Ukraine’s GDP in current US dollars was $177 billion at the end of 2013, according to the World Bank, about the same as the revenues of General Motors. The devaluation of the Ukrainian Hryvnia from 8.3 to 26.4 to the dollar will have reduced it to about $55 billion. That’s a per capital GDP of $1,151, about the same as Chad and Lesotho. The market capitalization of Ukraine’s stock exchange is UAH 248 billion, or $9.4 billion in US dollars, about the same as the toy maker Mattel. Its heavy industry centered in the Donbass region is not competitive and survives on subsidies from Kiev. It makes nothing the world cannot get better elsewhere except wheat. The Feb. 12 announcement of a $17 billion IMF aid package to Ukraine caused barely a stir in the bond market, where Ukraine’s 2023 bonds are trading at about 50 cents on the dollar. The country’s economy is a money pit of corruption and confusion which absorbed $30 billion of Western aid and over $200 billion in Russian energy subsidies since 1991.

Things can only get worse over time. With a total fertility rate of 1.3, Ukraine’s working-age population will halve by 2050, and fall by three-quarters at the end of the present century. Ukraine, in short, is hopeless. But is it serious?

As long as Chancellor Angela Merkel is managing the mess, I think not. In the aftermath of its Southern European bailout, Europe is in no mood to pour additional billions down the Ukrainian sinkhole, which means that Europe will not try to wish Ukraine into its ranks. As long as the West takes no action to integrate Ukraine into one of the Western alliances, Russia will strive to make Ukraine toxic for the West. Putin is playing his side of the chessboard in classic Russian style: create complications in the middle game that force the burden of uncertainty onto a less capable opponent and run out the clock. In this reading Putin is acting rationally in response to a Western attempt to change the strategic balance on Russia’s borders by integrating Ukraine into a potentially hostile alliance. The alternate reading (reflected in 13.8 million Google hits for the search terms “Putin” and “Hitler”) has the Russians at the gates of Tallinn. This seems overwrought; Putin does not want to burn his bridges with Europe and become entirely economically dependent on China.

A year ago, a UN-sponsored plebiscite on regional autonomy or independence for Ukraine’s Eastern provinces might have sorted the situation out. No such easy solution is possible now. The situation will have to burn itself out. Merkel’s objective appears to be to keep the conflict limited, and that is the least bad among many possible outcomes.


David Paul Goldman (born September 27, 1951) is an American economist, music critic, and author, best known for his series of online essays in the Asia Times under the pseudonym Spengler. Goldman sits on the board of Asia Times Holdings.

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