The new Russia, the new Ukraine, and Europe’s future

At the present moment in history, I observe a general trend toward the weakening of international organisations and the rise of nationalism in various forms. The root cause can be identified either as the decline of the West or the rise of the rest. None of this is irreversible – the decline of the West was first identified by Werner Sombart in 1890, and there have been several ups and downs since.

The root cause [of rising nationalism] can be identified either as the decline of the West or the rise of the rest.

The crash of 2008 destroyed the Washington Consensus. Since then, both the United States and the European Union have been preoccupied with their internal problems. A stable international order requires a hegemonic power or powers to contain conflicts. As the West has turned inwards, emerging regional powers have tried to fill the vacuum and conflicts have festered.

Since the economic crash of 2008, the situation has become even more complicated. The Washington Consensus was based on the belief that markets tend toward equilibrium but 2008 disproved that belief. Since then, both financial markets and international affairs have been in what I call far-from-equilibrium conditions.

With the spread of unresolved conflicts to Europe, the dynamics of financial markets and international affairs have become more intimately intertwined. This has greatly increased the level of uncertainty, volatility, and unpredictability both in financial markets and international affairs, because financial events are extraneous to political dynamics and international affairs are extraneous to the dynamics of financial markets. So, the increased interaction between the two is experienced by both as external shocks.

One example of this is the financial sanctions against Russia and the collapse of oil prices. Neither of them on its own would have caused a financial crisis in Russia. Meanwhile, in international affairs, misconceptions and an inability to adjust to unexpected developments play an increasing role in determining the course of events.

I shall focus on interconnected issues that together constitute my top priority today: a new, resurgent Russia, and a new, democratic Ukraine. For me, it feels like déjà vu. I am reminded of 1989 – but the differences are illuminating. Then, the Soviet empire was disintegrating and the integration of the EU was at its peak; now, Russia is resurgent and the EU is disintegrating. This gives the new Ukraine a pivotal role. How it stands up to Russian aggression will determine the fate not only of Ukraine but also of the EU.

Russia resurgent

Russia has become a mafia state in which the rulers use the resources of the country to enrich themselves and to maintain themselves in power. They preserve the outward appearances of democracy, such as holding elections, but there is no rule of law and no arrangements have been made for a legitimate transfer of power.

After the prearranged transfer of the presidency from Medvedev to Putin in 2012, Putin became repressive at home and adventurous abroad.

Vladimir Putin became popular because he established stability after a period of profound turmoil and he used a portion of the oil revenues to assure people a rising standard of living. As long as he was popular, he was reasonably tolerant of dissent provided that it remained on the margin. But after the prearranged transfer of the presidency from Dmitry Medvedev to Putin in 2012, the rising middle class joined the protests and Putin became repressive at home and adventurous abroad. He started supporting President Bashar al-Assad of Syria with arms on a large scale. He also felt threatened by the Arab Spring and, from a Western point of view, became a spoiler in the Middle East.

At first, Putin’s adventurous foreign policy was very successful because of the domestic preoccupation of Western powers. Remember how Putin saved President Barack Obama from a domestic defeat by persuading Assad to surrender his chemical weapons? It was a diplomatic triumph.

Then came the Association Agreement of Ukraine with the European Union in 2013. Putin had no difficulty in outbidding the EU. The Association Agreement was designed for the Yanukovych regime, which could not be trusted; therefore, it asked for a lot and offered little in exchange.

After Viktor Yanukovych accepted Putin’s offer, all sides were surprised when the Ukrainian public rebelled. Putin insisted that the protestors on Maidan should be dispelled before Russia paid out the first $3 billion. But the protestors, instead of running away, rushed to Maidan – it was Yanukovych who had to run away. Once more, on 21 February 2014 Putin ordered Yanukovych to use lethal force, but an unarmed but determined public prevailed and a new, European-minded Ukraine was born.

The resistance on Maidan revealed a blind spot in Putin’s worldview. He has been so successful in manipulating the public that he simply could not believe that an unarmed public could successfully resist a fully armed police force. He had to pay a heavy price for his mistake: a previously manageable Ukraine turned resolutely anti-Russian.

The resistance on Maidan revealed a blind spot in Putin’s worldview.

But this setback merely served as an inducement for Putin to show his mettle. He has replaced communism with a nationalist ideology based on ethnic grounds, social conservatism, and religious faith – the brotherhood of the Slavic race, homophobia, and holy Russia. When he annexed Crimea, his popularity shot up to unprecedented levels. Now, Russia has become a strategic rival of the EU, offering an alternative based on the rule of force as opposed to the rule of law.

A repressive mafia state like Russia could not pose as a strategic rival if it were not for the weaknesses of the EU. The euro crisis has transformed what had been a voluntary association of sovereign states who were willing to surrender a part of their sovereignty for a common cause into something radically different: a relationship between creditors and debtors in which the debtors had difficulties in meeting their obligations and the creditors imposed conditions that made it difficult for the debtors to escape from their subordinate position. That relationship was neither voluntary nor equal. The original concept of a united Europe fired the imagination of my generation. I considered the European Union the embodiment of the Open Society ideal. But for the citizens of the heavily indebted countries, the EU became an external enemy that endangered their prosperity and future. Political opposition to the EU grew: it captured 30 percent of the seats in the European Parliament in 2014 but it had no leadership and no alternative to offer.

The European public and much of the European leadership have remained unaware of the transformation of a disintegrating Soviet Union into a resurgent Russia and the European bureaucracy operates in a bubble of its own creation. It started working on an Association Agreement with Ukraine on 2011 and, in spite of repeated Russian warnings, it completed it in 2013. The heads of state were surprised when they were asked to sign it. In other words, the EU sleepwalked into a conflict with Russia.

The new Ukraine

The new Ukraine is in many ways opposite of the old Ukraine. It is a unique experiment in participatory democracy sustained by a spirit of volunteerism. That spirit first manifested itself on Maidan and it has endured. What makes it unique is that it finds expression not only in fighting but also in constructive work. Many people in government and parliament are volunteers who have given up well-paying jobs in order to serve their country. Volunteers are helping the one million internally displaced people and working as advisors to ministers and local governments. In my four visits to Ukraine since the victory of Maidan, I have spent most of my time with them, and I am impressed by their maturity and determination.

They are up against the old Ukraine that is entrenched in the bureaucracy and the oligarchy, who are in cahoots. And, of course, they are up against the determined hostility of Putin who wants to destabilise Ukraine at all costs.

The trouble is that the new Ukraine is a well-kept secret not only from Europe but also from the Ukrainian public. Radical reforms are being hatched but they have not yet been implemented.

The new Ukraine is in many ways opposite of the old – a unique experiment in participatory democracy sustained by a spirit of volunteerism.

It is instructive to compare Ukraine today with Georgia in 2004. After the Rose Revolution, Mikheil Saakashvili immediately replaced the traffic police and removed the road blocks that had been used to extort bribes from drivers. The public immediately recognised that the regime had changed. Ukraine has not found a similar demonstration project. The police reform in Kyiv was scheduled to begin in late January but people who need a driving licence are still paying the same bribe as before.

The difference is that Saakashvili was a revolutionary leader with dictatorial tendencies. He stamped out corruption but eventually turned it into a state monopoly. Ukraine is a participatory democracy that does not have a single leader but has checks and balances. Democracies move more slowly, but that may turn out to be an advantage in the long run.

The big question is whether there will be a long run. Right now, Ukraine is under immense military and financial pressure from Putin’s Russia. The Russian economy is heading for a decline under the dual burden of sanctions and lower oil prices. But Putin has evidently decided that he can destroy the new Ukraine before it can establish itself and he hopes to do so while maintaining deniability. He could then turn around and become more cooperative.

Ukraine should be able to defend itself militarily as long as Putin maintains the pretence that the separatists are acting on their own – but it urgently needs financial assistance. I believe that Europe will respond favourably. Unfortunately, democracies are slow to act and an association of democracies like the EU is even slower.

Not only the future of Ukraine but also the future of the EU itself is at stake. I believe the loss of Ukraine would be an enormous loss for Europe. It would allow Russia to divide and dominate.

Not only the future of Ukraine but also the future of the EU itself is at stake.

Conversely, if Europe closes ranks behind Ukraine, Putin would be forced to abandon his aggression.Right now, Putin can argue that all the troubles of the Russian economy are due to the hostility of the West – and the Russian public finds his argument convincing. If Ukraine receives much-needed financial assistance, the responsibility for Russia’s financial troubles will clearly lie with Putin, and the Russian public will force him to follow the new Ukraine’s example.

This article is a version of remarks made by George Soros at the World Economic Forum, Davos in January 2015.