'EU like Wizard of Oz – boasts of power while being immensely weak'

A standoff over the Autonomous Republic of Crimea is grabbing global headlines, but Ukraine’s failing economy could prove to be a much larger problem for Kiev than territorial issues. How much longer can the financial heart of the country beat? Is the West ready to financially rescue a country with a completely devastated economy? To answer these questions and more, Sophie talks to Dr. John C. Hulsman, political analyst and expert on international relations.

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Sophie Shevardnadze: Dr. John C. Hulsman, political analyst and expert on international relations, joining me from Berlin. It’s really great to have you on our program today. So I’m just going to start from the latest news: Ukraine’s Crimea has called a referendum to take place in the coming weeks. What do you expect? Is it going to vote to join the Russian Federation?

John Hulsman: I hope not, and the reason I hope not is that in the 90s, the Russians, the US, and the British agreed to Ukraine’s boundaries as they were then, in exchange for Ukraine doing away with nuclear weapons that were on its territory at the end of the Soviet Union. It does have two options, as you say: one, in a referendum to join Russia, the other is some form of going back to the 1992 constitution which gives it, in effect, de-facto, an awful lot of autonomy. I mean, it would be a confederation, whereby day to day the people of Crimea would be allowed to run their things, and frankly I think confederation suits Ukraine, as a whole Ukraine is such a divided polity, there is so many different cultural, ethnic, linguistic groups here, that the best sort of outcome to really lead to stability is what Thomas Jefferson had right: it’s less control, and this is always very hard for people on either side to really fathom, but the less control, the more local control there, is really the better for the country this varied, and so I’m very much hoping for that outcome.

SS:Why do you think there is so much resistance to the idea of a federated Ukraine? Because when you think about it, it could really take care of all its problems right now…

JH: I mean, there is so much bad blood. What everyone needs to do is to take a deep breath and see what’s best in the long-term for Ukraine. Henry Kissinger started that process in the US yesterday. He wrote an editorial where he said, “Look, Ukraine is always going to be more to Russia than just another state and if we don’t understand that in the West, we simply don’t understand what’s going on, we don’t understand history, sociology, economics, everything.” I think that’s an important point, and in return, one has to argue that people in Western Ukraine – and of course we’re speaking in generalities, many people don’t agree - but people in Western Ukraine, some of whom were in the Austro-Hungarian empire, some of whom look to the Catholic Church rather than the Orthodox Church, some of whom speak Ukrainian and not Russian – take your pick here, want to look more to the West, but on the other there are many, many people in Ukraine, particularly in the eastern part, and the southern part, and in Crimea, who want to look much more to Russia. The only way to solve this, a long-term way in terms of stability, is to have this decentralization, but that would mean the bad blood on both sides has to be tempered down, so I would urge everyone to take a deep breath.

SS: So why was the new Ukrainian parliament so preoccupied with the status of the Russian language in the first days in power, when it had so many other pressing economic problems to deal with?

JH: I think that’s revolutionary euphoria, which is almost always stupid. The Economist, which is a wonderfully written pro-Western magazine – and I’m certainly a pro-Western fellow and I agreed with the Economist - it was monumentally stupid, it sent all the wrong signals. What you need is an inclusive government that brings in people from southern and eastern Ukraine; if you want to have this confederal outcome, you don’t start abolishing Russian as another language as your first act, and this aided and abetted in everything that went after. There was a fire already, and this put gasoline on the fire, there’s no doubt about it, and in this new process, if we can get to a new confederation, one of the things the West and particularly the EU – I mean, it’s actually good in these kind of things – is to say, “Be more inclusive, bring people in from the east and the south.” They did go back on a Russian language issue already, but don’t do monumentally stupid things that just divide people further. And so, yes, that certainly was a very bad moment, but now we are where we are, as we say in the policy world, and the way forward to me is to say this; to push for inclusivity and, at the same time, push for a very decentralized Ukraine.

SS: I just want to follow that up, because obviously, that first attempt to strip Russian of its regional status was vetoed by the president, so it didn’t take place. But as we speak, in Kiev right now there are ultra-nationalist politicians deciding the fate of the Russian language. How’s that going to help defuse the situation?

JH: No, it’s not going to, and one of the problems post-revolution anywhere is to try to get more moderate elements who actually want to move beyond the revolutionary situation and reach some sort of moderation and outreach to the other side. You’ll never have peace afterwards – history proves that over and over and over again. The added gun to the head of Ukraine of course is that it’s flat broke; they don’t have time for this nonsense, basically according to the new government, they need 35 billion dollars in the next two years, even with the EU plumping up, let’s say, around 15 or so, and with the IMF money coming, which will lead to austerity, and making whatever government is in charge very unpopular. They still have to come up with an awful lot of money in the next two years – no one will want to invest here, in short-term, medium-term or long-term, if there is a continuing simmering revolution violence and one side picking on the other, in effect. So, for the good of the future of the country, this is where people in the EU begin quietly, behind the closed doors…Germans are very good at this kind of thing; they need to begin to say, “Look, stop with this nonsense and let’s move forward or you are not going to have a state to govern at all.”

SS: Talking about being flat-broke – the government in Kiev has announced a first round of cuts. Pensions for working retirees have been cut in half, that’s among other social spending reductions. How do you think people will react? Could they actually head to the streets again?

JH: They could, but I don’t think they will at the moment. One of the things that the new government has actually done relatively well despite the idiocy over the Russian language issue is to say that they were a “kamikaze government” – it’s a traditional government, they are going to have do very tough and unpalatable things; they’ve actually laid the groundwork for that relatively well, with the main thing that they will have to do is to cut fuel subsidies which is never going to be popular; they are lucky the winter is over and it gives them some time and they have had some storage to do this and to get through the next couple of months. But, really, the IMF isn’t going to want to negotiate a full deal, I would imagine that, until there is a new government in May or so. Basically, it’s getting from here to there, beginning the cuts, setting the groundwork and trying to bring the other side in and look at the overall state of Ukraine – that’s what they have to do right now, and then when we have a government that has more legitimacy they have to very quickly negotiate the stabilization deal with the IMF, which of course will have rule-of-law conditions, which will have austerity conditions, which will make that government terribly unpopular – all the more reason to make it inclusive. If it’s just one group, this group is going to be three weeks terribly unpopular, it needs to be a national unity government involving basically every voice in the country, that’s the only way in the short run that people will swallow this medicine and move forward.

SS:But, here’s a question – can Ukraine afford more austerities? Because even if the IMF loan to help Ukraine’s economy is approved, it will lead to strict austerity. The fund will not go for it otherwise. What does that mean for Ukraine?

JH: And it’s foolish! I think the IMF should learn from the mistakes they made with the EU. Austerity is necessary, balance budgets are necessary, and for countries like Ukraine, living within your means will be a new thing, and they certainly need to do that. But saying that, the IMF has been wrong time and time again pushing austerity; what they need to do is push structural reform. You need labor market mobility, you need rule of law, you need courts that work, you need open contracts that work and look fair to everyone on the inside and on the outside. These things cost money but not nearly as much as austerity, but this is how you get foreign investment and this is how you begin to build up your coffers and move forward as an attractive place to do business. This is in the face of 20 years where this totally has failed, in Ukraine, by everybody who ruled Ukraine, it was treated as an ATM machine to rob, and regardless of who has been in power. This has to stop on a dime. The rhetoric so far has been very good on this, but of course the proof is in the pudding.

SS: Ukraine’s finances are in disarray, like you’ve said. Thirty-five billion is needed to just keep the country afloat, not to mention fix its economy. Regarding the association treaty, is the EU ready for a burden like that, while it still has to deal with its own crisis?

JH: I think the association treaty probably will help, and that usually there are a lot of conditions that are attached to this, but the speed with which the EU has moved, and frankly, talking about sanctions and inducements and all the things we are talking about, the one thing Europe has done that isn’t pitiful, that actually matters up to now is indeed this notion of a very quick association agreement, whereby Ukrainians have access to the European market, the money is great, but it’s the access to the market that in the medium- or long-term is what really matters, and they’ll have conditions afterwards, that will be put on, but the conditions will be relatively minor, because the EU wants to be so helpful in trying to stabilize that government. Certainly that’s what they are doing here. The more problematic moment really for the government is going to be the IMF, because like you’ve said, the IMF shows no sign of doing anything but incites that “one size fits all,” “austerity is the way forward” approach and that will hit very quickly in May probably, if we look at Greece as a template, that means by summertime these cuts begin to bite, the government becomes unpopular and then we have a problem in, say, the fall if things have not worked out. So, really, what EU is doing is the one carrot it can put on the table, and it’s done that; the IMF is probably the bigger problem.

SS: So, you are thinking that the new government in Kiev can definitely expect a solid aid from the West? Because the EU and the US politicians have been vocal in their support for the Maidan politicians, but when Yanukovich was asking them for more than just 700 million, they were like, “Sorry, we can’t give you more,” so then he turned to Russia which was promising 15 billion. So do you think the new government can definitely expect help?

JH: Oh yes I do, and the reason is precisely the way you laid it out; the reason is that the EU made a mistake in the first place. In effect, there was a beauty contest going on, but the EU wasn’t really paying attention or playing, the US is totally diverted by Asia, diverted by the Middle East, diverted by the Iranian nuclear issue, diverted by Syria, shall I keep running the list, diverted by the mid-terms, diverted by President Obama’s very low approval rating, which doesn’t get mentioned, he stands at 39 percent. For my days in Washington, anything below 40 and you are in real trouble. And so all these things are preoccupying the US, we let Europe take the lead, and, in typical dilatory fashion, they kept…they took their eye off the ball, they didn’t make a significant offer, Yanukovich looked around, and what did he do? He went to where the money was, which is what any politician, frankly, I can think of, would have done. And so, to make up for this egregious mistake that everybody knows was made, oddly enough I think you can count on Europeans now, because I’ll say one thing about what’s happened – it has focused everyone’s attention magnificently.

SS: Dr. Hulsman, what do you think about the potential of full EU membership for Ukraine? I mean, those who stood on Maidan Square surely thought it’s a possibility.

JH: They did and I think they were wrong. If you had asked me the week before this all blew up, if you look how the great powers in Europe actually would have voted on such a thing, almost all of them would have voted against it. Remember that Europe is in the midst of the existential crisis, it doesn’t have a lot of spare cash, it isn’t 1967, when German productivity is leading the world; Germany is having to bail out the entire southern tier of the European Union, and so to take on another monumental project, as we’ve laid it out, certainly Ukraine will be that, is not something that the Germans wanted to do. Working slowly, bringing them along in some sort of agreement, but not offering full EU membership suited the French and suited the Germans, and they are the two who still by and large make the decisions within Europe, particularly Berlin, of course. I think that a lot of the factors, once everything dies down, I think that remains the case – the problem within the EU is that its very, very attractive when you’re in Brussels, and the farther you move away from Brussels, the less attraction there is to that model. The Chinese for instance have no desire to join the EU so that is not an inducement, and so I think the gravitational pull really begins to run out when you reach areas like Ukraine, and so what they’ve tried to do is set up this neighborhood policy, where they allow market access with conditionality, where they give some aid, though not as much as the people in the region want, where they don’t talk clearly about whether people join or not, but that ultimately that they wouldn’t join but would be a semi-satisfied peripheral player. I think that’s exactly what they were looking for. The danger now is in the situation people in the West may very well over-promise, and over-promising would be a tragedy because let’s remember, the only way to get them in is unanimity, you just need one great power behind the scenes, frankly, to say “I don’t want to pay 35 billion dollars for every two years for the rest of time, I’m trying to save Portugal, Greece, Italy, maybe even France, and we simply cannot afford to do this,” and so they have to be very, very careful right now about not over-promising, or as you say, the people on the street, there is no doubt, think that membership is an option. I’m far less certain that that’s an option.

SS: So why do you think the Europeans were so pro-Maidan and so supportive of all those people who actually stood out there and some of them paid for it by their lives?

JH: I think this is always the disconnect with Europe, I mean, it’s, I deal with this all the time and it’s incredibly frustrating, it’s a bit like the Wizard of Oz – you hear this wonderfully booming voice filling the Cathedral and you find out the Wizard is about a foot and a half tall...The problem with Europe in general is that it over-promises, it thinks that it is a template for the world, but frankly I think it’s a declining power. And by the way, the Chinese, the Indians, the Turks, the Indonesians, the South Africans, the Brazilians would agree with me. If you look at where growth is coming in the world, it certainly isn’t from Europe, the only two major European countries growing are Germany, at about 2 percent - which is not great, and Britain at about 3 percent, and everybody else is in a coma, flat-lining or actually going down. This is not a model of the future, and yet, you hear them talk that they are the future, and so this baddening disconnect is problem both for the people on Maidan but also for the US. The Americans want much tougher sanctions right now to be placed on Russian and Ukrainian officials, but sanctions don’t make sense, because the US needs Europe to go along with those sanctions, because trade with Europe is far greater than the trade with America, and the Europeans don’t want to do that, and so the Americans say, “I thought you cared about these people” and Europeans look at their shoes and whistle – this is very normal, this is the pattern I’ve run into through my entire working life. The thing about Europe is don’t look at what they say, look at what they do as Joseph Conrad would have it. I think that’s a much better way to go, and so I’m not at all certain they are going to contribute this kind of money down the road, I’m not at all certain that they are going to plump for membership down the road. I think they were moved by what happened on the streets, as we all were, but I think that’s a very bad way to make policy. You should make it with your head, perhaps, less than with your heart.

SS:Also, Mr. Yatzenuk, who is the head of a new government in Kiev, has said recently, two or three days ago in Europe, that this is not a “Ukraine-Russia conflict, this is a conflict in Europe.” Do you see it this way? Is Europe ready to see this as an internal problem?

JH: No. To be fair to the Europeans and particularly to Germans, they are well aware that engaging Russia – with whom they have vast trading relationship, beyond even energy, in terms of petrochemicals, machines, tools, cars – these are the things that the German industry does very well around the world and Russia is certainly part of that – they are aware that they are next door to Russia and even Mrs. Merkel, who is no friend of Russia, in a way that Chancellor Schroder was, but the SPD are all traditional friends of Russia, and Steinmeier carries that banner certainly up to now. There are different voices in the German government, like there are in any other government, but the reality is that I don’t think they see it that way, that’s it’s all one or all the other. They are playing a balancing act, they want peace, certainly, and stability on their flank, and yet they want to engage Russia and keep it engaged. That’s walking a tight rope. That can be done, but that leads to be very adroit diplomacy and knowing about limits, which is what again I urge them – to tone down the rhetoric and actually match it to what they are prepared to do. That and that alone would really help the situation.

SS:So you’re saying that the EU is not ready to undertake serious economic sanctions against Russia?

JH: I don’t think so. It depends on what we mean by “serious,” but Iran-style sanctions, which are the most extreme thing coming out of the US Congress – I’m not sure that would even pass in America, but it certainly wouldn’t fly in Europe, and everybody knows that. Even on a smaller matter, like the G8 in whether people go or whether Russia is kicked out of the G8 which is relatively a smaller deal, certainly, than economic war with all, Steinmeier made it very clear that it was a very bad idea. And the US can’t do this without European support, particularly German support, and so, as ever in Europe, there are different voices. You hear much more hawkish tone from Poland, the Baltics, Sweden. But from Italy, from Cyprus, from Germany you have a much more “We need to engage the Russian” tone, as always. This isn’t a unitary actor, this piece speaks with many voices.

SS: Some members of the government who came to power after Maidan belong to ultra-nationalist forces, and are known for their anti-Semitic, anti-minority stance. How can the EU explain working with these people?

JH: It wants to weed them out as fast as possible, and again, in any revolution, and certainly I can think of...I used to teach a course in my pre-serious days, you’re always going to have extremist elements. They do need to be weeded out extremely quickly – we don’t have the luxury of time, due to the geopolitical situation, but also primarily the economic situation, to play around with nonsense, as you say. Not a majority of people in the crowd, certainly, but an active minority in the crowd were extremists, and Western press certainly says this. I was stuck on my train today reading my Economist and that certainly came out, they were very fair about that, and these folks need to be weeded out very, very quickly because what they will do is blow up all the possibilities of stability here, and incite other things that we don’t want them to do, and here we really need the EU and it’s kind of soft power way to lean on the transitional government and keep the bad apples from ruining the cart.

SS: Look, on Maidan those who are now in power in Kiev promised to cut big business out of politics, which was initially a huge problem and the core reason for this acute social protest that brought all these people up, nepotism and the oligarchs being in power. And now, we see them appointing oligarchs as governors – how do you explain that?

JH: As always in the revolution, doesn’t it sound wonderful – I think of the great Brian Wilson Beach Boys song, “Wouldn’t it be nice” – but in the real world, if you are going to govern these places, they’ve gone to some of Timoshenko’s former cronies and said, “You’re the only people to create jobs here, we need you to go back, we’re not going to mess with you, because you’re an oligarch, in fact we want you to help stabilize the place” – and you do see, and she is a great example, you see this very mixed emotion on Maidan, you see on one hand people very happy that she is not, in their view, being prosecuted, that she’s out of jail, and yet an awful lot of the new leadership don’t want anything to do with her, certainly don’t want her to run for president, don’t want her in any sort of elected position, because she is a reminder of the bad old days. When she was in power, she owned roughly 20 percent of gas in the country. Somebody said to me, “She is Yanukovich with braids” – what’s the difference? It’s one sort of oligarch or another, and that’s not what the revolutionaries fought for. There is this inherent tension between the promises of revolution, of starting anew – sounds wonderful, and there’s the problem the next day that you’ve got to find somebody to stabilize that region, so you are turning some of these oligarchs that they campaigned against. I would say to the new government, “Welcome to governing!” This is what governing is like, it’s about making very tough choices and compromises, and that’s how the real world works.

SS:But of course, the biggest tragedy in all of this is that a lot of people died during these protests and everyone was so quick to accuse those responsible – but a leaked phone conversation between Estonia’s foreign minister and Catherine Ashton confirmed the rumors that the opposition was responsible for sniper shooting in Kiev. I want us to hear this soundbite from their phone conversation right now:

PHONE CONVERSATION: All evidence shows that people who were killed by snipers, from both sides, among policemen and people from the streets, that they were the same snipers, killing people from both sides, and so that there is now stronger and stronger understanding that behind snipers it was not Yanukovich, but it was somebody from the new coalition.

SS: Why do you think they didn’t go public with these concerns?

JH: I learned 1,400 interviews ago, never answer the question when you don’t know the answer. I honestly don’t know what’s true here and what’s not. I do know this certainly merits for much more looking into in terms of what’s going on, and I’ve seen this report. Certainly, a reason that they might not want to look into it is that it muddies the water. The image, the narrative in the West is that one side is democratic and good and pro-Western, and deserving, and freedom-loving, and the other side is pretty much the opposite of all that. It’s a very clean narrative, there are good guys, there are bad guys, it’s a John Wayne movie. History rarely works like that, and what I’m delighted to see is that the next couple of days people like Secretary Kissinger, the dean of American foreign policy, thinking, saying, “Let’s take a deep breath and a step back and actually look at what’s going on the ground.” And there are good guys and bad guys on every side I’ve ever seen involved in politics, and I think to muddy the waters is very important now; if we look at what really went on, certainly there were extremists who were with the people on Maidan, along with a lot of well-meaning, freedom-loving, brave people who wanted a different kind of government. There was a mix of people with a mix of motivations going on there, but that muddies the clean narrative and frankly it ought to; the narrative is never clean, and we all have to be very, very hesitant about making it so. But, bottom-line here is that it certainly needs to be investigated and certainly we need to look into it, and when we are talking to the people in the new transitional government, now in the West, particularly with Europe, there is the moment of maximum influence – you’re offering them market access to Europe, so be sure that you get something for that, and what you need to get is clear assurances that can be backed up on the rule of law, by moderates running things, by opening doors to southern and eastern Ukrainians, by pushing for a confederation that has an inclusive government; now they’ll listen to you, when you write the check, when you’ll let them in, you’ll never have so much leverage again; now is the time to really push for those things, rather quickly.

SS:Thank you so much for your time, for this interesting interview. We were talking to Dr. John C. Hulsman, international relations expert, political analyst, talking about Ukraine – what else is there to talk about these days – and the future it will face, whether in the EU or outside of the EU. Thanks very much for that. That’s it for this edition of SophieCo, we will see you next time.