The rush to austerity is not a product primarily of Yatseiuk's ideology, but of the EU's worship of austerity. The IMF serves as the EU's "leg breaker" for the Ukraine. The EU is making clear that it will only provide aid if the IMF is in place to extort the Ukraine to inflict austerity on an economy that is already in recession.
This is crazy on multiple dimensions. First, the Ukraine defines the concept of "political instability." Playing into Putin's hands by inflicting austerity on the Ukraine and producing "hell" is ludicrous.
Second, the Ukraine is in a severe recession. Austerity makes recessions worse. The Ukraine should be spending material amounts of money (from its perspective; tiny amounts from our perspective -- or compared to the cost of a military conflict) dealing with Ukraine's acute problems.
Third, the Ukraine has an inflation problem not because of excessive demand (demand is grossly inadequate) but because Russia has dramatically increased the cost of energy. Austerity is not the answer to this variant of cost-push inflation.
Fourth, the Ukraine has a tiny economy and small debts (relative to the West). The EU and the U.S. can easily pay off Ukraine's debts (or if they prefer any debt owed to non-Russian entities) and replace it with very low interest rate debt in the Ukraine's own currency with interest payments deferred for a decade. Ukraine has made the double mistake of trying to peg its currency to the dollar and to borrow in foreign currencies. The U.S. and EU could solve these problems, going forward, by giving the Ukraine a fresh start. This would speed the Ukraine's economic recovery and remove one of the potential sources of an economic shock that could harm the EU and U.S. economic recoveries.
Fifth, the Obama administration purports to oppose the eurozone's austerity policies. The case against inflicting austerity on the Ukraine is even stronger. Obama is under enormous criticism from Republicans for failing to take more decisive actions to support the Ukraine. The Ukraine offers the administration the perfect opportunity to do the right thing economically and politically, to demonstrate his leadership, and to force the Republicans to admit that austerity is a destructive policy that the U.S. needs to prevent by forceful action.
Sixth, instead, austerity dogma trumps -- simultaneously -- good economics, good domestic politics in the U.S. and the Ukraine, and U.S. national security. That's how insanely powerful the failed dogma of austerity has become. The CEOs who run the banks that loan money to the Ukraine are more powerful than the Pentagon and our State Department.
Conclusion
The Ukraine faces severe problems beyond Russia and its energy dependence on Russia. It has an enormous informal business sector because it is so difficult to start a legitimate business. Ecuador recently adopted a law, and new technology, to make it radically faster to start a legitimate small business. This is great for entrepreneurs, growth, reduced corruption, and collecting taxes. It is a radical reform that people of all political stripes can support. Similarly, ant-fraud and corruption efforts can save the Ukraine billions of dollars and spur growth. President Obama could develop an aid, stimulus, debt relief, and reform package for the Ukraine based on ideas like this that would that have broad appeal and help the working class and entrepreneurs. It would also be good for peace and security without being hostile to anyone. Instead, we are committing kamikaze capitalism that is so crazy that it should be criminal.
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