Germany, an economic growth engine of the European Union and main Euro enthusiast, will soon have to deal with new overdue bills from the East (as if Greece debt was not enough). EU Ukraine Association Agreement will burden the European Union with another financial aid receiver and may herald end of the European welfare state…
It is a paradox that sometimes representatives of «archaic» institutes like monarchy can foresee economic problems far better than optimistic European Union commissioners. New Dutch king Willem-Alexander delivered a clear message to his people in a nationally televised address: the welfare state of the 20th century is gone, there's no such thing as a free lunch. In Germany progressives protest against HARTZ IV legislative package which is designed to silently abolish the so-called Social State, one of the most important achievements of the post-war era. Not unsurprisingly the influence of right populists in Germany is growing in the face of social policy failure.
One would think that in such situation Europe’s enlargement to the east is objectively impossible. In times of crisis Germany will require enormous investments to begin merger and acquisition of Ukraine on the model of German Democratic Republic. The only way to accomplish this process is to use neoliberal methods like radical deindustrializing of Ukraine’s economy and quick privatization of all sovereign assets by European investors.
«Invisible hand» of laissez-faire capitalism can be disastrous for the developing countries. The IMF and World Bank advisors with six-figure salaries always recommend to third-world countries a very limited set of measures that widen wealth gap and cripple the economy. In order to get financial aid developing country must accept the fate of transnational corporations’ milch cow on the government level, discontinue all state subsidies and cancel trade restrictions that support local business. In the case of Ukraine this second wave of deindustrialization will cause sudden rise in unemployment levels and mass emigration to the developed countries of Western Europe. One more depressive outskirt may eventually appear on Berlin’s balance sheet. German far right will get another hate crime target in addition to Polish plumbers.
Status of Ukraine’s energy infrastructure is a good benchmark for its real economic situation. If Russian gas transit through Ukraine’s territory is cut down, Kyiv will threaten Russia and EU to suspend sections of national gas pipeline system. Such claims generally imply that country’s economic environment is rapidly deteriorating. The cost of insuring Ukrainian debt against default surged to a three-year high after Moody’s Investors Service cut the country’s credit rating deeper into junk in September 2013, citing «very high default risk», Bloomberg reported. The reason is trivial. Ukraine’s central bank reserves hit a new low of $ 21,6 billion although by the end of 2014 Kyiv will have to spend about $ 10,8 on external debt maintenance. Increased political and economic risks due to deteriorating relations with Russia can be very expensive In June 2013, for example, Fitch also revised Ukraine’s outlook to negative.
Ukraine’s political leadership ignores all signals from credit rating agencies because it hopes that Brussels will pay the bills. As a result German taxpayers will be indirectly bound to Ukraine’s economy through European Union Eastern Partnership programs (The European Commission has donated € 600 million for the six partner countries for the period 2010–13 as part of the European Neighborhood and Partnership Instrument). It is highly doubtful that German citizens are ready to compensate to Kyiv imminent shortfall in income from gas transit and custom duties. It may happen that failing economy will cause mass protests like in Bulgaria in February 2013. Earlier this year tens of thousands took to the streets of Bulgarian cities protesting against energy monopolies and high electricity prices. 30 000 Bulgarians all over the country went out under the red flag. The last straw for many was a jump in winter electricity bills that at times exceeded incomes in a country where average salaries are just 400 euro ($ 530) a month and pensions are less than half that amount. If Ukraine cuts ties with the Customs Union, it may face a similar scenario.
General sluggishness of the Ukrainian economy and Armenia’s decision to join the Eurasian Customs Union put into question Europe’s expensive eastern partnership program. Recent polls in «donor» countries and election results in Germany have shown that EU citizens simply don’t want to pay Kyiv’s bills.