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The current conflict in the Ukraine is mostly about opening up the Ukrainian economy to foreign capital through free trade agreements that eliminate tariffs and cost domestic jobs, subject workers to austerity through IMF "stabilization" agreements and that eliminate controls on domestic businesses and foreign capital by drawing the Ukrainian economy away from the protections and advantages of the Russian Customs Union offered  by Putin. Russia provides the Ukraine with about 60% of the Ukraine's annual natural gas requirements and imports 25% of the Ukraine's exports including most of Ukrainian manufactured steel. Russia has always been vital to the Ukrainian economy's health and Putin has offered a $15 billion loan package with no austerity conditions attached which includes steep discounts on the Ukraine's vital supplies of Russian natural gas.

The IMF has offered a similar loan package with draconian austerity measures sure to make the Ukraine permanently dependent on the EU export markets, loans and foreign capital. The loan package from the IMF asks for conditions that will squeeze workers in order to get foreign banks, to whom the Ukraine is in debt, repaid. It is an enormously unpopular option! It is the main reason that the democratically elected government of Viktor Yanukovych rejected the EU trade free agreement which was recently signed in Brussels by interim president Arseniy Yatsenyuk.  The Ukrainian government's $5.4 billion budget deficit will be balanced on the backs of the Ukrainian working class with cuts to vital energy subsidies, public sector pensions and deep cuts to the social safety net. Already, one quarter of the Ukraine's 44 million people live in abject poverty barely surviving on a mere $127/month! Raising taxes on the oligarchy remains out of the question as all of the countries economic woes will be resolved by squeezing the workers.

The most supportive US politicians of the new government is Ted Cruz (R-Texas) and John McCain (R-Arizona) who fully endorse Yatsenuk's austerity measures. Cruz's motivation is the prospects of seeing US energy companies replace Russian one's in the supply of the Ukraine's gas. He recently testified to Congress that, “We are on the cusp of a great American energy renaissance that will create both a stronger economy and a stronger America,” in an endeavor to obtain US aid to the new government in the Ukraine. Cruz fully supports the IMF plan's conditions which, among other things, will mean, according to the above Forbes report "...a 47% to 66% increase in personal income tax rates; a 50% increase in monthly gas bills; a 40% increase on gas tariffs for heating companies; and an increase in taxes on agribusiness." Such conditions will cause inflation to rise as annual GDP growth declines. The cause will mostly be the removal of Russia's former generous energy subsidies. Cruz expects the US to profit enormously as American companies replace Russia as the main supplier of the Ukraine's energy needs as the Russian GAZPROM discontinues its support due to the signing of the recent treaty. The Ukrainian working class will be squeezed in the vice of lower income and rising prices all of which will amount to a major income shift from workers to banks and foreign capitalists.

According to one Moscow Times report; "... several U.S. lawmakers have introduced bills pushing the government to speed approvals of U.S. liquefied natural gas exports. They say the extra U.S. supplies would provide Europe with an alternative to supplies from Russia, from which it currently gets nearly a third of its fuel." US corporations stand to profit from the opening of the Ukraine's local energy markets while foreign capital in general, both European and American stands to profit from the IMF engineered opening of the Ukrainian economy.  This pattern is typical of corporate globalization; expand corporate profit in the global economy at the expense of workers everywhere. The local forces of fascism that have been unleashed in this frenzy to open the Ukrainian economy while separating the Ukraine from Putin's Russia promise to be more undemocratic and violent than any Russian leaning Ukrainian government in the past. Fascism is frequently the price of suppressing class conflict in favor of capital.

It is a good bet that the supporters of the Orange Revolution ten years ago didn't foresee the takeover of their economy by foreign capital at their expense much less did they see such a prospect as one that conformed to the ideals for which they struggled.  The unfortunate consequence of the defeat of failed communist systems over twenty years ago is that corporate globalization and fascist political tendencies have usurped the political leadership role many hoped would be assumed by a workers' movement for a new popular system that would be both democratic and socialist.

It is unfortunate if some readers mistake my arguments regarding the current political crisis in the Ukraine as support for Russian domination past, present and future. They are no such thing! I simply see the current conflict not as one of Ukrainian nationalism vs. Russian hegemony but one consisting of the usual issues that pertain to globalization and the economic imbalances between core powers (like the EU) and peripheral, or weaker, powers such as the Ukraine. I believe that such imbalances are the most salient features of the current problem of Ukrainian political decision making. The bleak prospects of austerity and an ill advised, neo-liberal, export-led growth model for the Ukraine, which can hardly be expected to compete with chronic surplus countries like Germany in the long run, should be the question most Ukrainians should be addressing rather than the history of Russian "hegemony" however bitterly resented. It is true that Ukraine's corrupt, often pro-Russian oligarchs have mismanaged the Ukrainian economy over the last twenty years; the destruction of a once efficient, vertically integrated steel industry that employed many Ukrainians is proof enough of this obvious fact. So is the gradual decline in average annual rates of GDP growth since 1991. But ditching a patrimonial Russian Customs Union for unbalanced, open market trade relations with the EU is simply jumping from the frying pan into the fire! Just ask the Greeks!!

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Comment Preferences

  •  That's a one-sided comparison. (5+ / 0-)

    The West's offer carries certain onerous conditions, but so does Russia's, just of a different sort.  But you don't seem to recognize that. And if Ukraine was doing so badly as a Russian semi-protectorate under Yanukovych, it's hard to see why they should have embraced closer links.  Would you rather go with the economic master who's got a demonstrated model of relative prosperity, or the one whose country is a complete mess?

    It's not the side effects of the cocaine/I'm thinking that it must be love

    by Rich in PA on Tue Apr 01, 2014 at 03:56:41 PM PDT

    •  I saw A CBC interview (5+ / 0-)
      Recommended by:
      native, LordMike, codairem, mookins, Sandino

      With a bunch of the Maiden Protestors,  back in January, and many of the Protestors believed that the EU Association Agreement was a "get out of Ukraine free" card. That once signed, they would be free to leave the unemployment and underemployment, for visa free work in the EU. One girl broke down in tears as she explained how her Masters in Finance was worthless in the Ukraine, but would quickly get her a high paying job in The City, once the Agreement was signed.

      Neoliberal economics has not been healthy for most of the people in the West, from middle class, through working class, to the poor. We started the cycle, with much healthier economies than the Ukraine can ever dream of.

      It is possible, such as through taxing only the Ogliarches, and proper spending, in theory to build an inclusive, viable economy under some of the IMF rules, but under other IMF rules, such as Corporate Rights and Capital Rules, it is not.

      Once upon a time a middle way was possible, that's how we built our economies and middle class, but those rules no longer apply.

  •  Ukraine's situation won't be improved by Austerity (5+ / 0-)

    America's "demonstrated model of relative prosperity" as you call it has nothing to do with the IMF stabilization plan that is being imposed from above by forces just as undemocratic as Putin's economic bloc. Yanukovych was democratically elected. Yatsenyuk was not!  This whole affair seems to be a betrayal of the ideals of the Orange Revolution and not a fulfillment of it. True, the Ukraine's GDP growth has been in a general downward trend since 1991 but imagine growth trends after the IMF plan is in place. Yanukovych may be a Putin puppet but "Yats" is a puppet of western banks and foreign capital. The Ukrainian economy is going the way of Greece; it can't compete with powers such as France and Germany who expect export surpluses for their economies at the very same time they expect deficit countries like the Ukraine to pay their bills and maintain a positive balance of payments. IMF plans tend to favor foreign capital over workers. And they never lead to solvency or long term economic independence.

    •  Yes, but then what do you suppose (0+ / 0-)

      could lead to long term economic independence? Is there any light at all on the dark horizon? Any cause, or candidate, or force that is worth supporting?

      •  The rules were long established (1+ / 0-)
        Recommended by:

        Capital controls, subsidies and import tariffs, progressive taxation on corporations, income and wealth, strong State subsidies for health, cost of living, housing, education and pensions,

        A nod to preferred export and import markets in the form of lowered tariffs,( some economic, some strategic) along with a never ending war against corruption, fraud and bad governance.

        All things that the IMF and World Bank highly disapprove of.

    •  Is any situation improved by Austerity (0+ / 0-)

      other than that of Capital, of course?

      The problem is the decoupling of Capital's interests from that of the people living and working in the economy.

      But that's a bit simplistic, I realize.

      Thanks for joining the daily kos conversation, warts and all.

      Welcome from the DK Partners & Mentors Team. If you have any questions about how to participate here, you can learn more at the Knowledge Base or from the New Diarists Resources Diaries. Diaries labeled "Open Thread" are also great places to ask. We look forward to your contributions.

      Words can sometimes, in moments of grace, attain the quality of deeds. --Elie Wiesel

      by a gilas girl on Wed Apr 02, 2014 at 06:30:41 AM PDT

      [ Parent ]

  •  This is exactly what is going on. (6+ / 0-)

    The Ukraine is a pawn in a war that should be familiar to everyone -- it happens over and over and over again.

    1. Pay outsiders to foment an uprising and topple the current leader (this one newly elected). Usually this is done by the IMF and World Bank, as was the case throughout South America and -- and currently the case throughout Africa (although USians have not been told yet we have boots on the ground in two dozen African nations doing this at this time).

    2. Loan them money for development. If possible, force the country to put up their natural resources as collateral.

    3. Make the payments so onerous, that severe austerity is forced upon the people.

    4. Austerity suppresses consumerism, so while trade may take place, the domestic economy suffers.

    5. When they are about to default, either seize their natural resources or make them more loans and turn them into a plantation-nation.

  •  But, But the West - (0+ / 0-)

    Loves truth and motherhood.

  •  You forget that the last government from (1+ / 0-)
    Recommended by:
    Andrew Lazarus

    Moscow literally starved millions of Ukrainians to death out of spite...

    Yes, it was a long time ago, but they don't forget that kind of thing.  There's a reason why they want no part of Mother Russia.

    I'd take the crappy EU deal, too over Russia's lest that whole starvation thing would happen again, and I bet these folks fight tooth and nail against the Russians even in a losing cause, because of the history.

    "I know you cannot force people to care. Ukraine is far away for many, all have own problems. But even if cynical, realize problem will grow. It isn't only people like me, raised in a dictatorship, who don't want it to happen to others"-Gary Kasparov

    by LordMike on Tue Apr 01, 2014 at 08:40:32 PM PDT

    •  In the part that wasn't (0+ / 0-)

      The USSR, 60,000 or more Polish Ukrainians were murdered, 40,000 Hungarian Ukrainians or more were murdered and 35,000 Jewish Ukrainians or more were murdered.

      It is the Southern Corner of the Bloodlands, and if you were actually there, your loyalty would be primarily dictated by answering the question of "who killed your Grandpaw", and the answer has more suspects than the Game of Clue.

      BTW, the list is all suspects, other than UNHRA.

    •  Not by "spite" (0+ / 0-)

      From 1921 on until 1927, kulaks, or rich peasants sold their grain to the cities at or above market prices as per the NEP whereby Lenin relied on free market price mechanisms to spur grain production for the cities. The Kulaks held back both for political reasons and in an endeavor to raise prices. All attempts to get the rich peasants of the Ukraine to cooperate failed resulting in Stalin's policy of forced collectivization after 1928. In 1927,  the kulaks still produced over 600,000,000 poods of grain, of which about 130,000,000 poods, or under one quarter of output, were available for sale. The kulaks produced most of the grain but were only about 5% of the total rural population of the Ukraine. They held most of the land as well. Stalin began forced collectivization which was resisted mostly by the rich peasants and between 1928 and 1932 when the worst famine took millions of lives, grain and livestock production dropped drastically!

      Stalin wanted to eliminate the Kulaks as a social class and political force. Over 5 million people died in the ensuing famines of the 1930s. The kulaks created the situation, however. They had no reason to withhold grain from the cities.

      •  Seriously??? (1+ / 0-)
        Recommended by:
        Dr Swig Mcjigger

        OK, so you join the site just to post a diary about the west's evil actions in Ukraine, then add a comment blaming the Ukrainians for forcing Stalin into action against them -- citing as evidence...  a document written by Josef Stalin.  Well, now there's an objective source!

        I don't know whether to question your motives or your principles, but that's seriously messed up.

        •  I never meant to defend Stalin who was a murderer! (0+ / 0-)

          But it must also be understood that Kulak and Ukrainian are not the same thing. There was a grain crisis that needed to be addressed. I supported Bukharin's advocacy of a continuation of the NEP policies as a way out of the crisis since over 80% of the country was rural. The Bolsheviks were anxious to industrialization and disagreed with Bukharin's "peasants enrich yourselves" approach because (a) an increasing number of peasants other than Kulaks were holding back grain supplies not just because of low prices but because diminished levels of consumer goods supplies meant less need for cash in the first place!  It was obvious that Bukharin's idea that peasant consumer demand could possibly drive an urban industrialization effort was nonsense especially with regard to heavy industry.  Stalin's approach was absurd but something had to be done about the grain crisis which itself was beginning to cause famine by 1927/28.  I believe a combination of NEP style incentives coupled with a steep flat grain tax in order to spur production over and above the taxable amount would have been sufficient to restore food output.  Stalin's policies were much to blame as is evidenced by falling agricultural output after 1928 but Russian farming methods were old and inefficient and not able to keep pace with population growth. Collectivization was not the answer though some forced requisitioning seemed an understandable response considering the incredible depth of the crisis.

  •  To Ukranians, Russian capital is also foreign (2+ / 0-)
    Recommended by:
    mookins, Rich in PA

    The question is not whether to have foreign capital (Ukraine appearing to have a per capita GDP just above Samoa), but whether it comes from the East or from the West. Poland, whose capital came from the EU, has turned the corner towards prosperity. Belarus, with its close ties to Russia, no. Plus, Belarus is an even more repressed dictatorship than Russia. Unless you think sharing an alphabet is the be all and end all, I know which neighbor I would prefer to copy.

    Now, without doing much research, Ukraine doesn't look to be in a position to repay loans, but I can't see a reason the sort of EU package that developed Poland and the Baltic countries wouldn't work. Indeed, throwing aside environmental issues (which, after all, are not considered in the Russian natural gas business), Ukraine has natural gas potential of its own.

    •  The Ukraine (0+ / 0-)

      Has agricultural resources which are independent of Bloc's , and like oil or gas are sold to the highest bidder irrespective of politics, like the US being the major buyer of Saddam's oil,

      Then, there are niche industries, like software, of which the EU is the major buyer,

      Then the "old hardware", like T-90's and updated SU-25's, of which the major Clients are Russia and the BRIC's.

      Sadly, a larger portion of the Ukraine's former economy, was buying Russian Oil and Gas at a 40% discount, (Gazprom discount) for the domestic market , and selling it off for market prices, on to other Customers in the EU.

    •  Its really the IMF austerity plan for the Ukraine (0+ / 0-)

      ...that is the most disturbing. Austerity will deepen poverty there. My solution is to generate a recovery through massive public investment for job creation to spur demand for added capital investment from the Ukrainian private sector. The IMF/EU solution is to turn the Ukraine into an export platform which skews the distribution of income upward and leaves countries in debt and in a recession once foreign demand for their exports levels off or declines. This is what happened to Greece and other poorer EU members whose poverty came as the price of Germany's continued balance of trade surpluses.

    •  A 2/21/14 NPR report puts your view in perspective (0+ / 0-)

      Russian foreign investment in the Ukraine and Russian/Ukrainian economic relations in general is different than Ukrainian relations with the EU. According to the NPR report;

      Russian companies are one of the largest investors in Ukraine, accounting for 7 percent of total foreign investment in 2013, according to official Ukrainian statistics. And when Yanukovych walked away from the deal on closer economic and political ties with the EU, Russia said it would buy $15 billion worth of Ukrainian bonds, giving Kiev an economic lifeline.

      Russian involvement in the Ukraine is supportive of the basic needs of the country. It's proposed bond purchases is a form of aid not for profit financial investment (the yields on Ukrainian bonds have increased due to the economic crisis, deficits and foreign debt. Even the IMF's current managing director admitted that Russia's assistance to the Ukraine saved its economy;

      Russian money bailed out a faltering Ukrainian economy last year, International Monetary Fund Managing Director Christine Lagarde said.  Lagarde added Ukraine was cut off from international financial markets for not reforming its economic policies, and Russia’s decision to invest $15 billion in Ukrainian Eurobonds, along with an agreement to steeply cut the price of Russian gas imported to Ukraine, saved the country from collapse.  “Without the support they were getting from this lifeline that Russia had extended a few months ago, they were heading nowhere.

      Already, the austerity measures imposed by the Ukrainian parliament will adversely affect most Ukrainians with higher energy prices, wage and salary freezes and reduced food and other subsidies. The average person is being squeezed to pay a foreign debt caused by a slow economy and oligarchical domination of the domestic economy. The country's economy will contract as prices rise. Unemployment will probably worsen, as well!

  •  Who elected "Yats"? (1+ / 0-)
    Recommended by:

    Last time I checked, he was hand-picked by Victoria Nuland -- several weeks before it was announced to the Maidan.   And if you read the BBC transcript, it was not posed as a matter for debate.

    Now Yats signed the EU Association Agreement.   Which, UNLIKE Crimea, was NOT put to a vote for approval by Ukrainians.

    •  I Agree with what you said about Yats! (0+ / 0-)

      He is the choice of the western powers who are trying to bring yet more pieces of the old USSR into the EU/NATO/WTO orbit. This is about globalization as much as it is about Ukrainian/Russian relations.

  •  I think deepening EU/Ukrainian economic relations (0+ / 0-)

    ...will worsen the Ukraine's already bad economic crisis by accentuating existing asymmetries between the more developed powers and the lesser developed ones. Like Greece, the Ukraine is liable to import far more than it exports as a result of any free trade deal. The trade deficits will be made up by capital flows from the surplus economies to the Ukraine rather than trade adjustments. This will only worsen Ukraine's overall balance of payments since the interest plus principle debt service on loans will only make the Ukraine a net exporter of capital.  Productive asymmetries with countries like Germany may lead to recessionary policies in the Ukraine such as wage freezes and currency devaluation to restore its competitive position. German export surpluses have always prevailed making the more "peripheral" economies (like those of the east like Czech, Poland et. al.) lead to austerity policies that harm the long term growth potential of their economies. Profit seeking capital always goes from trade surplus countries to deficit ones where interest rates are higher.  The consequences of such asymmetrical relationships result in demands for permanent deflationary policies in the periphery that harm growth potential, deepen poverty and result in chronic dependency and indebtedness. At least relations with Russia don't have the same devastating impact. Demand generated growth through public sector investment, job creation and higher wages is superior to export led strategies that only lead to foreign dependency and recession when foreign markets for exports collapse.

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