Ukraine in EU is like fish out of water

Last week, The Wall Street Journal gladly commented on Bulgaria's decision to postpone the accession to the euro zone due to uncertainty about the future of the joint European currency. In particular, the U.S. business publication quoted Bulgarian Finance Minister Simeon Djankov. "At the moment I do not see any benefit from joining the euro zone - I see only spending. Our citizens rightly want to know whom we will have to save from default, after we unite. This is too risky for us," said Djankov.

In turn, Bulgarian Prime Minister Boyko Borisov expressed concerns about the growing disputes between European politicians, who could not come to a common solution to the crisis. "I am certain that we will see the strengthening of separation in Europe, because some governments are not prepared to make hard decisions," he stressed out.

Most likely, the demarche of the Bulgarian authorities was highly offensive for the EU leadership. After all, a few years ago, it was only Brussels to decide which European country was ready to join the EU, and which country still had to do "homework" carefully, as European officials used to say. In this connection, a shameless innuendo from Lithuania hurt the pride of Brussels even more. The week before last, the prime minister of this small Baltic state Andrius Kubilius said that his country would switch to the joint European currency, only when "Europe is ready."

At the same time, Moody's international rating agency confirmed the current credit rating of "AAA" for the EU, but gave a negative forecast, alluding to a high probability of a lower credit rating in the near future.

According to Bloomberg news agency, the worsening of the forecast was based on Moody's fears about the budgetary situation in Germany, France, the Netherlands and the UK. The share of these four countries accounts for 45 percent of the total budget of the EU. Revenues may decrease because of the aggravation of the crisis. Moody's noted the reluctance of the EU to execute the obligations to maintain budget deficits on a low level.

The rating agency also fears that some countries (especially such "donors" as Germany) will become less active in their moves to ensure the solidarity of the EU at their own expense. It is no secret that the credit ratings of several European countries were significantly downgraded during the recent years. For example, Spain had "AAA" rating in 2001-2010, and now it has "BAA3," which is the lowest investment rating. In the past, negative news was presumably coming from the group of the countries with the offensive name PIGS (Portugal, Ireland, Greece, Spain). Nowadays, it is the economies of traditional political locomotives of the European project and its economic base that raise most serious concerns.

What does Ukraine have to do with it? Speaking about financial markets, the focus of negativity of global business media has focused on the problems of the EU and the euro zone in the first place. In this connection, the profound problems of the U.S. economy receive much less attention.

Some independent analysts suspect that this trend will last until the end of the U.S. presidential campaign. Such media background creates the illusion of the fact that the state of affairs in Europe is much worse than that in America. It encourages speculators (meaning investors) to get rid of European assets and acquire American assets instead. In general, it is possible that the trend will change for the opposite and investors will turn their heads from the New World to the Old World. If negative news from the euro zone and the U.S. is equally catastrophic, investors will turn to oil, gold, the Swiss franc and other traditional shelters.

Let's get back to Ukraine ... The "Orange Project" backed by the West has failed not only because more than half of the population rejected it. With strong political and financial support from the outside it could exist up to this day. It is quite possible that it will be revived when Ukraine comes to another election campaign. The decisive factor is that the heroes of the Orange Revolution in Ukraine have proved to be worthless administrators.

In contrast to the "orange party," the Party of the Regions consists from the people of action, with years of experience behind them. The inner circle of Viktor Yanukovych represents the level of quite good executives. However, when entering the global level, it becomes obvious that the President of Ukraine is a mid-level manager, just like most of his team. This equally applies not only to the current Ukrainian leader, but to all previous leaders of the country.

Ukraine is not a self-sufficient country. Ukraine needs a sufficient amount of energy resources and markets for dynamic development of the independent nation. Both of these conditions must be executed simultaneously. For this reason, Ukraine still can be nothing more but a part of something bigger - a part of a larger project, an organic element of the broader economic environment.

Local National Democrats knew about it from the first days of the Ukrainian independence. Therefore, two decades ago, they started talking about the "return to the European family." The European integration, according to the "Ukrainian patriots", was supposed to automatically turn the former Soviet republic into the country with the standard of living of such countries as France and Germany.

In turn, the political forces that had more common sense in comparison with the "Ukrainian patriots" began to suspect that such miracles do not happen in life. They hoped that they would be able to get cheap energy from Russia, keep the CIS market open and simultaneously open Western markets for Ukraine. Both Moscow and Brussels have repeatedly made it clear to Kiev that Ukraine would have to make a choice. The EU offers Ukraine to become a member under Brussels' conditions, while Moscow has made it clear that it is ready to build common economic space together with Kiev.

Kiev stubbornly remained silent to multiple offers from the Kremlin to take part in the creation of the Customs Union.  The project was uninteresting for the Ukrainian leadership. During the previous years, beginning in 2004, the election program of the Party of Regions always contained a pro-Russian component. Let's see what the electoral program of the party of power says this time. The motto of the parliamentary campaign of the Party of Regions sounds like this: "From stability - to prosperity." Do they know a solution for that?

The program embraces the period of five years, and it says many right words about: strong family, quality education, decent wages in the future, the need to provide quality health care, improving the environment etc. There are also plans to create a modern economy in the country, to ensure the growth of the GDP by at least 5 percent a year.

In the section on international relations and Ukraine's place in the world economy, voters can read the following:

"In international politics, we stand for:

- Preserving the non-aligned status of Ukraine - the guarantee of security of each citizen;

- Obtaining an associated membership in the European Union, introducing the  visa-free regime and creating a free trade zone with the EU;

- Strengthening economic cooperation in free trade with the CIS countries;

- Strategic partnership with Russia, the U.S., China;

- Opening the G20 markets, as well as the markets of developing countries for Ukraine;

- The competitive right for holding sports and cultural events of the European and global levels."

As you can see, the Customs Union is not even mentioned. Note that the planned GDP growth rate of 5 percent is quite realistic. The trouble is that the basis of this growth, the value of Ukraine's GDP is very low (taking account of the parity of the purchasing power of $7,300 as of 2011). To be clear - this is below the level of the very backward Albania ($7,800), and significantly lower than that of the Customs Union members: Kazakhstan ($13,200), Belarus ($15,200) and Russia ($17,000).

Ignoring the proposals of the Customs Union to become a part of the common project, Kiev deprives the country of the opportunity to reach significant achievements in the economy and the standard of living. Let's assume the Party of Regions confidently wins the election, retains power in the next five years, provides the re-election of its candidate for another presidential term and executes the announced plans for economic growth, as stipulated by the election program. If so, in five years of steady growth, the country will reach the level of Romania (GDP in 2011 - $12,600). Romania is a member of the European Union and a candidate for the euro zone. However, one should remember that worst-case scenarios are much more possible.

Alex Kovalev


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Author`s name Dmitry Sudakov