As our Dow dipped below 7,000, the first time since 1997, because of the seeming free fall of our insurance sector (notably AIG, which is getting an additional $30 billion from the government), that dark cloud paled in comparison to a failing economy on the other side of the world. Ukraine, a former part of the USSR, was supposed to be the model “democracy built from the ashes of Soviet authoritarianism.” Russia’s Putin has battled with Ukraine’s leadership, as the latter has pushed more towards the rest of Europe than towards Moscow. Relations between Kiev (the capital of the Ukraine) and Moscow have been downright cold – made colder still when the Russians cut off the supply of natural gas (used to heat homes in a very cold winter) in January over a price dispute, which spread to other European nations as the conflict broadened to include Ukraine’s entitlements to transport that gas across her territory.
But even as she has pressed to be more “European,” Ukraine’s currency (the hryvnia) has been falling, her banks failing, and since this is a fairly large country (46 million people) with a boatload of loans and investments from the rest of Europe, the impact of an economically failed state would have an exceptionally bigger impact on the rest of the continent than the collapse of vastly smaller nations like Latvia and Iceland. Hard times have produced power failures, water stoppages and shortages of basic commodities as both municipalities and people are losing their buying power.
Many key economists feel that if Ukraine fails, she will take the rest of Eastern Europe with her. Investor confidence in the area is teetering far beyond the negativity we see here in the U.S., and it will not take much to push this entire region over the edge. Putin’s political machine is watching, ready to pounce on a “wayward” child that may need to be brought back into the Russian fold, by force (military or economic) if necessary. Putin has uttered more than once that Ukraine is an example of what happens to former Soviet countries that have turned to the Western approach versus the more pragmatic Russian model. An opposition candidate, former prime minister, Viktor F. Yanukovich, favors just such a move back towards Mother Russia.
With unemployment soaring and the economy in shambles, even the once feuding President (Viktor A. Yushchenko) and prime minister (Yulia V. Tymoshenko) are trying to get along, as the International Monetary Fund, which was about to inject a $16.4 billion emergency loan to the Ukraine, is forcing a new level of austerity on this already-damaged nation. Needless to say, the existing government is rapidly falling out of favor with its constituency. Change is in the air.
Riots and protests have punctuated the chaos, as banks have exacerbated the pain by limiting daily withdrawals from bank accounts to a mere $35 a day. The March 1st NY Times described one such protest in the capital city: “On the city’s outskirts, more than 200 tractor-trailer rigs were parked [February 26th], their drivers threatening to block roads if the government did not help them with their debts, which they said were caused in part by the drop in the value of Ukraine’s currency… The truckers dispersed Friday, only after the government said it would try to address their demands, but they said they would be back soon if they were ignored.”
The Times continued with why collapse could spell disaster for an already deeply-divided Europe: “‘Ukraine is a linchpin for stability in Europe,’ said Olexiy Haran, a professor of comparative politics at Kiev Mohyla University. ‘It is a key player between the expanding European Union and Russia. To use an alarmist scenario, you could imagine a situation in Ukraine that Russia tried to exploit in order to dominate Ukraine. That would make for a very explosive situation on the border of the European Union.’”
We may soon feel the ripples even here in the United States.
I’m Peter Dekom, and I approve this message.
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