Ukraine: an update

This paper has been kindly translated by Anne-Maria de Grazia and partly rewritten by myself.

Demonstrations in Kiev have turned into an insurrection. A large number of civilians and policemen have lost their lives. As a result, Victor Ianukovitch had to flee and we had a complete turm of the political situation. However numerous the demonstrators, yet they represent only one part of Ukraine. The proeminent part played in demonstrations by ultra-nationalist movements doesn’t give good feelings for the future. The map of results of the presidential elections of 2010, which saw the victory of Victor Ianukovitch confirms that Ukraine is divided, not into two, but into three. The important question is to know on which side Central Ukraine will tip. And it is now obvious that central Ukraine has turned – for some time – against Ianukovitch. The Ukrainian government is to rest on the support of a majority of the population, and this population has not supported – but in Kiev- the demonstrators.

Map

Distribution of votes for the Presidential elections of 2010

 Ukr-elections

Ukrainian Electoral Commission

Indeed, one must understand that the economic interest of Ukraine is much more on the side of the Eurasian Customs Union (together with Russia, Belarus and Kazakhstan) than with Europe. Ukraine’s external trade with Russia hasn’t stopped increasing and, significantly, if imports from Russia are strong, exports to Russia are on the increase since 2005. Quite interestingly, exports to Russia actuelly increased during the so-called “pro-West” government. This is a proof that behind speeches we have hard and strong realities. Even Mrs Julya Tymoshenko, even when playing the staunch Ukrainian nationalist, had to reach a good bargain with Russia. By the way, it is well known that a large part of her personal wealth was linked to the trade with Russia.

Chart 1

Ukrainian trade with Russia

 G1-Commerce de l'UKR

Source : National Bank of Ukraine and State Service of Statistics of Russia

Most impressively, one notes that exports towards Russia, which made up only 14% of exports in 2004, presently reach over 22%, that’s an increase of 58%. Moreover, one can see that these exports to Russia parallel those of Belarus and Kazakhstan. This proves the success of the Customs Union, which is far however from having reached its full potential.

Chart 2

Russi’s import from CIS countries

 G2-Import russes

Source : State Service of Statistics, Russia.

http://www.gks.ru/wps/wcm/connect/rosstat_main/rosstat/ru/statistics/ftrade/#

From this vantage point, and considering that the European Union is in stagnation and that interior demand is even contracting in most countries except in Germany, it is clear that the most important development potential lies on the side of the Customs Union. Should Ukraine decide to sign an accord with the EU that would be exclusive of economic relations with Russia, the EU would have to compensate Ukrainian industries for a considerable loss of income. This would lead to a transfer flux of 15 to 20 billion euros per year ( actually 20 billion euros in 2011). The provisional government is now asking for more than 30 billions euros to the EU, and that is only a beginning. Quite plainly, the EU no longer has the means to deal out such a sum to Ukraine, whatever it could be said by European leaders. The promise of a fast integration of Ukraine in the European Union is not possible without bankrupcing the whole structure. Granted that the trade balances of the countries of the Customs Union are negative with regard to Russia. But it must be pointed out that the balance of Ukraine is of the same order as the one of Belarus.

Chart 3

Trade balance

 G-3Solde

Source : State Service of Statistics of Russia. http://www.gks.ru/wps/wcm/connect/rosstat_main/rosstat/ru/statistics/ftrade/#

This means that Ukraine, like other countries, must seek to develop its trade with Russia. From this point of view, the signing of the Customs Union would represent an important progress for trade relations and could, in time – and taking into account the complementarities existing between Russian and Ukrainian industries – allow Ukraine to even out its balance of trade. Moreover, one of the reasons of the support brought by Eastern Ukraine to the President resides precisely in the importance of this trade for the populations concerned.

The demonstrators in Kiev had certainly good reasons to demonstrate, and Ianukovitch power was known to be deeply corrupted. But they must not forget that they represent neither the majority of the Ukrainian population, nor the well-understood interests of that same population. Were they to forget it, they would prepare for themselves a future of great disappointments. As for the Eurocrats in Brussels and the Europeists of all shades, they must be told to keep their “hands off” Ukraine. Do not try to provoke a civil war with unforeseeable geopolitical consequences merely in defence of your particular interests.

 


Jacques Sapir

Ses travaux de chercheur se sont orientés dans trois dimensions, l’étude de l’économie russe et de la transition, l’analyse des crises financières et des recherches théoriques sur les institutions économiques et les interactions entre les comportements individuels. Il a poursuivi ses recherches à partir de 2000 sur les interactions entre les régimes de change, la structuration des systèmes financiers et les instabilités macroéconomiques. Depuis 2007 il s’est impliqué dans l’analyse de la crise financière actuelle, et en particulier dans la crise de la zone Euro.

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