European leaders show their weakness

March 10, 2014


The European Union, at the forefront of the hostilities between Russia and the West, is in a bind.

It has belatedly adopted Ukraine as one of its own. Yet the EU economy is so frail,  thanks to its beggar-thy-neighbor economic policies, that it is reluctant to use financial and trade sanctions to punish Russia for occupying Crimea and threatening to occupy the eastern part of Ukraine.

Even if the EU appeases Russian President Vladimir Putin’s territorial expansionism and allows Crimea to be annexed, it is going to pay a heavy political and economic price. Had German Chancellor Angela Merkel, who drives the European enlargement project, and the International Monetary Fund been more clear about wanting Ukraine to eventually join the European Union, and more generous in their dealings with the nascent democracy there, they would have saved the Ukrainian people a lot of suffering, the world a deal of agony — and the EU a lot of money.

In February 2013, EU negotiators offered Ukrainian President Viktor Yanukovich a hard bargain: If Ukraine wished to sign a free trade agreement that would be a prelude to joining the EU and receive $805 million in immediate aid, it must quickly improve its justice system and make structural changes to the economy.

What the EU negotiators did not tell Yanukovich was that it was prepared to offer a further $26 billion once Ukraine put its house in order.

Failing to mention that vast sum is proving a costly mistake. Yanukovich was reluctant to treat with the Russians. “He told us Russia was not fit for talks,” said Inna Bohoslovska, a member of Yanukovich’s Party of Regions until last month, “Russia did not consider Ukraine to be an equal partner, that it tried to force us to act by its own rules. That Russia does not act in Ukraine’s best interests in any negotiations, and therefore there can be no talk of having negotiations with Russia.”

In the face of such a stern European deal, however, Yanukovich turned to Putin, who promptly offered a deal worth $15 billion with few strings except, perhaps, more control over the trans-Ukrainian pipeline through which Russia exports natural gas to Germany, Hungary, and other European nations. In the tug-of-love between the West and Putin, Putin scored an easy first round victory.

He desperately wants Ukraine, once the pride of the Soviet Union, to revert to Russian influence. To achieve that geopolitical triumph, Putin was prepared to ignore the usual economic constraints and waive immediate conditions. Perhaps recalling the good deal the United States made when it bought oil-rich Alaska from Russia for $7.2 million in 1867 ($116 million in 2012 dollars), Putin bought Ukraine, with its population of 46 million, for a pittance.

Putin and Yanukovich underestimated the Ukrainian people. Having freed themselves from Russian rule, Western-leaning Ukrainians were not prepared to return to despotism and penury. After weeks of street protests Yanukovich, encouraged by Putin, ordered police to open fire on dissidents in Kiev’s Maidan.

The resulting deaths caused even members of his pro-Russian party to turn against him and he hurriedly headed for self-exile in Russia. With the wolf snarling at Ukraine’s door, the EU and the IMF came up with a $15 billion package to match that of Putin. It was at least a year too late.

Yankovich’s legacy is bringing the world to the brink of an East-West crisis as dangerous as any since the Cuban Missile Crisis in 1962 at the height of the Cold War. The Russian occupation of Crimea looks irreversible. Putin has shown himself to be mean and mendacious and so far the West has failed to find a plausible way to counter his land grab.

It is hard for anyone with a sense of history not to compare today’s events with the cowardly and gullible acts of the Western powers in the 1930s, when the dictators were on the invasion path and appeasement was thought the best way of avoiding bloodshed.

President Barack Obama’s failure to follow up on his ultimatum to Syrian President Bashar al-Assad to stop bombing his own people with poison gas may well have sent a signal to Putin that when it comes to resisting today’s dictators the American people have returned to their isolationist roots.

The European leaders, in particular Merkel, the de facto head of the EU, who was brought up in communist East Germany and understands the full horror of Russian oppression, have also shown themselves weak and short- sighted. The statesmanship so needed in a time of crisis is conspicuously missing from those who govern the EU today. Their incompetence, however, comes as no surprise.

Since the Great Recession of 2008, the EU leaders’ treatment of their partners in the project to unite Europe has been hard-hearted, unimaginative, and cruel. They imposed crippling financial sanctions on Greece, Spain, Italy, Portugal, France, and Ireland. Almost the sole beneficiary of these harsh — and largely unnecessary — measures is Germany, the country that manages the single currency, thereby keeping its export prices low and its citizens rich.

The British Conservative government, which enjoys much more leeway in economic matters than other EU governments — since Britain is not a member of the euro zone — showed its true divisive colors when it imposed painful austerity on its own people, driving what was a recovering economy into not one but two recessions. As Martin Woolf of the Financial Times pointed out, the result of austerity was obvious: “Small contractions bring recessions and big contractions bring depressions.”

Prime Minister David Cameron now boasts the British economy is on the mend, but it is still not as large as the fast-growing economy he inherited from his predecessor, Gordon Brown.

The Europeans are lucky the United States has used federal government intervention, including an $800 billion stimulus package, to haul the world out of the Great Recession. Not for the first time, Europe is relying on America to do the heavy lifting and rescue it from disaster. In dithering about how to counter the Russian invasion of Ukrainian sovereign territory the Europeans are again putting themselves first — and the safety and prosperity of the world last.

Perhaps the most telling single document in the Ukraine crisis so far was the secret briefing note to British Cabinet ministers that said the economy was so frail — despite (or because of) four years of austerity — that Britain could no longer take a principled stand against armed aggression.

The Europeans, too, say they cannot afford to impose financial sanctions on Russia. They need the trade and the fossil fuels only Russia can provide. They, too, cannot afford to have principles. Behind his cryptic grin, Putin must be laughing.

In War and Peace Leo Tolstoy wrote, “If everyone fought for their own convictions there would be no war.”

Poor Ukraine.

Nicholas Wapshott is the author of Keynes Hayek: The Clash That Defined Modern Economics. Read extracts here.

PHOTOS: A uniformed man, believed to be a Russian serviceman, stands guard near a Ukrainian military base outside the city of Sevastopol, March 7, 2014. REUTERS/David Mdzinarishvili 

Merkel delivered a rebuke to Putin on Sunday, telling him that a planned Moscow-backed referendum on whether Crimea should join Russia was illegal and violated Ukraine’s constitution. REUTERS/Maxim Shemetov


We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see

“Prime Minister David Cameron now boasts the British economy is on the mend, but it is still not as large as the fast-growing economy he inherited from his predecessor, Gordon Brown.”

While instinctively, I feel this to be true, it does rather go against popular “wisdom”. Osbournes economic austerity measures paralysed a recovering economy and extended the recession. However, he’s being touted as Britains “saviour” alongside the “myth” that labour ruined the economy.

Posted by pandatank | Report as abusive

President Barack Obama’s failure to follow up on his ultimatum to Syrian President Bashar al-Assad to stop bombing his own people with poison gas was THE signal to Putin – Putin read it that Obama was weak !

Moore, Garry R – Solutions Inc

Posted by Goo12 | Report as abusive