A quiet Ukrainian success for the EU

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Ukraine has achieved remarkable economic and monetary reform; this needs to be supported by wider political reform. And the buck stops in Brussels. [Kiev/ Shutterstock]

The EU may have its hands full with Donald Trump and Brexit. But quietly, modestly, things are starting to go right in Ukraine, writes Sir Graham Watson.

Sir Graham Watson was an MEP from 1994 to 2014. He led the European Parliament’s Liberal Democrats from 2002 to 2009 and presided over the ALDE Party from 2011 to 2015. He is now a member of the European Economic and Social Committee.

French President Emmanuel Macron, a pro-European to the core, has recognised this by receiving his Ukrainian counterpart Petro Poroshenko among the first of the foreign heads of state visiting Paris.

Three years ago, immediately after the Maidan revolution, the situation looked disastrous. Russia had annexed Crimea and occupied other parts of the east of the country.

Russian-backed militias shot down a KLM aircraft, killing almost 300 civilians. Ukraine’s economy was disintegrating and its democratic institutions were crumbling. When I visited Kyiv in September 2014 another state failure on the EU’s borders looked highly likely.

We are in a different place today. Though sporadic fighting continues in the occupied areas of Donetsk and Luhansk, the risk of further destabilisation beyond these areas has decreased significantly since the 2014-15 Minsk accords; and the cost to Russia of the continuing conflict is being felt increasingly in Moscow.

Meanwhile, the Ukrainian economy is well on track for recovery. After a devastating cumulative contraction of 16% in 2014-2015, Ukraine’s GDP recovered modestly by 2.3% last year, despite headwinds, with projections of growth reaching 3.5% for 2018 and 4% for 2019.

Tough but necessary reforms have been implemented by successive finance ministers Natalie Jaresko and Oleksandr Danylyuk.

Chicago-born Jaresko secured an initial $40 billion support package from a range of international partners including the IMF and the EU in January 2015 and restructured Ukraine’s foreign debt later that year.

Danylyuk, an ex-McKinsey consultant, has successfully followed in her footsteps and has kept Ukraine on track, securing the release of two further tranches of aid, a first for a country which had never previously managed to unlock more than one in its history.

Danylyuk has been a quiet but effective driver of Ukraine’s economic reforms; so much so that the EU has committed two fresh €500 million tranches of macro-financial support.

To date, Ukraine has received four tranches worth $8.38 billion in total out of the $17.5 billion IMF programme, in recognition of the government’s successful implementation of economic reforms.

In addition, technological solutions have been found to help tackle corruption, both in managing public contracts and in ensuring transparency of the assets of officials.

In order to receive the fifth tranche of IMF aid and successfully re-enter financial markets later this year, the government still needs to pass laws on land reform and pension reform.

Such strict conditionality, albeit in lock step with the Ukrainian government, has been consistently linked to generous benefits – a carrot and stick approach which is working.

Indeed, this ‘tough love’ policy has been the hallmark of the approach of Ukraine’s three primary international partners – the EU, the US and the IMF – since Ukraine embarked on its journey towards political and economic independence from Russia.

With this close cooperation, Ukrainians are driving the reforms themselves, and have done more to transform the country in the three years since the Maidan revolution than in its previous 23 years of existence.

Nonetheless, Ukraine’s troika of international supporters looks very different today. The old transatlantic certainties have disappeared; with the advent of the Trump presidency Washington’s priorities are different. America’s policy on Ukraine is chaotic at best, lacking direction, commitment and coherence. In the context of this vacuum, the EU should raise its ambitions.

There are good foundations on which to build. Ukraine’s economic turnaround already represents a European foreign policy success story.

Through its actions, the EU has supported the stabilisation of a country of 45 million people bordering three of the bloc’s members.

This has prevented high levels of migration, ensured stronger borders, and helped avert what threatened just a few years to become a humanitarian crisis.

The EU claims that a stable, prosperous and democratic Ukraine is critically important for the bloc itself. It should now put more money where its mouth is, continuing to support the difficult but much-needed reforms being undertaken by the government in Kyiv and sustaining and encouraging Ukraine’s self-help to render irreversible its re-orientation back to Europe.

This will involve helping Ukraine do more to fight corruption, reduce the influence of the oligarchs, reform the judiciary and improve the rule of law.

Ukraine has achieved remarkable economic and monetary reform; this needs to be supported by wider political reform.

And the buck stops in Brussels. As Chancellor Merkel has made very clear, it is up to the EU to lead on its own continent, to counter and resist Russian aggression and to become a source of stability. Ukraine’s quiet successes give hope in this direction.