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Soros: Ukraine Allies Must Do “Whatever It Takes”

In the most recent issue of The New York Review of Books, billionaire and liberal political activist George Soros presents his bona fides and lays out a case for much greater support of Ukraine by Europe and the U.S.

Soros notes: “There is a new Ukraine that is determined to become the opposite of the old Ukraine. The old Ukraine had much in common with the old Greece that proved so difficult to reform: an economy that was dominated by oligarchs and a political class that exploited its position for private gain instead of serving the public. The new Ukraine, by contrast, is inspired by the spirit of the Maidan revolution in February 2014 and seeks to radically reform the country. By treating Ukraine like a second-class Greece that is not even a member of the European Union, Europe is in danger of turning the new Ukraine back into the old Ukraine.”

Soros: Ukraine Allies Must Do “Whatever It Takes”

George Soros’ “winning strategy” for Ukraine

According to Soros, a “winning strategy” for the West in Ukraine requires “effective financial assistance”. This means both major budgetary support with affordable political risk insurance, and incentives for the private sector. He argues that together with the notable economic and political reforms that the new Ukraine is trying to implement, real financial support and tailored incentives would make Ukraine attractive for international investment.

Soros highlights that the key to economic reforms in Ukraine is the restructuring of the state gas company Naftogaz, and transitioning from government-supported very low prices for gas to market pricing and providing subsidies for gas purchases to indigent households.

He says “Political reform in Ukraine means establishing “an honest, independent, and competent judiciary and media, combating corruption, and making the civil service serve the people instead of exploiting them.” Keep in mind that these kinds of reforms would also appeal to many people in Russia, who would then be likely to demand similar reforms. Soros says that is exactly what Putin is afraid of and why he has worked so hard to destabilize the new Ukraine.

He goes on to argue that the EU needs to rethink its position on Ukraine, and that major financial support for the country should really be treated as a defense expenditure. Soros argues that the current €3.4 billion contribution from the European Union to the IMF rescue package for Ukraine is clearly insufficient. He points out that the EU already has the appropriate fiscal tool (the Macro-Financial Assistance mechanism, MFA) that could be used for Ukraine in the EU budget. (The MFA makes it possible for the EU to borrow funds from the financial markets, which would put its unused triple-A credit to work.)

Finally, Soros nores the EU budget only allocates 9% of the amount lent to Ukraine as a noncash reserve requirement against a future default. U.S. budget requirements call for a 44 percent noncash reserve on the mos recent $1 billion credit guarantee to Ukraine. This means the budgetary burden of the $2 billion US contribution to the assistance package is larger than that of the European Union.

According to Soros, the MFA framework agreement (which expired in 2009 when the Lisbon Treaty was implemented) and must be renewed so it can be used on a larger scale. He argues that committing “1% of the EU budget to the defense of Ukraine seems appropriate” as this would permit the EU to contribute as much as €14 billion a year to the Ukraine assistance program. This amount is large enough so that the European Union can do “whatever it takes” to assist Ukraine in its life or death battle with Russia.

Soros states further:

It is the second part of the winning strategy that is missing. Ukraine’s allies have to decide and declare that they will do “whatever it takes” to enable Ukraine not only to survive but to introduce far-reaching economic and political reforms, and to flourish in spite of President Putin’s opposition. This approach would require significantly more money than is available within the current budget of the European Union. The two prongs of this updated winning strategy—keeping military conflict within bounds and providing Ukraine with adequate financial support to carry out radical reforms—have to be carefully reconciled because they are liable to interfere with each other.

And

By doing “whatever it takes” to enable the new Ukraine not only to survive but to flourish, the European Union would achieve a dual objective: it would protect itself from Putin’s Russia and it would recapture the spirit of cooperation and solidarity that used to fire people’s imagination in its early days. Chancellor Merkel has already rekindled that spirit toward asylum seekers. Saving the new Ukraine would truly transform the political landscape in Europe.

Also Soros argues for more Russia on sanctions, stating:

I argued that sanctions against Russia are necessary but not sufficient. President Vladimir Putin has developed a very successful interpretation of the current situation with which to defend himself against the sanctions. He claims that all of Russia’s economic and political difficulties are due to the hostility of the Western powers, who want to deny Russia its rightful place in the world. Russia is the victim of their aggression. Putin’s argument appeals to the patriotism of Russian citizens, and asks them to put up with the hardships—which include financial instability and shortages—that the sanctions cause. The hardships actually reinforce his argument. The only way to prove Putin wrong is by establishing a better balance between sanctions against Russia and support for Ukraine.