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Matthew William Kennedy

Professor Amy Scott
18 March 2014
From Russia without Love
In the realm of current events, the situation in Ukraine is certainly in the spot light. It is
guaranteed to spark conversation from the casual news readers to world political leaders and
everyone in between. To say that we have a morbid fascination with real world conflict would be
an understatement. Though this situation is a very serious one and it is understandable why it is
at the focal point of the world. The state of affairs between Ukraine, Russia, and the rest of the
world has already generated significant economic effects and that will most likely not come to an
end anytime soon. Even after a viable resolution has been reached, there will be profound
consequences that will continue to resonate throughout the world.
The relevant history of the relationship between Ukraine and the Russia we know today
began with the final dismantling of the USSR. In 1991 Ukraine was granted its independence,
but was still subject to the effects of a communistic ideology and remained Russias little
brother (Evans 24). Those effects are hard to rid, especially when your culture has been
suppressed for more than 350 years. While the cultural healing process will be ongoing, the
strongest damage to the country has been felt economically. To add insult to injury For years the
English-speaking world has gone on calling it "the Ukraine" as if it were still a region of Russia

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(Evans 25). Unfortunately, this does foreshadow that the escape from Russias cold grasp would
not be an easy endeavor.
Soviet and Eastern Bloc countries were at a fork in the road so to speak upon the final
collapse of the Soviet Union in the early 1990s. The CEE-10 which was comprised of 10 Central
and Eastern European nations made a strong step towards the west by seeking admittance to the
European Union. The rest, like Ukraine, moved much more slowly toward Western standards,
and some even settled under a new Russian umbrella. (Hasset 8). The countries that took the
European Union route saw quick economic growth. Moving away from the inherent problems of
central planning at the heart of the USSRs communism, some countries experienced rapid
development. Emerging countries do not necessarily have to be on the forefront of advancement,
but even following suit of other further developed countries can have a profound impact.
This was certainly true for former Eastern Bloc and Soviet countries that had joined the
European Union. These countries have experienced significant growth since the mid 1990s in
Average Per Capita GPD in constant 2005 dollars. Within these countries Average Per Capita
GPD more than doubled their former Soviet counterparts (See Fig. 1). In comparison, the
countries, like Ukraine, that failed to take that path have stagnated (Hasset 8). The Ukraine
specifically has seen extremely low growth. This would only be compounded by the financial
crisis in 2008. The standard of living has barely increased since the fall of the USSR. This lack
of expendable income in a vast majority of citizens will further perpetuate economic instability
and poor growth. It is obvious that not following the same path as some of the other countries
into the European Union has had an incredibly negative impact. Though the push to join the EU
is still heavily supported and a driving reason for the situation we now find on every news outlet
across the globe.

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While the economic situation has roots in the USSR, the current situation heavily stems
from Russian political influence. After Ukraine became independent the country sunk into
deep economic depression and saw a substantial decrease in gross domestic product. Output by
1999 had fallen to less than 40% of the 1991 level. (CIA: The World Factbook: Ukraine 677).
Ukraine did not show real GDP economic growth until the year 2000 (See Fig. 2). Even though
the country was still struggling, it was still a big player compared to other countries that did not
also did not seek joining the European Union. After Russia, the Ukrainian republic was the
most important economic component of the former Soviet Union, producing about four times the
output of the next-ranking republic. (CIA: The World Factbook: Ukraine 677).
Just like economic disparity, Ukraine is not unfamiliar to political protest. In late
November of 2004 the Orange Revolution began after the 2004 presidential election which was
widely held as corrupt. This would lead to a shift in parliament and short lived growth in real
GDP output in 2004. It was obvious something had to be done as economic growth remained
weak and inconsistent. Ukrainian Government officials eliminated most tax and customs
privileges in a March 2005 budget law, bringing more economic activity out of Ukraine's large
shadow economy, but more improvements are needed, including fighting corruption, developing
capital markets, and improving the legislative framework. (CIA: The World Factbook: Ukraine
677). This was quite an undertaking for a country that had barely begun to show any signs of
economic sustainability. The need for indoctrination into the European Union looked more
necessary than ever. Although full integration was never a short-term prospect, European
integration, through the Association Agreement and the Deep and Comprehensive Free Trade
Area, offers considerable benefits to Ukraine. (Connolly 541).

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Tougher times were ahead as we approached the 2008 economic crisis. This recession
was felt all over the world and Ukraine was not an exception The economy contracted nearly
15% in 2009, among the worst economic performances in the world. (CIA: The World
Factbook: Ukraine 677). Such economic turmoil comes with a plethora of side effects, from
increased unemployment and stagnant wages to an increase in crime. Unemployment was at high
of 8.1% of the labor force for the working age group of 15 to 70 years (UNdata - Ukraine). The
recession within Ukraine during 2008-09 also would potentially jeopardize any movement
forward with admittance to the European Union. This would be compounded by the direction
the government and Ukrainian policy makers would soon be headed.
A leader of this directional change would be Viktor Yanukovych, a member of the Party
of Regions. This is a very common name to be heard in the discussion of the current Ukrainian
situation. Yanukovych had originally won the 2004 election, but this would eventually be
nullified by the Supreme Court after it sparked the Orange Revolution. Gaining ground in 2006
he was elected Prime Minister. Eventually he won the first round of the presidential election in
2010, and then won a run off against Yulia Tymoshenko. (Viktor Fedorovych Yanukovych ).
This created nervousness in citizens as it was becoming more apparent the push towards
legitimate independence could be drastically hindered. His election quickly led to reduced
tensions with Russia and, in exchange for a reduced price for Russian natural gas. (Viktor
Fedorovych Yanukovych). The natural gas supplied from Russia plays a major role in the
Ukrainian economy. Especially because the Ukraine depends on imports to meet about threefourths of its annual oil and natural gas requirements and 100% of its nuclear fuel needs. (CIA:
The World Factbook: Ukraine 677).

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In 2013 Ukraine sunk further into economic distress and was given an even lower credit
rating by the S & P. With such a low credit rating the ability to manipulate the money supply,
specifically with trading and selling bonds, becomes limited. Unlike the United States that can
greatly influence the money supply through monetary policy. To make matters only worse the
country had a budgetary shortfall of about fifteen billion dollars (Rogers 1). Just like the Soviet
and Eastern Bloc countries in the 1990s, again Ukraine was faced with a similar decision. The
first option was to receive a bailout from Russia. The second would be for the European Union to
provide $15 billion to Ukraine in loans and grants over several years if it signs a reform deal
with the IMF. (Rogers 1). The majority of support from the citizens was to pursue negotiations
with the European Union. While the country viewed taking the route with the EU as obvious
preference, it would still cause serious contention with Russia specifically with the supply of
natural gas. Secondly Russia and the EU each buy about one-quarter of all Ukrainian exports
every year. Losing either market would be devastating to the fragile Ukrainian economy.
(Warnica 24).
In late 2013, Yanukovych made the executive decision to dismiss negotiations with the
European Union and IMF. Thus leaving Ukraine with the only the other option, Russia. This
decision sparked outrage and would led to citizens occupying Independence square in protest.
Though unlike the Orange Revolution, this protest would not be bloodless. In an attempt to end
the protesting, Yanukovych issued a new law making protesting, even peacefully, illegal. This
would have an adverse effect and made the protest only increase in strength and escalate in
violence. Clashes between protestors and riot police led to multiple deaths. The citizens called
for the resignation of Yanukovych. The protests continued and only further escalated in February
of 2014 when more protestors started being killed by police. The uprising against Yanukovych

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resulted in the deaths of at least 88 people. (Petrou 28). The protestors refused to disperse and
demanded investigation into the killings. The size of the protest had increased significantly and
led to government troops surrendering. As a result Yanukovych and other officials fled the
Ukraine for personal safety. While this was a victory for the people of Ukraine, the situation was
far from over and in some ways, was just beginning. Ukraines big brother was about to make
its formal entrance.
Russian troops -- along with pro-Russian forces whose exact identities are unclear -took control of Crimea in February. (Petrou 28). Crimea is part of the southern peninsula of
Ukraine with a predominately Russian population. This is also the warm water port into the
Black Sea which is pivotal for Russian trade. The Russians essentially rent this territory since
Crimea was transferred to Ukraine in 1954 when both Russia and Ukraine were still under the
Soviet Union. In return a price discount on Russian natural gas imports was established and
renewed in 2010 (CIA: The World Factbook: Ukraine 677).
The annexing of Crimea has caused immense debate and opposition from the United
Nations and from the countries it comprises against Russia. Sanctions and freezing of assets have
already begun to be imposed by the United States and other western countries causing further
economic concerns for Russia. Broader economic sanctions are an obvious option -- though
these would hurt Western and especially European economies, too. (Petrou 29). Continental
European countries have a strong reliance on oil and gas supply from Russia. This will make it
very difficult for these countries to keep economic pressure on Putin because of the negative
effects it can have on their own economy. Though these concerns may have to be put to the side
since The greatest fear in Kyiv and among Ukraine's allies is that Russia will now invade other

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parts of Ukraine (Petrou 29). The fear of further escalation still lingers on everyones minds
especially for the Ukrainians.
Ukraines fight for absolute independence and economic stability is not going to a quick
or an easy one. Seeking entry into the European Union has great benefit. An agreement that
liberalized trade with the Eu[sic] would mean better access to the world's largest consumer
market, increased foreign direct investment and an improved business and political
environment. (Warnica 24). Unfortunately the means necessary for obtaining this will cause
even further contention with Russia which could ultimately escalate into war. Even now
countries and their economies all over the world are feeling the effects of the conflict. A war or
further military action from outside countries can only make the effects stronger. Economic
stability and growth will always be a top priority for Ukraine, but there are a lot of steps
necessary before that can become a reality. If Russias cold grasp does not loosen then the little
brother will most likely never be allowed to grow up.

Figure 1:

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Hasset, Kevin A. "East Is Least."

National Review 66.5 (2014): 8. Academic Search Premier. Web. 24 Mar. 2014.

Figure 2:
GDP growth (annual %)

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Works Cited

Evans, Julian. "Rebirth Of A Nation. (Cover Story)."

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New Statesman 143.9 (2014): 24-29. Academic Search Premier. Web. 20 Mar. 2014.

"CIA: The World Factbook: Ukraine"

CIA World Fact Book (2011): 675-679. Academic Search Premier. Web. 20 Mar. 2014.

Hasset, Kevin A. "East Is Least."

National Review 66.5 (2014): 8. Academic Search Premier. Web. 24 Mar. 2014.

"UNdata - Ukraine." UNdata. N.p., n.d. Web. 22 Mar. 2014.

Connolly, Richard, and Nathaniel Copsey.

"The Great Slump Of 20089 And Ukraine's Integration With The European Union."
Journal Of Communist Studies & Transition Politics 27.3/4 (2011): 541-565. Academic
Search Premier. Web. 21 Mar. 2014.

"Viktor Fedorovych Yanukovych."

Columbia Electronic Encyclopedia, 6Th Edition (2013): 1. Academic Search Premier.
Web. 22 Mar. 2014.

Rogers, Alex.
"Congress Debates Tying International Monetary Fund Changes To Ukraine Aid
Package." Time.Com (2014): 1. Academic Search Premier. Web. 26 Mar. 2014.

Warnica, Richard.
"Ukraine's Shaky Economic Future." Canadian Business 87.3 (2014): 24. Academic
Search Premier. Web. 25 Mar. 2014.

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Petrou, Michael.
"Advantage, Putin." Maclean's 127.12 (2014): 28-29. Academic Search Premier. Web.