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West Doesn't Care That Ukraine Is Headed for a Default

Western politicians talk a great deal about supporting Kiev's “European choice”, but aren't willing to part with the money it would take to put it back on solid financial ground

This article originally appeared at Read Russia

Over the past year an almost limitless number of stirring speeches have been given in Washington and London which Russia’s conduct has been described in scathing, contemptuous terms. Meanwhile, in the pages of leading Western newspapers and magazines, leading intellectuals have favorably compared the Maidan uprising with some of the seminal moments in all of human history. When it comes to the spoken and written word, Ukraine has not only near-unanimous support among the Western elite but a particularly vociferous and forceful support.   

But, as really ought to be clear, all of this rhetoric is completely and utterly meaningless if it is unsupported by action. You judge people, nations, and politicians not on what they say but on their “revealed preferences.” Translated from the economics lingo, what that means is that if you want to understand what someone genuinely values, you need to look at what they do, not at what they say. Anyone can, at a moment’s notice, put out a press release of “I support Ukraine in its struggle against Russian aggression.” Almost everyone already has. Many fewer people will actually do anything to bring this support out of the realm of the hypothetical and into reality. 

Unfortunately for Ukrainians, who seemed as if they were genuinely taken in by the outpouring of professed support for their cause, the West has not been cashing the rhetorical checks it has written. While the West took reasonably firm action to punish Russia (I spent several of the past few days looking at the year-end statements of Russian banks and, based on the carnage I saw, I feel quite comfortable in stating that the “sectoral sanctions” were quite successful in their stated goal of mucking up the financial system) it has not taken any practical steps to bolster Ukraine’s increasingly precarious state finances.

Indeed, as of this very moment, Ukraine is careening towards a financial apocalypse that could scuttle its European choice before it can be launched. The “$40 billion bailout” that was thought to have solved Ukraine’s problems was (as I have written previously) to a very significant extent about Ukraine selectively defaulting on debt and, even more importantly, having its creditors go along with this. Without the creditors’ buy-in the IMF’s deal can’t work, or at least it can’t work in a way that improves, rather than worsens, Ukraine’s already tenuous economic situation. 

Ukraine’s creditors are getting increasingly squeamish about the terms of the deal and have been remarkably hardheaded (some would even say foolhardy) in their insistence that there be no “haircuts” (reductions in value) of their debt portfolios. Already halting progress on the negotiations has come to a complete stop, and there is increasing skepticism that the IMF-established June deadline will actually be met. 

Now it’s not clear what precisely will occur if Ukraine and its creditors can’t come to an agreement over the summer. There are scheduled repayments scattered throughout 2015, but by far the biggest single repayment tranche is not due until December when Ukraine will have to make a whopping $1.5 billion payment to Russia (the fate of this particular loan is a topic, incidentally, that is worth an entire article on its own). 

The world can be a messy and confusing place and it’s possible, I suppose, that the deadline could come and go without very much happening. But as a statement about the state of Ukraine’s economy, the tragicomic shambles of the debt negotiations (which have rapidly lost all pretense of decorum, with passive aggressive statements being regularly leaked to the press) speaks volumes. 

As I see Ukraine reduced to fighting its own bondholders tooth and nail, desperate to secure just a little bit of financial breathing room, I have to marvel. I’m not sure I can think of another instance in which the West’s soaring rhetorical support has been so staggeringly at odds with its paltry commitment of actual resources. If it wanted to, the European Union could, at a stroke, buy out Ukraine’s creditors entirely. Compared to the roughly $350 billion bailout that Greece received, the sums of money necessary to put Ukraine back on solid financial ground are quite modest. 

But here’s the dirty secret that everyone knows but that no one really wants to admit: no one cares about Ukraine. As the past year has conclusively demonstrated, the West’s “revealed preference” is to do nothing. 

I’m not saying that’s the right decision, mind you. I actually think the West is being penny wise and pound foolish when it comes to its tightfisted Ukraine policy, but there is no other way to look at the available evidence. The West doesn’t want to spend any money, hoping that vague exhortations about “reform” and “progress” will prove sufficient to meet Ukraine’s very non-rhetorical financial requirements. They won’t. 

There’s never a perfect match between words and deeds. But the West (whether it realizes it or not) is making itself look positively foolish with its rhetorically robust and practically non-existent support of Urkaine. 

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