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External threats…..continued

September 22, 2014

In yesterday’s entry, this blog noted that, certainly as far as Odessa is concerned, there is far less threat from the Russian military and its proxies, than there is from consistent and ne’er ending political coercion and subterfuge from Moscow amongst the regional leadership.

“As has been written before on the blog, cities such as Odessa have far less to fear from military invasion than they do from a coercive political assault amongst their corrupt political class and weak institutions. Only should such a political assault fail entirely, would the real prospect of military confrontation in Odessa rear its head. Such a confrontation would certainly bring about a reaction from Europe that would inflict serious damage on The Kremlin one way or another very quickly. The cost of physically taking the city for The Kremlin would be immense both in body count and western reaction – far outstripping anything seen so far. Therefore incessant political coercion and subterfuge is likely to be the chosen battlefield for Odessa unless The Kremlin decides to “go for broke”, quite literally.”

A case of too great a military and further imposed economic cost for overt adventurism into Odessa and other cities for The Kremlin, but corrupt and weak political classes and institutions remain enablers of importance.

Would anybody bet on any newly elected RADA from 26th October lasting a full 5 year term?  Bets against other cities political classes being turned and/or coerced toward “special status” regions far beyond any decentralisation to be offered in the near future?

However, there are other external threats that cannot be ignored both for Odessa and the rest of Ukraine more generally.

As this entry displays – underlining President Poroshenko’s continued line in speeches abroad over the past few days – the Ukrainian economy is in dire straits.

Ukrainian GDP is at -5% and expected to shrink further.  Retail sales have shrunk to peak financial crisis levels.  Industrial production has plummeted.  The local currency has devalued at a shocking rate despite NBU interventions, and inflation is running at more than 14%.  Default is a real possibility, although not guaranteed.

Thoroughly grim – but as explained yesterday;

“Nevertheless, for reasons of political and legal expediency for both Russia and Ukraine, not to mention the EU, IMF, WB, OSCE etc., the ceasefire will be deemed as holding. Only a gross violation of it, such as the fall of Donetsk airport or the city of Mariupol would probably constitute acknowledgement of its failure – and perhaps the fall of Donetsk airport would not be deemed enough even then. The fall of Mariupol could not, however, be ignored.

Thus for Ukraine, the ceasefire need to be seen to officially hold to facilitate the 26th October elections, as well as further IMF lending in the winter, whereby Ukraine hopes that the 3rd and 4th tranches will be simultaneously released by the IMF. A recognition of war simply puts an end to both necessary events for Ukraine.”

Hence nobody wants to officially recognise that there is indeed an inter-State war (albeit it within a small geographical theatre) in the east of Ukraine.

In short, for Ukraine to survive it needs a serious influx of capital in the short term, and western FDI and meaningful western corporate appearances in the medium term – as has already been hinted at in the blog, one way is via preferred bidders in certain government tenders.  Aside from the obvious job creation that comes with major western corporations pitching their tent in Ukraine (and not just in Kyiv), there is a psychological element for the domestic Ukrainian constituency.

The usual objections regarding risk would need to be mitigated – perhaps partnering with the EDRD, Government of Ukraine or via home nation government guarantees as an indirect form of aid to Ukraine.  Whatever the case, risks can be reduced by a little clever thinking, legal gymnastics, and political/diplomatic backing.

A “Ukraine first” western policy is of paramount importance for the coming years – at least 5 years, probably more.  That is especially so as western policy toward The Kremlin and imposed sanctions are probably about to hit a lengthy “wait and see” period.

Unless there is a serious upping of the ante from Moscow, there is little likelihood more sanctions will be introduced – by the same token, those existing sanctions may well remain in place for quite some time too.

The western nations now have two policies to formulate with immediate effect, and for the decade ahead.

One regarding Russia and the current Kremlin designs, both internally and externally of Russia itself.

The other, a policy to underpin the DCFTA policy and Ukraine during transition in exceptional circumstance, if the European neighbourhood policy is to actually be deemed a success in the years ahead.  If not, it will become the policy that finally buried the EU as an actor with projection ability in the face of opposition on the international stage.

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