The Angry Economist

Angry Finance, Angry Business, Angry Politics…

Ukraine: How to fight off a bear attack

UkraineUkraine is under pressure from its angry neighbour, it should do its best to fight off its old ruler…

The Ukraine lost out big time when it played the geographical lottery, to the North it has Belarus, the last remaining dictatorship in Europe, to its South it has Moldova and Romania, hardly the breadbaskets of Europe and over to its East, looming large is its old Soviet rulers, Russia.

It is this eastern neighbour that is causing some serious headaches for Ukraine’s current government. The Russian bear has become a lot stroppier since Vladimir Putin re-took power in March 2012. Putin has taken a tough stance on everything from Western intervention in Syria to Russian oil-drilling in the Arctic. However, one of Putin’s latest foreign policy pet-projects has been the creation of Eurasian Economic Commission (EAEC). Not heard of it? No surprises there!

The EAEC, a club nobody wants to join

The EAEC is structured in a similar way to the EU. There is a 5 man club made up of Belarus, Tajikistan, Kyrgyzstan, Russia and Kazakhstan. This wider EAEC club are more of a political bloc than an economic. However, within the EAEC, much like the EU, there is a economic union which only Belarus, Russia and Kazakhstan are members of, it allows the free flows of labour and goods between member states.  The entire project is being driven forward by Russia as it looks to form a power-bloc that might be able to rival the EU. The only issue is that hardly anyone wants to join!

Here is a quick map of the EAEC Customs union in its current form:

Map

Putin is on a recruitment campaign trying to beef up the current membership list and Ukraine is on in its wish list. As you can see its not the only potential member however, other potential members are either too small to be much of a prize or even more resistant to Russia’s ‘advances’. Kyrgzstan and Tajikistan are already part of the EAEC and should naturally become part of the economic custom unions over time. Uzbekistan use to be a member of the EAEC before it saw the light in 2008 and withdrew its membership to pursue alternative political links.

Out of the potential suitors Ukraine remains the only one with any real potential. The country use to be part of the old Soviet empire and has a large Russian-speaking population demographic. Almost 75% of trade in the Ukraine is done with its old rulers and through the eyes of Putin the country would make a nice addition to the EAEC membership list. One issue: Ukraine wants to look West not East!

The Ukraine is desperately trying to find its way into the European Union (EU) a significantly larger and more profitable prize than the EAEC. The EU is larger, richer and less aggressively run than the EAEC. Russia dominates the Eurasian club where every member is heavily reliant on Russia’s economic-might for survival and many, such as Belarus, are merely puppets of the Kremlin. Ukraine is keen to avoid this Russian-reliance trap but in doing so it is likely to suffer a bear attack.

Bear attacks and how to survive them

Russia’s issue is that it seems completely ignorant in how to court and seduce potentially members and uses nothing but force to bully countries into joining the EAEC. So far Russia have suspended cross-border trade and have threatened to turn off the natural gas and coal supplies that the Ukraine relies heavily on. The bear attack has the ability to mow down Ukraine’s fragile economy however, the country should remain resilient and  turn to the West for help.

The first step for Ukraine in surviving this bear attack is to give the West what they want. The Ukraine needs to receive a political clean bill of health from the EU in order to do this the current government should release previous PM Yulia Tymoshenko that lost power in March 2010 in the country’s election. However, the incoming government took a tough stance towards the old leader and had her arrested on what looks like highly suspect corruption charges in May 2010. Since then she has languished in prison. If Ukraine want the EU’s help to scare off the bear a very good step would be to release Ms Tymoshenko.

The second step in fighting off the bear is to position yourself where they cant hurt you. Ukraine must begin to ween itself off its reliance on Russian energy and trade. Ukraine should seek alternative energy sources from European partners and attempt to expand trade Westwards. This is easier said than done and it will be expensive and potentially painful for the fragile economy in the short run. However, surely its worth this pain in the short run to escape the cruel embrace of the Russian bear?

About these ads

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Information

This entry was posted on October 12, 2013 by in Economics, Politics and tagged , , , , , .
Follow

Get every new post delivered to your Inbox.

Join 44 other followers

%d bloggers like this: