more Uzbek military offers and supply advanced attack helicopters and other high-tech Russian hardware.


Azerbaijan too, while it remains extremely keen on maintaining its neutrality, has been watching events to the north and is beginning to move closer to Russia, according to Aleksandra Jarosiewicz, an analyst with the Centre for Eastern Studies (OSW) in Poland.

"Baku has been motivated to assume a Kremlin-like vision of the world by the rapprochement of its traditional ally Ankara to Moscow, as well as the Russian announcement of the construction of a pipeline through Turkish territory, which might strike a blow at Azerbaijani plans to extend the infrastructure to the EU," Jarosiewicz wrote in a recent paper.

"Tangible results of Azerbaijan’s movement towards Russia over the last few months is the development of bilateral cooperation."


And Turkey too is flirting with Russia, one of its biggest trade partners and the destination for much of its foreign investment. Putin was also in Turkey in early December and announced that the Kremlin would cancel the South Stream pipeline that was to deliver gas to southern Europe, and instead build a gas pipeline to Turkey, from where the gas could be re-exported to Europe.

The Turkish government has only said it is considering this proposal, as it’s wary of giving the Russians too powerful a lever over its energy security. But after two decades of waiting outside the EU club room for its membership card, Turkey must be getting a bit jaded with European promises as well.

In the long run, European values are worth pursuing because they will delivery more prosperity and a more balanced and just society.

However, in the short run Europe's inability to act decisively to halt Ukraine’s slide to the brink of the precipice is undermining Europe's creditability in Central and Eastern Europe as a potential partner and political ally against an increasingly aggressive Russia.

MORE: Ukraine