03:19 GMT +317 October 2019
Listen Live
    A picture taken on April 23, 2015 shows residential houses destroyed after shelling in the village of Peski, near Donetsk, on April 23, 2015

    Spiraling Down: 'EU's Painful Austerity Has Boomerang Effect in Ukraine'

    © AFP 2019 / OLEKSANDR RATUSHNIAK
    Business
    Get short URL
    2271
    Subscribe

    Western approach to dealing with Ukraine's ailing economy is doing more harm, than good: investors have fled the country, costly civil war is still ongoing and Poroshenko is increasingly suspected of taking advantage of the situation to help his inner circle.

    Following the outbreak of the bloody Ukrainian conflict, Western countries promised to help revive the Ukrainian economy, already in bad shape due to rampant corruption and the lack of necessary reforms.

    The preliminary results of this strategy are disheartening.

    "In Ukraine, the EU's painful austerity measures have had a boomerang effect, depressing the economy and inadvertently enabling Kiev take arbitrary measures to reshape the country's power structure," the New Europe website reported.

    The costly war Kiev engaged in to silence independence supporters in eastern Ukraine is depleting state coffers. "The military is costing the country $5 to $7 million a day, or in other words, approximately 5% of the country's yearly GDP," New Europe said.

    The overhyped financial aid the West promised to provide to help Ukraine's struggling economy was used to cover the country's debt repayments. As a result, Kiev received just $1 billion of the total aid packages in 2014, the media outlet noted, adding that the country needs as much as $40 billion over the next four years.

    Meanwhile, the painful austerity measures the EU is so keen on "have had a massive toll on the [Ukrainian] economy." The inflation rate is expected to hit 46% in 2015 and GDP could well decrease by 9 percent. Gas prices have soared so high that many Ukrainians are unable to pay their bills, New Europe observed.

    To make matters even worse, investors have no inclination of pouring money into projects in Ukraine, leaving the country's economic lungs without air to breathe. For instance, Chevron and Shell recently decided to pull out of shale gas projects. The former cited regulatory issues and inadequate tax rules as the primary reason for the decision.

    Poroshenko's declared war on oligarchs is another major concern. Many, including geopolitical intelligence firm Stratfor, say the initiative might be a cover-up to redistribute lucrative state assets among the president's inner circle.

    After all, Poroshenko is the only billionaire, who retained his businesses and is wielding so much power in Ukraine.

    "Such actions may further spook potential investors who fear the specter of a country plagued by hostile takeovers and overburdening government interventions," New Europe noted.

    Tricks Of The Trade
    © Sputnik /
    Tricks Of The Trade

    Sanctions cement Russia's pivot to Asia

    The Western strategy of solving the Ukrainian crisis has been as unsuccessful as its economic approach. Probably because sanctions against Moscow form a large part of it.

    Russia's economy has indeed been affected by the restrictive measures. However, "upsetting the country's trillion-dollar economy would need more painful measures" and Russia's economy is believed to have entered the recovery phase.

    But it is another side effect of the restrictive measures that Western countries should really worry about:

    "Sanctions … have pushed the Russian president to deepen economic ties with non-Western nations such as China and Brazil, a move that in the future will likely see the pain of sanctions subside." Businesses across Europe are increasingly urging their governments to lift sanctions in a bid to repair ties with Russian partners.

    The Western strategy to bring peace and prosperity to Ukraine is evidently not working: Ukrainian civil war is ongoing, the country's economy remains shattered and Russia's isolation is non-existent.

    "Western powers should work with Moscow to achieve a military neutral Ukraine with a strong and prosperous economy, rather than have the country play piggy in the middle between East and West," New Europe concluded.

    Related:

    Kiev Hopes to Secure $1.7Bln IMF Tranche After First Aid Program Review
    Extended EU Sanctions Against Russia to Remain Ineffective
    Deadlocked Kiev Authorities Have no Idea How to Solve Ukraine Crisis - MEP
    Saakashvili: 20 Years Needed to Reach Social Level of Yanukovych’s Ukraine
    Tags:
    austerity measures, Ukrainian crisis, Ukrainian economy, European Union, Europe, Ukraine, Russia
    Community standardsDiscussion
    Comment via FacebookComment via Sputnik