COMMENT: The Germans don’t want to bail out Ukraine | Business New Europe

Walter Russell Mead, a dedicated conservative who for some strange reason insists on calling himself a liberal, is a prolific observer of foreign affairs. Mead is regularly published in a number of centrist, establishment publications and for that reason is extremely useful as a bellwether of elite opinion: he’s not too far right to anger big-time Democrats, and he’s rightwing enough to please Republican “thought leaders.”

Mead recently wrote an article "The Open Ukrainian Society and Its Enemies" in which he describes the emerging Washington consensus about Ukraine, and outlined a strategy that would work to isolate, and eventually defeat, Vladimir Putin's Russia.

Mead's strategy is internally consistent and logical. It astutely recognizes that any push-back against Russia must be multifaceted and rely on a combination of military, economic and political pressure. So if Mead's strategy is logical and if it recognizes what needs to be done, why does it fail? A very simple reason: it takes no account of political reality.

Mead understands that the only way Ukraine will ever be able to stand up to Russia is if its economy is put on a much sounder footing. Apart from cheering the International Monetary Fund (IMF) lending package, his economic prescription amounts to the following:

One approach would be to create a mutually beneficial system of credits that Ukraine could use to purchase needed goods from Eurozone countries — stimulating their economies and creating jobs where Europe badly needs help, but also helping Ukraine get a leg up. Again, this unifies the West rather than divides it.

It’s unclear what planet Mead has been on for the past five years if he thinks that a programme of aggressive Keynesian stimulus would “unify rather than divide” the West. The odds of the EU engaging in this particular policy is somewhere between “infinitesimally small” and “zero.” Why? The answer is extremely simple: the German voter.

Stimulus a dirty word

In both words and deeds since the onset of the global financial crisis, Germany has been incredibly consistent in the belief that Europe already spends too much money and that “structural reforms” are the only way to jolt the economy back to life. “Stimulus” is a dirty word to German voters and to the center-right government now running the country.

One thing about which almost everyone agrees is that Angela Merkel is a canny and astute politician. It’s not an accident that she's won so many elections and has such consistently high poll numbers. A recent Vanity Fair profile made clear one of the reasons for Merkel’s long winning streak: she conducts a ridiculously large number of polls on the German electorate's opinions, more than 600(!) between just 2009 and 2013. That is to say that Merkel, on average, commissions more than one poll a week. She is clearly someone with their finger on the pulse of the German public.

Complete story at - COMMENT: The Germans don’t want to bail out Ukraine | Business New Europe

IMF, Kiev Agree on New $17.5Bln Rescue Plan for Ukraine – Lagarde / Sputnik International

Notes: Is it on? Is it off? This is only like the 20th report I've seen saying that the loan has been approved, followed by 20 reports saying that no, it has not been approved yet. So which is it?

The International Monetary Fund approved a $17.5 billion emergency rescue package to prevent a collapse of Ukraine's economy.

The International Monetary Fund and the Ukrainian government agreed on a $17.5 billion financial bailout package for Kiev, but the move is yet to be approved by the IMF Board.

“I’m glad that the talks on are now over. We have reached a preliminary agreement on disbursing $17.5 billion for Ukraine. It’s a four-year program,” the Fund’s managing Director Christine Lagarde said in Brussels on Thursday.

The program, which is a part of a $40-billion package for Ukraine, still has to be approved by the IMF board, IMF managing director Christine Lagarde said. If approved, it would be Ukraine’s fourth IMF bailout in 10 years.

Lagarde did not specify if Russian aid will be included the $40-billion program funded by several sources.

Complete story at - IMF, Kiev Agree on New $17.5Bln Rescue Plan for Ukraine – Lagarde / Sputnik International

Michael Hudson: Europe to Pay for the Whole Mess in Ukraine | naked capitalism

Yves here. This discussion with Michael Hudson on RT focuses on the real meaning of the Ukraine-Russia gas deal. One point that Hudson makes that readers might doubt is that Russia loves the US sanctions. I’m not sure “love” is the right word, but there is reason to think they aren’t working out as the US had hoped. First, they’ve greatly increased Putin’s popularity. Even the intelligentsia in Moscow, who were hostile to him, have largely rallied to his side in the face of foreign bullying. Second, the Western press may be overstating the amount of damage done to the economy by the sanctions. Arguably the biggest negative is the fall in the price of oil, which came about growth in Europe and China slowing, and the Saudis announcing that they’d allow the price to reset at a much lower level than most analysts anticipated. But the ruble has been falling, which blunts that effect, but increases the drain on FX reserves as Russia tries to keep it falling too far and will increase inflation. Third, the sanctions have allowed Russia to engage in protection of domestic industries as a retaliatory measure, for instance, blocking many food imports from Europe.

Now all good well-indoctrinated neoliberals will say, “Trade protectionism merely allows domestic producers to become inefficient and uncompetitive.” It’s not so simple. Development economists are increasingly of the view that trade restrictions can help smaller economies develop domestic businesses to the point where they can compete in international markets, while if they foreign firms in, they’ll find it nearly impossible to build any local champions.

A colleague who does business in Russia but has no deep loyalties there, says he sees no signs of negative impact of the sanctions in Moscow (he describes it as now looking like any post World War II European capital). This is confirmed by recent surveys in Russia, so the lack of meaningful impact on Russian citizens isn’t an artifact of his seeing only the better parts of Moscow. Note that the latest EU forecasts anticipate very weak growth this year and next, as opposed to outright recession.

This visitor describes how the sanctions are helping Russian businesses. One of his friends has the Papa Johns franchise. They used to get their cheese from the Netherlands, but those supplies were cut off by the Russian sanctions against Europe. So they had to buy cheese domestically. It was cheaper but not as good. So he is working with the local farmers and cheese-makers to bring the cheese up to the standard of the cheese he used to import. So he expects to eventually have cheese that is lower cost than what he brought in and of comparable quality. And if he succeeded, the cheesemakers will be more competitive in Europe when the sanctions are relaxed.

The shorter version of this story is that Russia has a large enough domestic market and enough resources that unlike Iran, it may be closer to being able to function as an autarky when its imports and exports are restricted. The open question is whether it can go through the pain of a reset, with some serious and painful short-term dislocations, and escape the slow strangulation that the US claims it has imposed.

Complete story at - Michael Hudson: Europe to Pay for the Whole Mess in Ukraine | naked capitalism

Russian news: Ukraine: A Trillion Here – A Trillion There - Russia Insider

As the military situation in Ukraine grinds to a stalemate, the still more desperate economic plight comes to the fore, laying bare the culpable folly of European diplomacy.

In an earlier posting we had suggested that the unification of Germany could serve as a benchmark for the potential cost of any attempt to keep the implicit promise to Ukraine of EU accession, tossing out a guesstimate of one-half trillion Euros – an obviously impossible sum in the context of a European continent sliding into renewed recession.

In a recent paper, Carnegie’s always incisive Dmitri Trenin has suggested that the actual cost of the reunification of Germany was closer to E1.5 trillion, albeit over a period of 23 years. While this latter number is almost certainly closer to the mark, given the realities it is no more than a substantial rounding error; Mr Poroshenko’s trip to Washington – from which he returned with a generous $52 million – suggests that the likelihood of Ukraine receiving anything like either number is identical – precisely nil.

That's $50 mmm...million, with an "M"

Since independence modern Ukraine has been at best a semi-functional state, stumbling along on legacy assets while no government, whether nominally pro-Russian (Yanukovich) or pro-western (Timoshenko/Yushchenko) made any meaningful attempt at real reform.

This is hardly surprising – the various governments represented nothing more than the coalesced interests of one or the other oligarchic faction, themselves the ultimate beneficiaries of systematised corruption and inefficiency, which they have no conceivable interest in combatting.

Complete story at - Russian news: Ukraine: A Trillion Here – A Trillion There - Russia Insider

The Winners and Losers from the US engineered Coup in Kiev V2.0

The following is an update from my article from March on the same subject. The predictions for which are all coming true (except things are turning out even worse than I predicted):-

The winners & losers from Obama's Neocon Coup D'Etat in Ukraine

The Coup in Kiev was never designed to benefit Ukrainians, they are the biggest losers from the geopolitical power games between the US and Russia and US aggression currently being played out. It was very obvious that this would be so.

The Ukrainian economy is sinking like a stone, as is the currency. Unemployment is going up. The IMF's $17bn loan will not be anywhere near enough to bail out a rapidly deteriorating Ukrainian economy. $3.1bn is going to paying off some of Gazprom's outstanding bill by the end of the year.

The European Bank for Reconstruction and Development (EBRD) revised it's Ukrainian 2014 Economic Forecast in September to a plunge of 9% (from 7% previously). See 1.

Complete story at - The Winners and Losers from the US engineered Coup in Kiev V2.0

Ukraine Faces Backlash as Devaluation Ravages Foreign-Currency Borrowers - Bloomberg

As central Kiev burned amid deadly street protests in February, Ukraine’s currency dived and Alex Bukovetskiy stopped paying his dollar-based mortgage.

The 41-year-old joined hundreds of angry borrowers at parliament last week to demand the authorities provide relief after the hryvnia lost a third of its value in two months. Payments to Universal Bank on his flat in the capital’s suburbs have jumped 40 percent to $1,250 since President Viktor Yanukovych was toppled.

“I don’t have that kind of money,” Bukovetskiy, who’d been dipping into savings to pay his mortgage after losing his marketing job last autumn, said June 5 by phone. “I’m not hiding from my bank. I’m ready to pay but I want a compromise.”

Six months of political turmoil have rocked Ukraine’s finances, turning the hryvnia into 2014’s worst performer versus the dollar and prompting the government to sign a $17 billion bailout with the International Monetary Fund. Already battling an insurgency in the nation’s east, officials must now decide between placating the borrowers and further undermining the nation’s fiscal position or antagonizing them by doing nothing.

The situation could be worse: Ukrainian banks, which include Dnipropetrovsk-based Privatbank, Russian lenders such as OAO Sberbank (SBER) and foreign institutions such as Raiffeisen Bank International AG (RBI), have been limited to issuing hryvnia-based home loans since the 2008 financial crisis ravaged the economy.

Complete story at - Ukraine Faces Backlash as Devaluation Ravages Foreign-Currency Borrowers - Bloomberg