Ukraine’s ambition to join NATO and the European Union sends shivers of fear down the spines of European decision-makers. Ukraine is too big, too costly and too toxic, they argue. Russia will never allow Ukraine to leave its orbit.
Sure, there is solidarity with Ukraine as a victim of Russia’s annexation of Crimea and the horrors of seven years of war in the Donbas. Yes, there is funding for the implementation of the Deep and Comprehensive Free Trade Area (DCFTA) between the EU and Ukraine and the reform agenda but real accession, as for the Balkans, no way.
Russia is opposing Ukraine’s Euro-Atlantic goals with all its diplomatic, financial, political and potential military power. Only Poland and the Baltic States are fully supporting Ukraine and EU and NATO membership.
Ukraine versus most of the EU seems a lost cause. So, what should it do?
Meet the Batumi 2001 Accession Trio. Ukraine, Moldova and Georgia are all in the same position – partly occupied by Russia, rejected from real EU and NATO accession, and parked by the EU in the Eastern Partnership (EAP) initiative. In July 2021 in Batumi, Georgia, in the presence of EU Council President Charles Michel, they formed their joint Accession Trio.
But aside from some lecturing by the EU Council President on the need to fight corruption, the EU chose to ignore the Accession Trio’s request for the Status of Potential EU Candidates, including crucial Instrument for Pre-Accession Assistance (IPA) funding to put them on equal footing with Kosovo and Bosnia.
So, what should be done now? One way would be to build a pre-accession alliance between the countries of the Western Balkans, six of which, since the 2003 Thessaloniki Summit, are already cleared for EU and NATO membership South East Europe is politically organized in the Regional Cooperation Council (RCC) and cooperates economically in the Central European Free Trade Area (CEFTA) currently developing in the Regional Economic Area (REA).
While Moldova has been a member of CEFTA since 2007, sadly Ukraine and Georgia have been barred even from taking this small step towards European Unification. The EU is even keeping Moldova out of all REA-related integration initiatives just to make sure the country gets no wrong ideas about CEFTA and RCC being the back door to Brussels. Yes, Brussels is that mean.
If all conventional roads to Brussels are blocked, does it mean soldiering on in the defunct EAP and gradually integrating into the EU sector by sector? The EAP, now a dead man walking, is kept on life support, despite the 18 months of the Belarusian crisis seemingly leading to an Anschluss with Russia. Despite Russia’s annexation of Crimea, the Russo-Ukrainian war in the Donbas, the war between Azerbaijan and Armenia and the constant crisis in Georgia, the EU never changes its failed strategy.
As part of EAP, the EU is offering Ukraine the option to integrate into the EU internal market, sector by sector, from digital, to transport, to energy, and that is good and useful.
But Russia gets Nord Stream 2. Ukraine – the option to be, maybe, part of the European Energy Union once that is completed. In the meantime, Ukraine will be punished by the EU Carbon Border Tax imposed on it. Can Ukraine join the EU Labor Market? No, that is not on offer.
Very generous of the EU! That way Ukraine will be allowed to catch up by 2222, perhaps.
Ukraine, therefore, has no resort but to turn to the Euro, and to do it now! Montenegro and Kosovo have adopted the Euro unilaterally as their currency, against massive Brussels resistance, but with the backing of Germany and Austria in 2002.
Having the euro as a currency is a powerful symbol of the determination to ensure a European future. Clear to all consumers, investors and widely obvious for all to see in Ukraine, Russia, and inside the European Union.
And it’s good economics. Montenegro and Kosovo were the poorest peripheries of former Yugoslavia. Yet with 20 years of the Euro as their currency, Montenegro is as rich as Serbia in GDP capita, and Kosovo is as rich as Georgia. This is historic and unprecedented!
But the hryvnia is the symbol of independent Ukraine, domestic opponents will cry.
Next to the Serbian dinar and the Belarusian ruble the Ukrainian hryvnia is the worst-performing currency in European post-Cold War history. The hryvnia was issued in 1996 to replace the even weaker post-Soviet Karbovanets at 1,76 to $1. It was hit hard by the Ruble and Asian crisis of 1998, then again by the Global Financial Crisis in 1982, when it was artificially pegged at 8:1 by Russian-backed President Viktor Yanukovych.
As a consequence of the mega theft by Yanukovych estimated at $40 billion, Russia waging war on Ukraine, leading to massive defense outlays by Ukraine, the loss of tourism revenue from Crimea, and the loss of half of the industrial heartland of Ukraine in Donbas, leading to two major currency crisis in February 2014 and February 2015, it is now somehow stable at 26.5 to $1
Who would seriously miss such a currency? Dropping in external value to the U.S. dollar from 1.76 to 26.5 in just 25 years?
Will Ukraine adopting the Euro pose a threat to the future of the Eurozone? No.
The GDP of Ukraine in 2021 is $165 billion, more than all West Balkan countries together at $126.5 billion, and 50% more than Slovakia. But for a country with 37 million people that is far from satisfactory.
Ukraine using the Euro is not at all a risk for the Eurozone at $15 trillion. Austria alone, with 9 million people, has a GDP of $435 billion, more than Ukraine, Slovakia and all six West Balkan countries together, and you can add Georgia and Moldova, too. All of them together have a lower output level than Austria alone.
The risk for the Eurozone is Italy and France’s lack of economic reform, and not Ukraine using the Euro. But can Ukraine not just copy Poland and, in the meantime, keep the Hryvnia? Let’s be realistic. How much appetite is there in Brussels for a second Kaczynski Poland, a Poland II further east?
Repeating the peculiar trajectory of Poland during the last decade might be tempting but will not endear Ukraine to the EU’s political elite. And without massive help on the scale that Poland received – more than $100 billion – since accession in 2004, similar success is impossible for Ukraine. Moreover, a massive reform drive like Poland carried out in the 1990s – a different epoch when Russia was too weak to counter such transformation – is not happening in Ukraine.
Today, Ukraine cannot expect something similar from the EU and has Russia working massively with all active measures against any reforms it undertakes.
Emulating today’s Poland economically is a distant dream. Copying Poland’s brand of national assertiveness policy will drive a lasting wedge between Brussels and Kyiv. And so, Ukraine as a second Poland is a non-starter.
But a European Ukraine can gatecrash into the EU by being more European than EU.
The Euromaidan was a pro-European revolution, a fight for Europe, to trade with Europe and to be part of Europe. Based on that narrative, it is key to showing all Europeans that Ukraine is more European than anybody in the EU. Raising EU flags and naming central squares with European associations and putting the EU future in Ukraine’s constitution is fine, but adopting the euro as a currency is better, even the best solution.
The Euro is the best tool to show the world and all in the EU where Ukraine wants to belong and how serious Ukraine is about its European conviction, and its determination to make it a reality, against all odds, even against all the resistance from Brussels, Frankfurt or anybody, anywhere. The Euro is also a tool for uniting Ukraine.
Russia has imposed the ruble on Crimea and partly on Ukraine’s Donbas. Restoring Ukraine’s unity is a distant dream given Russia’s nuclear and military might. But in this predicament, German unification could be a role model over time.
European Ukraine must become more economically attractive than Russia and Russian annexed or dominated territories. Ukraine copying the German economic miracle requires a stable currency and full integration in EU and NATO, the same as with Western Germany.
And the road to similar success starts with the Euro making Ukraine more successful than Russia. The unity of Ukraine can only be achieved peacefully and economically, and the Euro is the tool for the Ukrainian economic miracle to happen, repeating the German economic miracle and leading to Ukrainian unity, as it led to German unity.
Within a decade of launching the Deutschemark pegged to the U.S. Dollar in 1948, West Germany was so successful and magnetic the Soviet Union and GDR were forced to build the Berlin Wall to stop the massive drain of people leaving the failed workers’ paradise – 3.5 million had left by 1961.
Countries need their own currencies, it’s assumed. No, not if you want to be part of the EU. It is obligatory for new members to join the Eurozone.
So, if the future of Ukraine is the EU, in any case, there will be no hryvnia in the long term. So why keep it?
A history of devaluation, currency manipulation, high inflation and mega high interest rates does not bode well for the future and is certain to contain new risks and new shocks. A possible escalation of the war with Russia will have its effect on the currency and why risk that? And can Ukraine, squeezed between EU/NATO and Russia really do its own thing, somewhere in-between, successfully in the long term?
Is it not better to be part of Europe, reverse engineered, adopting the Euro first and so win the minds and hearts of all Europeans and gradually melt the resistance of the European elite? Making Ukraine so successful that the cost of integration into the EU internal market will seem manageable compared to the opportunities for European investors.
Integrating Ukraine economically fully into the European industrial and agriculture value chains and the EU internal market with the Euro as the common currency will make membership in NATO and EU seem much more feasible in the late 2020s.
One day European Ukraine will be a normal standard thing. Remember, Croatia was a country torn by conflict in 1995 yet it joined the EU in 2013. So, progress is possible, and Ukraine might be considered for membership at the end of the 2020s if it has the courage to opt for the Euro now.
Yes, it is not the orthodox way. But why not think outside of the box and copy the Montenegro model for Ukraine, bypassing all resistance by adopting the Euro sooner rather than later?
