On September 12, 2014, trilateral ministerial meeting of the EU, Ukraine and Russia produced quite unexpected decision to postpone the implementation of the EU-Ukraine DCFTA (Title IV of the Association Agreement) till January 1, 2016.
The destiny of Ukraine, which on its own has to face the military power of Russia, paints a gloomy picture. In this context, the Eastern Partnership has failed and instead of progressing Europeanisation we witness a war with unforeseen consequences.
While EU and US sanctions against Russia over its aggression in Ukraine, and Russia’s counter-sanctions, are much discussed due to their evident political significance, less attention has been given to Russia’s punitive sanctions against the three Eastern European states–Ukraine, Moldova and Georgia – that have signed with the EU Association Agreements (AA), which include Deep and Comprehensive Free Trade Area (DCFTA) provisions.
Machine building sector in Ukraine is facing a difficult situation. Recent research showed that machine building is most heavily exposed to the Russian market in terms of the percentage of output exported to Russia.
The irony specific to the Kremlin’s new paranoia is that Russia still attributes some mythical power to the United States, a power which has all but dissipated over the past two decades.
What else is the Ukraine to do in this undoubtedly unfavourable situation? Indeed, if the military costs cannot be increased for Russia (more causalities, more losses in military equipment), one should decide on a different strategy that would make Russia cover the economical costs of this politic-military mayhem.
The most negative impact is definitely going to hit Russian citizens themselves, because prohibiting of food imports dramatically lowers their utility, reduces economic activity, including job creation, and last but not least it cuts disposable income in their wallets.
Hungary, whose people have a long, historic dislike for Russia is now torn between the West and the East. Although financed heavily by the European Union, Hungary seeks shady partnership with Putin.
Clueless looks of politicians will be once again drawn to the ECB. In addition to reports on starting recession, they are supported also by the legend of deflationary spiral that regularly emerges from monetary depths to destroy the shoots of economic success.