Opinion
George Soros

Last Chance for Ukraine and Europe ... March 2015

Burgess COMMENTARY

Peter Burgess

Last Chance for Ukraine and Europe LONDON – The European Union stands at a crossroads. The shape it takes five years from now will be decided in the coming 3-5 months. Year after year, the EU has successfully muddled through its difficulties. But now it has to deal with two sources of existential crisis: Greece and Ukraine. That may prove too much. Greece’s long-festering crisis has been mishandled by all parties from the outset. Emotions now are running so high that muddling through is the only constructive alternative. But Ukraine is different. It is a black-and-white case. Vladimir Putin’s Russia is the aggressor, and Ukraine, in defending itself, is defending the values and principles on which the EU was built. Yet Europe treats Ukraine like another Greece. That is the wrong approach, and it is producing the wrong results. Putin is gaining ground in Ukraine, and Europe is so preoccupied with Greece that it hardly pays any attention. Putin’s preferred outcome in Ukraine is to engineer a financial and political collapse that destabilizes the country, and for which he can disclaim responsibility, rather than a military victory that leaves him in possession of – and responsible for – part of Ukraine. He has shown this by twice converting a military victory into a ceasefire. The deterioration in Ukraine’s position between the two ceasefire agreements – Minsk I, negotiated last September, and Minsk II, completed in February – shows the extent of Putin’s success. But that success is temporary, and Ukraine is too valuable an ally for the EU to abandon. There is something fundamentally wrong with EU policy. How else could Putin’s Russia have outmaneuvered Ukraine’s allies, which used to lead the free world? The trouble is that Europe has been drip-feeding Ukraine, just as it has Greece. As a result, Ukraine barely survives, while Putin has the first-mover advantage. He can choose between hybrid war and hybrid peace, and Ukraine and its allies are struggling to respond. The deterioration of Ukraine’s situation is accelerating. The financial collapse of which I had been warning for months occurred in February, when the hryvnia’s value plummeted 50% in a few days, and the National Bank of Ukraine had to inject large amounts of money to rescue the banking system. The climax was reached on February 25, when the central bank introduced import controls and raised interest rates to 30%. Since then, President Petro Poroshenko’s jawboning has brought the exchange rate back close to the level on which Ukraine’s 2015 budget was based. But the improvement is extremely precarious. This temporary collapse has shaken public confidence and endangered the balance sheets of Ukrainian banks and companies that have hard-currency debts. It has also undermined the calculations on which Ukraine’s programs with the International Monetary Fund are based. The IMF’s Extended Fund Facility became insufficient even before it was approved. But EU member states, facing their own fiscal constraints, have shown no willingness to consider additional bilateral aid. So Ukraine continues to teeter on the edge of the abyss. At the same time, a radical reform program within Ukraine is gaining momentum, and slowly becoming visible to both the Ukrainian public and the European authorities. There is a stark contrast between the deteriorating external situation and the continuing progress in internal reforms. This gives the situation in Kyiv an air of unreality. One plausible scenario is that Putin achieves his optimal objective and Ukraine’s resistance crumbles. Europe would be flooded with refugees – two million seems to be a realistic estimate. Many people expect that this would mark the beginning of Cold War II. The likelier outcome is that a victorious Putin would have many friends in Europe, and that the sanctions on Russia would be allowed to lapse. That is the worst possible outcome for Europe, which would become even more divided, turning into a battleground for influence between Putin’s Russia and the United States. The EU would cease to be a functioning political force in the world (especially if Greece also left the eurozone). A more likely scenario is that Europe muddles through by drip-feeding Ukraine. Ukraine does not collapse, but the oligarchs reassert themselves and the new Ukraine begins to resemble the old Ukraine. Putin would find this almost as satisfactory as a complete collapse. But his victory would be less secure, as it would lead to a second Cold War that Russia would lose, just as the Soviet Union lost the first. Putin’s Russia needs oil at $100 a barrel and will start running out of currency reserves in 2-3 years. The latest chapter in what I call the “Tragedy of the European Union” is that the EU will lose the new Ukraine. The principles that Ukraine is defending – the very principles on which the EU is based – will be abandoned, and the EU will have to spend a lot more money on defending itself than it would need to spend helping the new Ukraine succeed. There is also a more hopeful scenario. The new Ukraine is still alive and determined to defend itself. Though Ukraine, on its own, is no match for Russia’s military might, its allies could decide to do “whatever it takes” to help, short of becoming involved in a direct military confrontation with Russia or violating the Minsk agreement. Doing so would not only help Ukraine; it would also help the EU to recapture the values and principles that it seems to have lost. Needless to say, this is the scenario I advocate.

GEORGE SOROS
George Soros is Chairman of Soros Fund Management and Chairman of the Open Society Foundations. A pioneer of the hedge-fund industry, he is the author of many books, including The Alchemy of Finance, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What it Means, and The Tragedy of the European Union.

Commented

hari naidu MAR 31, 2015 Look! Ukraine is more or less a failed state. That was the original Russian tactical outlook on Kiev; Moscow planned and made it into a failed state...while anticipating a color revolution. EU/US will have to pour tons of tax-money to re-make Ukraine into a sustainable political/economic state system. May be next generation of Ukraine's will succeed! Commented Dima Lauri MAR 31, 2015 It is a psychological trap that Russia is related to Ukraine misfortune. Ukraine officials is mad of using such fake cliche. Every nation is the owner of it's fate. Ukraine is independent country for 25 years. What I have learned from Ukraine crisis is that all Russian obstacles are hidden inside Russian society. But I would like to add that politic and social problems is not an excuse to play dirty with my country. Reply Commented

Ivan Hangoverov MAR 31, 2015 This is nothing more than a fantasy dressed up as a strategy because it attributes little to no agency on the part of the rebel fighters or, for that matter, the area’s noncombatants. The simple, undeniable fact is that even if Russia was to be persuaded—via sanctions or via a significant uptick in military casualties—to wash its hands of the region, there is almost no chance that the indigenous military forces in the region would simply melt away. What is continuing to unfold in the Donbass—despite repeated protestations from Kiev’s representatives in Washington—is a civil war between two groups with diametrically opposed visions for the future of their country. It is a civil war that also—given that each side has enormously powerful supporters—poses a genuinely grave risk to global security. If the ceasefire, against all odds, congeals and holds, the likely scenario that will play out for the Donbass region is that which unfolded in South Ossetia in the years following the Russo-Georgian War in 2008. And indeed that is an eventuality the People’s Republic of Donetsk is preparing for, with meetings scheduled with representatives of Abkhazia, South Ossetia and Nagorno-Karabakh for late spring. Read less Reply Commented

Velko Simeonov MAR 31, 2015 First things first there is NEVER a black and white situation in international affairs as the author suggests. Second, he implies that there are some reforms underway that need to be supported, what reforms? It is one think to vote laws and rules in the parliament, this is the easy part, and another thing to actually implement those reforms, given the corrupt judiciary and government. This I say from own experience, living in Bulgaria. We implement reforms every year or so and the result is negligent to say the least, and we are in much better condition to actually implement such measures as compared to the defunct Ukrainian state. The funniest part is the suggestion that the country has been somehow wrestled from the oligarch’s, and if no help is provided this will be reversed. The president is an oligarch, he appointed other oligarch’s to top positions, and it is oligarch’s that end up funding both the legitimate army as well as the private armies that fight along its side. So the country has not been freed from the plutocracy, rather one set of oligarch’s is replaced by another set of similar individuals. The most nonsense thesis that the author is peddling however, is the notion that if EU does not back Ukraine to the end this will somehow lead to dissolution of the union. Why, what are the arguments in the support of this absurd thesis? Last but not least comparing the crisis in Greece and Ukraine, and the EU’s response to those is like comparing apples and cow dong! Read less Commented

Alisdair Hamilton-Wilkes MAR 31, 2015 Velko Simeonov, the comparison is clear. In each case here and generally everywhere the EU response is to do the least that is absolutely necessary. The result is that clear, even if long term, solutions fail to emerge for most EU related issues that tend to become festering sores. The country may not have wrestled from oligarchs, that will take at least a decade and it will only work with an independent judiciary, which will also take some years. The alternative, to just cut Ukraine loose is not just a rejection of the Ukraine, it is a rejection of the EU mission. I thought this came across quite clearly in the article. Read less Reply Commented

j. von Hettlingen MAR 30, 2015 George Soros believes the 'coming 3-5 months' will be decisive for the European Union, as they tell what 'shape it takes five years from now'. It's true that the EU had been able to weather the storm in the past. But the crises in Greece and Ukraine have sapped much of the Union's energy and it is struggling to save the Eurozone without a 'Grexit'. Although 'Greece’s long-festering crisis has been mishandled by all parties from the outset', it is of economic nature and can be dealt with by forging structural reforms. While the European Central Bank has little problem in pursuing monetary policies, EU member states still have a hard time to agree on fiscal policies, as they see them as domestic issues. Yet the conflict between Russia and Ukraine is - politically - a much more complicated issue. There's no doubt that 'Putin’s Russia is the aggressor'. Ukraine finds itself in a situation, in which a militarily weaker country has to defend itself against a a big bully. By demanding the right to determine its own future, Ukraine is aspiring and not 'defending the values and principles on which the EU was built'. One can only defend something, when one already has it! Soros has done European leaders an injustice, by claiming they treat Ukraine 'like another Greece'. How? The nature of the two crises is different! Of course it would be 'the wrong approach' and produce 'the wrong results'. Just because 'Europe is so preoccupied with Greece', doesn't imply that 'it hardly pays any attention' to what Putin is doing in Ukraine. However nefarious Putin's hybrid warfare is, Soros has no advice as to what EU leaders do! Obvious he believes military might would intimidate Putin! What would Putin do, if the West had thrown down the gauntlet? He would definitely respond accordingly, to gratify his hubris! It is not enough to say: 'There is something fundamentally wrong with EU policy'. Soros has to elaborate it! How can he said that Putin has 'outmaneuvered Ukraine’s allies, which used to lead the free world?' Ukraine had signed an association agreement with the EU, which is of political and economic nature. But it is hardly a military alliance for the purpose of intervention. Why can't Mr. Soros spare some of his $20 billion to help Ukraine out? Read less Reply Commented

Roman Podolyan MAR 30, 2015 Ukraine is even worse case than Greece, because it is torn apart with civil war (which those who obtained Soros' grants only helped to fuel) and already full of poor people. There are huge doubts already if people here manage to pay their new bills after tariff and price hike. Yes, Ukraine can be bailed out, but what is similar to Greece is that the bailout is not going to be repaid, as Ukraine, heavily dependent on Russian gas, oil and markets, is not going to recover, and people of rebellious regions are not going to 'support Ukraine', whatever propaganda you might heard. While Soros lies about 'black and white' case, millions of Ukrainians support Russia (like those in Crimea, read article 'The Crimean conundrum' at openDemocracy), or work for Russia (those worked in Russia before and those who fled war or mobilization). George Soros is trying to mislead international community once more. Ask him how prosperous Georgia is doing after been managed several years by Soros' crony Saakashvili, and if Georgia is not that prosperous and not that supportive of Saakshvili now, ask how Ukraine can prosper with Saakashvily and his friends now ruling Ukraine. But whatever. If you, Europeans, want bail us out knowing that many of us not going even to vote for anything pro-European — how can we resist? Just remember that you are 'donors', not creditors. Read less Reply Commented

Bernhard Kopp MAR 30, 2015 With all due respect, but on Ukraine Mr. Soros is dead wrong. No money in the world can buy an Ukrainian state as a liberal democracy with the rule of law. There is no state experience, no state history, no coherent identity, no elite and no middle class. He should look to Venezuela, Colombia, among others, and ask himself why these countries did not get better organized in almost 200 years. Neither Ukraine nor Russia will be considerably faster. States develop from within and at their own pace. Neither missionary zeal, nor money can change that. Commented

roman roman MAR 30, 2015 Hey people, please, look at Ukraine in XXth century, You will see bolsheviks invasion (apropo, right like now), then famine that took 2 to 3 million of us, ukrainians, then nazi-time and after that again kommunists withtheir famine and unjustice, but, indeed, milder. so now, when we are defending european valies, don't we deserve some help from Europe? Commented

Alisdair Hamilton-Wilkes MAR 30, 2015 With all due respect countries do build successful democracies given time and support of their allies. Much of Central Europe (Poland, the Czech and Slovakia and Hungary) have all built successful democracies with minimal living memory or historic experience of it. Romania and Bulgaria are lagging but it is clear with concerted pressure for more transparency and judicial independence over another decade they should also be successful. Mr. Soros’ key point is that the Ukraine needs and deserves the same EU driven pressure and support. You are right that it will not happen overnight (probably 2 decades) but there is a clear will amongst the people of Ukraine to start on the road to developing a western style democratic state and we should support them. Read less