Ominous parallels are being drawn between the relentless escalation of the Ukraine crisis and the “Guns of August” that exactly a hundred years ago opened the First World War and brought to an end the first great era of globalization – and inaugurated the darkest of ages in European history.
A paradox of the situation is that the crisis had its origins in a core phenomenon of globalization – namely, trade integration. Ukraine became the object of competition between the EU, which was offering Ukraine associated status involving a “Deep and Comprehensive Free Trade Agreement” (DCFTA), and Russia sought meanwhile to secure Ukraine’s participation in the Customs Union that, for now, comprises Russia, Kazakhstan and Belarus (with Armenia and Kyrgyzstan as prospective members). Russia’s plan, explicitly stated by President Putin on several occasions, was to extract a better Free Trade Area deal from the EU on the strength of the very large market that the Customs Union (including Ukraine) would offer to European exporters than any one member country of the Customs Union (even Russia itself) could likely achieve on its own. As shown by the events leading up to the Ukrainian revolution of February 2014, a majority of people in Ukraine rejected the Russian option on grounds of politics and identity. As a result, Ukraine has now signed up to its Association Agreement and DCFTA with the EU.
Ironically enough, this outcome is economically better for Russia. The cost for Russia of integrating Ukraine into the Customs Union in terms of subsidies and competition (because of low Ukrainian wages) would have been very great. Now it is the West that will bear the bulk of the cost of Ukraine’s economic transition: and, as and when Ukraine returns to economic growth, Russia will be an incidental beneficiary of Ukraine trading more intensively with Europe.
But if Ukraine is to recover, the burden of supporting that recovery must be shared between the West and Russia. And if Ukraine were to absorbed fully not only into the EU economic sphere but also into the US-led military and security system (i.e. NATO membership either de jure or de facto), then the result will be not only humanitarian tragedies – as we have seen in recent weeks in eastern Ukraine – but also geopolitical confrontation with Russia and also the economic perdition of Ukraine itself. This last point, perhaps less obvious, is brilliantly made in “Ukraine: A Prize Neither Russia Nor the West Can Afford to Win“ by Clifford Gaddy of the Brookings Institution and Barry Ickes of Pennsylvania State University.
Gaddy & Ickes show that the only viable solution for Ukraine is for that country to be neutral; Thursday the CGR blog will follow this thread with an article by Christopher Granville describing the diplomatic process necessary for getting to this only possible satisfactory outcome to the crisis