Monday, December 08, 2014

Why Scots are smarter than 'Donetski'

Aleksey Polukhin, in a recent 'Novaya Gazeta' article, explains why "Operation Novorossia" is now terminated, and why there will be no Ukrainian banks nor the Russian ruble there. He calls the project "an economic dead end."

Here is a summary:

In accordance with president Poroshenko's decree  "On urgent measures to stabilise the socio-economic situation in the Donetsk and Lugansk regions," any social and economic activity in areas not under the control of Kyiv was to cease on December 1. In reality, operation and maintenance of ATM bank cards and accounts were discontinued a week earlier. Banks and post offices in the LNR and DNR are paralysed and payments of pensions and benefits were stopped much earlier by Ukraine. 

The economic blockade is the toughest challenge for the unrecognised republics, even surpassing the actual military threat. 

If Russia were to consider the Novorossiya as their own protectorate, even in the long term, it would be obliged to respond to all of this. 

Putin has said that Ukraine, by its actions has separated the the two regions from itself, adding that that Russia doesn't have claim to them either. Statements in the summer by Luhansk and Donetsk leaders promising entry into the ruble zone "in three or four months" have now been conveniently forgotten.

This is in sharp contrast to Crimea, where branchs of the Central Bank of the Russian Federation were set up two weeks after their 'referendum', and by the summer total  transition to the ruble was in place on the peninsula.

In this situation, the unrecognised republics have no choice but to create their own central banks, and either enter the ruble zone without prior arrangement - or create their own currency.

Other frozen conflict zones such as Abkhazia and South Ossetia can stay in the ruble zone because their independence has long been recognized by Russia.

The problem for LNR and DNR is that any unrecognised republic can only exist in a symbiotic relationship with a strong independent player, but such symbiosis with Ukraine has been excluded by Poroshenko's decree. Symbiosis with Russia would be an unacceptable risk [and fiscal burden? F.N.] to Russia, and western sanctions against it strengthened.

Russia will now be forced to accept some responsibility for the humanitarian disaster in  Luhansk and Donetsk, which it seems suits the Ukrainian authorities. "Russkiy Mir" may be even more pitiless than the "Russian war." A few days ago, Prime Minister of Ukraine Yatsenyuk declared a need to resume social welfare payments in the south-east. 

Donbas cannot count on the ruble as currency.  It's the end of the "Unification to Russia" project.

In May this year DNR and LNR held a so-called 'referendum' after which they declared independence from Ukraine. On November 2 its new leaders were 'elected'.

Why did those who voted not ask: What is going to happen to our currency? What is going to happen to our banks..our savings...our pensions?  They unimaginably naively thought the Crimea scenario would be repeated - that Mother Russia would sort everything out. Where were the local businessmen, the civic leaders, the Party of Regions elite that completely dominated that region for over a decade? People who know about such matters. They had all fled with their loot, and screw the 'proles'...

In the recent referendum on Independence for Scotland the pivotal policy question for the canny electorate was just this: What currency are we going to get? What will happen with our banks?  Who will pay our pensions? Will our savings be safe? What will our relationship with the EU be? How will all of this affect our economy..our jobs...our financial security?...The failure of Scottish Nationalist parties' to answer these vital questions satisfactorily was probably the main reasons Scotland remains part of the United Kingdom today.

Meanwhile,  [LNR ] "is not planning in the near future to leave the Ukrainian hryvnia zone, switch to the Russian ruble or create its own currency."

p.s. More on why sharing a currency without sharing a government is very dangerous here

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