Billionaire investor George Soros has called on European officials to urgently boost their efforts to support the Ukrainian economy, to help contend with the threat posed by Russia to the European economy.
Soros, who is Hungarian by birth, stated that Europe needs to "wake up" and recognize that it is under attack from Russia, and argues that Ukraine's economy is more important to the bloc than the current political uncertainty being faced in member countries like Greece, in a new essay in the New York Review of Books this week.
"(There is) an urgent need to reorient the current policies of the European Union toward Russia and Ukraine. I have been arguing for a two-pronged approach that balances the sanctions against Russia with assistance for Ukraine on a much larger scale. This rebalancing needs to be carried out in the first quarter of 2015," he wrote in the essay, which was formally published late Wednesday.
Ukraine has been thrown into turmoil after anti-government and pro-EU protests at the start of 2014 led to a change of leadership. Running battles in the streets of Kiev turned into military conflicts on the eastern border, with Moscow being accused of aiding pro-Kremlin rebels in the region. Russia decided to annex the southern Ukrainian area of Crimea back in March 2014 and, as a result, has faced tough economic sanctions from Western nations.
These sanctions have left their mark, alongside a dramatic fall in the price of oil which Russia remains heavily reliant on for revenues. Moscow officials are now predicting that the recession for Russia this year could mean growth contracting by around 4 or 5 percent. The Russian ruble has depreciated around 85 percent against the dollar since the start of 2014 while the Ukrainian hyrvnia has lost 92 percent since the same date.
Soros argued that the damage done to Russia has been faster and deeper than anyone could have expected and added that it would not be surprising if the crisis ended up with a default for the country.
"Coming on top of worldwide deflationary pressures that are particularly acute in the euro area and rising military conflicts such as the one with ISIS, a Russian default could cause considerable disruption in the global financial system, with the euro area being particularly vulnerable," he noted.
Europe, and in particular Germany, has been seen as particularly vulnerable to the geopolitical tensions with Russia. Russia exports its gas reserves to Europe through Ukraine, and the euro zone also exports goods in the opposite direction. EU exports to Russia are currently dominated by machinery and transport equipment, chemicals, medicines and agricultural products, according to the European Union, with Russia being the third largest trading partner for the region.
Soros argued that more financial aid for Ukraine could help it become a "land of promise" that would not allow Putin to blame Russia's troubles on Western nations.
Under this scenario, Putin would be seen as clearly responsible for the turmoil to Russia and he would either have to change course or try to stay in power by brutal repression, Soros argued.
"If he fell from power, an economic and political reformer would be likely to succeed him. Either way, Putin's Russia would cease to be a potent threat to Europe," he added.
The board of the International Monetary Fund (IMF) are set to meet and discuss Ukraine's bailout on January 18 and will hold fresh talks with Kiev over potentially adding to its existing $17 billion aid package. The country was given an initial $3 billion in May at the height of the turmoil, but now appears to need more money to stay afloat, amid rampant inflation and the near-halting of economic activity in regions where there is still military conflict. The IMF aid is dependent on the government implementing broad-based economic reforms and an anti-corruption drive.
However, European political leaders now need to step to the plate, according to Soros, and treat the country like it would do Greece or Ireland. They must tap into the large unused borrowing capacity of the EU and find other unorthodox sources, he stressed. He estimated that funds from the Union would bring the total aid to fifteen times Ukraine's current IMF quota.
Correction: This article has been updated to reflect that George Soros' essay was published in the New York Review of Books.