COMMENT: The Germans don’t want to bail out Ukraine

By bne IntelliNews March 2, 2015

Mark Adomanis in Philadelphia -

 

Walter Russell Mead, a dedicated conservative who for some strange reason insists on calling himself a liberal, is a prolific observer of foreign affairs. Mead is regularly published in a number of centrist, establishment publications and for that reason is extremely useful as a bellwether of elite opinion: he’s not too far right to anger big-time Democrats, and he’s rightwing enough to please Republican “thought leaders.”  

Mead recently wrote an article "The Open Ukrainian Society and Its Enemies" in which he describes the emerging Washington consensus about Ukraine, and outlined a strategy that would work to isolate, and eventually defeat, Vladimir Putin's Russia.

Mead's strategy is internally consistent and logical. It astutely recognizes that any push-back against Russia must be multifaceted and rely on a combination of military, economic and political pressure. So if Mead's strategy is logical and if it recognizes what needs to be done, why does it fail? A very simple reason: it takes no account of political reality.

Mead understands that the only way Ukraine will ever be able to stand up to Russia is if its economy is put on a much sounder footing. Apart from cheering the International Monetary Fund (IMF) lending package, his economic prescription amounts to the following:

One approach would be to create a mutually beneficial system of credits that Ukraine could use to purchase needed goods from Eurozone countries — stimulating their economies and creating jobs where Europe badly needs help, but also helping Ukraine get a leg up. Again, this unifies the West rather than divides it.

It’s unclear what planet Mead has been on for the past five years if he thinks that a programme of aggressive Keynesian stimulus would “unify rather than divide” the West. The odds of the EU engaging in this particular policy is somewhere between “infinitesimally small” and “zero.” Why? The answer is extremely simple: the German voter.

Stimulus a dirty word

In both words and deeds since the onset of the global financial crisis, Germany has been incredibly consistent in the belief that Europe already spends too much money and that “structural reforms” are the only way to jolt the economy back to life. “Stimulus” is a dirty word to German voters and to the center-right government now running the country.

One thing about which almost everyone agrees is that Angela Merkel is a canny and astute politician. It’s not an accident that she's won so many elections and has such consistently high poll numbers. A recent Vanity Fair profile made clear one of the reasons for Merkel’s long winning streak: she conducts a ridiculously large number of polls on the German electorate's opinions, more than 600(!) between just 2009 and 2013. That is to say that Merkel, on average, commissions more than one poll a week. She is clearly someone with their finger on the pulse of the German public. 

Merkel’s policy of Europe-wide austerity and structural reform, a policy that has been doggedly pursued despite an economic catastrophe of world-historical significance, isn’t a “mystery” that needs to be solved. It won’t be the subject of future scholarly research or anguished graduate seminars in political economy. Rather, it’s a simple and straightforward representation of what the German public wants. You can rest assured that if German voters thought of stimulus as anything other than anathema, then Merkel would already have accented to it.

As in her engagement with Germany's EU partners, Merkel has been quite consistent in her stance regarding Ukraine: no money is forthcoming and "structural reform" is the best antidote to what ails the economy. There is no reason whatsoever to doubt that this is also what German voters think.

It is, of course, possible to argue that a German-style policy of austerity and structural reform isn’t going to work. It seems obvious that Ukraine is going to need a lot of money from somewhere to avoid defaulting on its foreign debt, and there is a fair argument to be made that there must be some kind of aid to sweeten the bitter pill of austerity. Personally, I would be in favour of a substantial (albeit conditional) programme of financial assistance to Kyiv.

But those arguments are going to be entirely moot until there is a sea change in German public opinion. If Ukraine is banking on a huge EU bailout, it is going to wait in vain, because that bailout isn’t forthcoming. 

Mark Adomanis is an MBA/MA student at the Wharton School of Business and the Lauder Institute. Follow him on Twitter @MarkAdomanis

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