How to Stabilise the Economy of Ukraine

In this new study on Ukraine the renowned Vienna Institute for International Economic Studies (wiiw) put forward detailed recommendations for the Ukrainian institutions, the country’s European partners as well as for the international community. Under the crucial assumption that peace can be restored in Eastern Ukraine, the aim must be to bring Ukraine on the path to sustainable growth.

“The challenges in our Eastern neighbourhood are a test of Europe’s unity and resolve. But as in all such cases, it is above all Ukraine itself that must find the will and the courage to reform and reinvent itself (…) The EU will try to play its part in ensuring that Ukraine does not lack the means to change, if it has the will.”

“Ideally, we would have something like a Marshall Plan for Ukraine with more funds, but also strict conditionality and insistence on political, legal and economic reforms.”

There are lessons to be learned by a comparison of Poland and Ukraine who not long ago weren’t all that different. When the Soviet Union collapsed in 1991, Ukraine was only slightly lagging behind Poland in terms of average income. It was also much more richly endowed with natural resources. Yet a quarter century later, the gap between both countries has become enormous.

“The major Polish lesson is that economic prosperity was associated with deep reforms on legal and constitutional matters,” the study says. In contrast to Poland, the Ukrainian state was captured by oligarchic interests. “Arguably, as long as Ukraine is ruled by oligarchic interests, the chances of a successful major institutional and legal overhaul seem low.” According to the Viennese think tank, election results in Ukraine – including the most recent ones – suggest that comprehensive political change is yet to come.

“Reducing trade with Russia also means reducing the potential of blackmail by our ‘big brother’.”

„A red line would be crossed if any trilateral agreements were to diminish the usefulness of the EU accords.“

The study was presented April 15th, 2015 at the Residence Palace in Brussels. The event was attended by more than a hundred participants from EU institutions, diplomatic missions, think tanks and the media.

There was one wiiw-recommendation that led to a particularly heated dispute: the Vienna institute advised against concentrating solely on Ukraine’s economic relations with the European Union. Given the deep structural differences between the industrialized east and the more agrarian west of the country, Ukraine also has to try to re-establish trade with Russia and other countries of her Eastern neighbourhood.