Restarting Ukraine’s Economy

Regardless of whether Ukraine is “lost,” or who lost it, the country can still offer an attractive future for all of its citizens if unavoidable economic reforms can be made compatible with regional cohesion. The EU can play an important role by opening its market and providing funding and technical assistance in crucial areas.

BRUSSELS – In capitals East and West, one question currently looms large: “Who lost Ukraine?” Unfortunately, that is not the most important question to be asking right now.

The more relevant question is how to stabilize the situation in Ukraine. Given that little can be done in practice to dislodge Russia from Crimea, the key challenge now is to keep the rest of the country united and to restart its economy, which is now in a state of suspended animation, owing to unsustainable fiscal and external deficits.

The key reform issues are well known: the price of gas must be increased substantially to reflect its cost, subsidies for domestic coal production must be stopped, and governance of the country’s pipelines, which still earn huge royalties for carrying Russian gas to Western Europe, must be overhauled. Ever since these pipelines were effectively handed over to nominally private companies in murky deals, earnings from transit fees have gone missing, along with vast amounts of gas, while little maintenance has been carried out.

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