For Ukraine, Russia Serves Up a Familiar Entrée

Photographer: Sergei Chuzavkov/AP Photo

Lining up for free hot food in Kiev, Ukraine. Ukraine’s per capita income is less than a third that of neighboring Poland.

Here’s an irony: For many months in the depths of the European financial crisis observers around the world were treated to images of protesters in Greece and Spain demanding an exit from the Euro zone. And now? Ukrainians have massed in numbers even greater than those of the Orange Revolution to protest President Viktor Yanukovych’s refusal to … yes, move toward joining the European Union.

Ukraine’s situation is not the same as that of Greece or Spain. It faces a much starker set of alternatives, as Bloomberg’s Daryna Krasnolutska and Kateryna Choursina report: Ukraine can turn toward Europe, or toward Russia. Yanukovych, Russia’s preferred Ukrainian chief, chose the second.

The graph of per capita income below sums up the problem with that approach. You can click through to a Google chart with full details.

The economies of the Eastern European states that have turned westward–Poland, the Czech Republic, Lithuania–have advanced dramatically, albeit with a post-2008 pause. Those of Russia and Kazakhstan, Russia’s more successful client state, have too, with the bigger caveat of an astonishing growth of inequality (underlined today in Nariman Gizitdinov’s amazing story of the return of polygamy to Kazakhstan).

Meanwhile, Ukraine and Belarus languish. Ukraine’s 2012 per capita income was $3,867. Adjusted for inflation, that would put Ukraine roughly where Albania, long the poorest country in Europe, stood in 2001.

With the $5.7 billion tab coming due for an earlier bailout from the International Monetary Fund, you might think that Ukrainians would be protesting against the IMF. Yankovych’s government has pointed to the IMF’s demands that Ukraine cut heating subsidies that are the biggest drain on Ukraine’s finances. So why are Ukrainians angry, despite Yanukovych’s efforts, at their own government, not Western lenders? You can get some idea from this IMF report, which notes that even as Ukraine spends billions on gas subsidies, little of that benefits the poor. When the state gas company lowered prices for distributors, Ukrainian households didn’t see their heat bills go down.

For Ukrainians, watching what little wealth their country does have get siphoned off by oligarchs and bureaucrats is business as usual. It has an economy built on extractive industries, from which an even smaller circle has benefited than in Russia. Judging by the protests, joining the European Union looked to many Ukrainians like a chance to change that.

Yanukovych, under pressure from Russia, seems to have snatched that chance from them. In exchange he has brought to the table the meager offer of a trade union with Russia. That dish is more or less what the Eastern Bloc was served in the Soviet era. It was unappealing back then and is now being served barely rewarmed; it’s no wonder Ukrainians want something better to chew on.

An earlier version of this post appeared in the Market Now daily email. Click here to register and subscribe. Or here to follow @markgimein on Twitter.

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