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Saturday, 30 November 2013

KLM strongly reduces its cargo plane fleet and puts 2800 jobs on the line. How could these events be matched with growing exports for The Netherlands in 2014 and 2015?!

Since the Dutch economy grew by a teenie weenie 0.1% in Q3, quarter over quarter, many politicians and pundits treat this event as a ‘divine’ signal, showing the light at the the end of the tunnel. They think that the end of the crisis is nigh and the Dutch economy might show again some cautious, but unmistakable growth in 2014.

All this renewed confidence has to do with an increased purchase managers confidence, slightly increased housing sales and stabilizing housing prices in The Netherlands. And the most important thing: these pundits think that world trade might grow considerably in the remainder of this year and next year, as the Dutch exports already have been growing slightly over the last six months (see the aforementioned link).

Well, let me tell you a story from a true insider:

A good friend of mine – let me call him ‘Henk’ – works at the cargo department of KLM aviation at Schiphol, Amsterdam Airport: KLM Cargo. When our children are playing together, Henk and I often talk about his work and the economy in general. If there is one company, where a serious increase in exports would be noticed immediately, it is KLM Cargo; air cargo is a very volatile and pro-cyclical line of business.

Although Henk is a positive and strong man, who likes his work, he had often worries about the amount of business that KLM Cargo could do during the last year. To say that business was rather quiet at his employer would not be an overstatement. And when KLM Cargo has structurally too little work for its people, it might cost many workers their jobs.

When Henk and I talked briefly today, Henk stated that KLM is considering to sell a number of its freight planes and – when I understood him right – even thinks about abolishing the freight transport business, as it is loss-bearing at the moment.

Freighter planes are currently standing still and idle at the airport and cause triple expenses for KLM: 
  • First, when these don’t fly, freighter planes cost thousands of Euro’s per day, as a consequence of depreciation, necessary maintenance and/or lease expenses;
  • Second, Schiphol airport charges considerable amounts in airport dues, when it is used as a ‘parking lot’ for freighter planes.
  • Third, the personnel that is standby in order to load planes – the stowers, team leaders, inspectors and administrative personnel – all have to be paid, even when there is little work to do. Although KLM will definitely have a flexible shell of workers around their fixed staff, the expenses of idel personnel will nevertheless be considerable. 

This is the main reason that KLM considers to sell some of these freighter planes and ponders about additional measures, which might even mean abolishing the cargo business.

From the 2013Q3 report of KLM come the following snippets:

“The Group continued to improve its operating result during this quarter. This is very encouraging since it shows that the roll-out of the measures in the Transform 2015 plan is proceeding in line with our expectation. However, it was considered necessary, last September, to supplement them with additional measures to strengthen the Group within the prevailing uncertain economic environment, particularly in the medium-haul and cargo sectors which are facing major difficulties” said Alexandre de Juniac during the meeting.

Cargo continued to be affected by the economic slowdown and the situation of overcapacity. As a result, traffic declined by 3.8% for capacity down 1.4%. The load factor stood at 60.4% (-1.5 points). Unit revenue per available tonne kilometre (RATK) declined by 9.1% and by 5.2% on a constant exchange rate basis. This sharp decline in revenues (-9.3% to 687 million euros) led to a deterioration in the operating result to -84 million euros (against -69 millions at 30th September 2012) despite significant cost efforts.

In cargo the industrial measures are the continued reduction in the full freighter fleet at Air France and KLM (-4 aircraft taking the fleet to 10 aircraft in 2015) and the sub-contracting of the Orly cargo station. 

The industrial reorganisation of the medium-haul and cargo activities at Air France will entail a headcount reduction of 2,880. To deal with the surplus headcount among ground staff, Air France presented a voluntary departure plan covering 1,826 jobs. The departures will be staggered between February and December 2014. The new voluntary departure plan should generate savings of some 150 million euros on an annualised basis. Pilot (350 FTEs) and cabin crew (700 FTEs) over-staffing will be addressed in 2014 through other measures. Elsewhere, the company is also seeking to better adapt its organisation to the seasonality of the business, which has accentuated in recent years. 

These additional measures, to be put in place during 2014, will deliver their full effect in 2015. However, they should enable, in 2014, a significant reduction in medium-haul and cargo losses, but without enabling them to break even, as initially targeted. As a result, in an environment of low growth and high oil price and currency volatility, and in spite of the strong improvement in the long-haul and maintenance activities, the group expects EBITDA in 2014 to be around 2.5 billion euros, at the bottom of the targeted range, while the two billion euro reduction in net debt will be achieved in 2015.

These snippets speak of four planes that will be sold (see red and bold text) in the coming two years. I don’t know if my friend Henk has been talking about these four planes or that additional planes will be sold. Anyway, the next snippet about the headcount reduction could be extremely bad news for Henk and his colleagues.

I do indeed believe that there is a structural overcapacity in the air cargo business, as it was mentioned by KLM.

What I don’t see, however, is how a 29% reduction of KLM’s cargo fleet can be matched with rising Dutch (international) exports in 2014 and 2015. If the very pro-cyclical KLM air cargo department does not believe in rising exports in the coming years, who does then anyway?!

This development brought me to the following cynical ‘fake’ statement about the Dutch economy: “The Dutch economy is growing and exports will increase next year. By the way, do you know someone who wants to buy freighter planes from KLM? They don’t need them anymore”

And there is more: Kees de Kort, the BNR News Radio macro-economist and someone who is almost as bearish as I am, made the following observation today:

The ‘ultimate economic indicator in The Netherlands aka the Holy Grail of Dutch economics’ is the foreign vacation rate of the Dutch. Kees: “Jobs, salaries, these are all mainly annoying factors for many people. Housing prices, pensions etc, in other words, the works. Serious, but not disastrous.  

Kees de Kort, macro-economist of BNR News Radio
Picture copyright of : Ernst Labruyère
Click to enlarge
But the Dutch not going on a foreign vacation?! That is about as bad as things can be. The fact that there is a serious slump in the amount of booked foreign vacations is a tell-tale factor that the recovery of the Dutch economy is rather sluggish”.

I couldn’t agree more, Kees. 

The fact that these days the global stock exchanges show record quotations everywhere, says more about the enormous void between the financial economy and the real one than that it does about the coming economic recovery. People like my friend Henk, however, have to deal with the real economy on a daily basis. And their outlook is still quite grim…

Thursday, 28 November 2013

The number of service-oriented freelancers has expanded strongly during the last ten years. Could this be a source of hidden poverty?

In the past I wrote more often about the Dutch ZZP-er (`independent worker without personnel`), aka the service-oriented freelancer.

The number of freelancers in The Netherlands has soared during the last ten years, as I wrote in an earlier article from 2011:

There are 700,000 freelance professionals or ZZP’ers (‘Independents without Personnel’), as they are called in The Netherlands.

People in the building and construction industry, the free professions, the medical world and in the ICT and Consultancy industry that one day, under pressure, decided to make a start-up on their own.

Sometimes people are even pushed into being a freelance professional by an employer that wants to lower its fixed expenses: it dismisses its personnel and hires people back via a freelance contract, with a job-warranty for a certain period. When the period has passed, the people have to find new principals for future jobs. This has happened on numerous occasions in the building-and-construction (B&C) industry.

When there is a good economic climate, all these professionals are finding new jobs and assignments quite easily, just like the freelancers in other industries. And, just as important, they find assignments against favorable hourly rates.

But now the economic situation for the 3rd and 4th Quarter still looks grim and the near future might not be much better, these freelance professionals run a substantial risk of running out of work:
  • The RRE and CRE-market is still a disaster in The Netherlands;
  • The financial industry – the biggest employer of freelance ICT and Consultancy professionals in The Netherlands – is still under heavy fire of the international financial markets and keeps its ICT cards firmly to its chest. (Temporary) hiring stops for freelancers are common practice nowadays;
  • The medical and caring industry is subject to substantial cutbacks by the Dutch government, in order to slow down the consequences of the aging population;
  • Freelance lawyers and especially marketeers are people that you can get rid off quite easily in trying times, without harming your day-to-day business.
And even if the freelancers keep their assignments, the hourly rates are often pushed downwards strongly, due to the (very) unbalanced relation between the principal and the assignee in this supply-market. 

Only the best professionals with skills that are unequalled by others and that might even make them unique, can maintain virtually writing their own checks. You could call this the Champions League of the freelance workforce.
All others are earning less and sometimes much less. This is a strong deflationary force.

Today, it is more than two years ago since I wrote the aforementioned article, but the situation didn’t change for the better… at all. Rather to the contrary…

All the aforementioned bullets remained true until today and the number of service-oriented freelancers has been soaring since then, presumably for a considerable part with people at the bottom of the labour market.

You can see this expansion in numbers of freelancers in the following chart: the number of freelancers, who are selling products (f.i. mom and pop stores), remained stable, since the measurement of these separate categories started in 2011. The number of service-oriented freelancers, however, grew equally fast as the total number of freelancers: with approximately 60,000 freelancers in two years.

Freelancers from 2001 – 2013
Data courtesy of:Central Bureau of Statistics (
Click to enlarge
It is very unrealistic to believe that these 60,000 new, service-oriented freelance jobs are of the well-paid kind. The tariffs of all freelance jobs are under heavy pressure currently, and the ones that are most under pressure are the ones in (low-level) healthcare, homecare, mail delivery and transport & distribution:
  • PostNL, the Dutch national mail service, has fired many postmen with a fixed contract and instead hired freelancers, who get paid a small fee per delivered letter or package;
  • Transport companies fire their domestic truckdrivers and instead hire East-European chauffeurs, against unfavourable freelance contracts;
  • A large supplier of home and health care – Sensire – fired 800 internal and 300 external employees, originally with the purpose of hiring these people back via a much more inexpensive (pseudo) freelance contract: as ZZP’er.
Ultimately, the freelance part of this plan has been abolished by Sensire, under pressure of the media and politics. Instead, a considerable share of the laid off people could start at TSN, a competitor of Sensire, under the same contract conditions.

Nevertheless, also this new company lives under the constant pressure of threatening austerity measures in homecare and healthcare, irrespective whether these austerity measures are forced by the central or local governments. Only when the current conditions for home care subsidies remain unchanged, the Sensire people can remain working at TSN. Otherwise they might be fired or might be forced to work under an unfavourable freelance contract after all. I am convinced that the same situation is also applicable to other freelance contracts, albeit presumably on a smaller scale.

Today, the Dutch society of journalism (NVJ) wrote a tell-tale article about the changing circumstances for freelance (photo)journalists. Here are the pertinent snips:  

Freelancers, who became freelancer a few years ago (and/or out of conviction), are often better off than freelancers, who were forced to become one after their dismissal.
Nevertheless, both categories have to deal with a deterioration of their legal and economic position.

This is printed in the investigation “Tariffs and copyright, negotiations and perspectives of freelance (photo) journalists”, which will be presented today.

The group of freelancers that chose for entrepreneurship out of conviction has commonly a better negotiating position and earns almost twice as much as freelancers, who were forced to become one (often after their dismissal).

For the group that started a freelance practice under pressure, after having a regular job, it is questionable whether their business will remain viable. This is partially caused by the increasing competition and plummeting tariffs, partially by the fact that their entrepreneurship was not their choice.

All  freelancers work more than 37 hours per week in average, but get only paid for 22.5 hours. Their tariffs plummeted in the past years. The drop in hourly rates (after inflation correction) has been 18% under writing freelancers. In 2013, photo journalists received less than 66% of the price of a picture in 2008. This is 38% less, after inflation correction.

When the average income for photojournalists in 2012 is compared with the income in 2002 (indexed to 100%), the income was 94% in 2012.

This whole article is a must-read in my opinion. The article speaks volumes about the deteriorating circumstances and looming poverty among this particular category (and many other categories) of freelancers.

That this looming poverty is no ‘science fiction’ anymore, is proven by an article in Het Reformatorisch Dagblad (a confessional, daily newspaper).

Parishes of small reformed churches had to deal with a strongly increasing number of requests for help during the last years. Also in the Roman-Catholic church there is a considerable increase in this number.

The average number of requests for help per parish increased to 15.7 in 2012 from 6.5 in 2009. The total number of requests for help in 2012 was 7000.

‘These data look familiar”, according to Derk Jan Poel of the ‘reformed support point for parishes’. “There is crisis, unemployment rises, people lose their jobs and get more and more choked by their debt”. Poel mentions that especially freelancers are “a difficult category”, as these are not principally unemployed, but don’t ring the alarm bells (as entrepreneurs) when their situation gets tough. “Here is much hidden poverty. This group deserves our attention”.

This discloses one of the main problems of freelancers: while becoming a freelancer (often at gunpoint), these people abolished their built-up rights for unemployment benefit and all kinds of social security subsidies. At the same time, it was almost impossible for these people to earn a decent income, due to the maintaining and even increasing pressure on their tariffs.

As I already predicted in 2011, many of these freelancers are an accident waiting to happen: an accident of looming poverty and despair.

Wednesday, 27 November 2013

Germany will be governed by a large coalition, consisting of CDU/CSU and SPD. Chancellor Angela Merkel acts as 'Dr. No', in an assumed 'N.I.M.B.Y.-cabinet'.

if you are ever, in a situation,
without enough time for contemplation,
all of your friends go in the same way,
you feel kind of trapped, you don't know what to say,
just say no, 'cause better save than sorry,

Although the grassroots of the social-democrat SPD could still spoil the party, everybody assumes that the deal is done for Germany: the country will get a large government coalition, consisting of the christian-democrat CDU/CSU, led by Angela Merkel, and the SPD of Sigmar Gabriel.

BNR News Radio reported the following news on the new German government:

German chancellor Angela Merkel, Horst Seehofer (CSU) and Sigmar Gabriel (SPD) have presented their government agreement, with the motto “Designing the future of Germany”.

After marathon negotiations of 17 hours, the party leaders of CDU, CSU and SPD agreed upon a government agreement this morning. However, this agreement must be approved by almost half a million SPD party-members. 

“This could pose a problem, as this agreement has a clear christian-democrat signature”, according to secretary-general Dobrindt of CSU.

Merkel stated in a formal comment that a large coalition has been formed “for the great tasks that lie ahead of German politics”. She emphasized the importance of solid government financing.

SPD-leader Sigmar Gabriel started his speech with a plea for the “stabilization” of the EU and the Euro. According to him, a great idea is under jeopardy, due to the rightwing-populists. Important is to maintain the confidence in Europe.

Germany will not enter into new debt, from 2015 and further. Besides that, there will be no new taxes. The Social-democrats had been in favor of more government spending, in order to create additional jobs, but that desire has not been rewarded.

Nevertheless, the fondest wish of the SPD - to establish a minimum wage of €8.50 per hour - has finally been rewarded. However, during the transitional periode (until 2017), it is yet possible for the employers to negotiate a lower payment within the collective labour agreements. The CDU/CSU feared that otherwise many jobs would be lost, as a consequence of this minimum wage.

From 2017 and further, the Germans will receive a “social benefit for the elderly”: this enables people, who could only pay little contributions during their working life, to receive a minimal amount of €850 per month anyway.

Negative for foreigners is the introduction of a German highway toll system, based on a similar toll vignette, as in Switzerland and Germany.

No names of future ministers have been mentioned yet. However, the CDU will get five ministers (besides the chancellors position), the SPD six and the CSU will get three ministers in the future cabinet. The plan is that the Bundestag (German parliament) votes Merkel as third time chancellor in the week before Christmas.

I must admit: I was wrong with my prediction that Germany would get a blue/green cabinet, consisting of CDU/CSU and the German Green Party. 

Where I was right, however, was my prediction that the negotiations would be tough and would take quite some time:

However, the SPD has a lot to lose in such a coalition:
the party will have to make a lot of impopular decisions, for which it is undoubtledly blamed at the following elections. The real advantages for the SPD are therefore not certain at all.
besides that, Steinbrück might be forced to act as a stooge for Angela Merkel: making at least half of the jokes, but never receiving the applause for it.

Is this the reason that the SPD used today (and probably the rest of the week) to ‘lick its wounds’, before taking a decision on a possible red/blue coalition in Germany?

Although this CDU/CSU/SPD coalition is clearly the favorite possibility of many Germany-watchers, I am not so convinced that such a coalition will indeed emerge, due to the aforementioned reasons.

Well, the Germans of the CDU/CSU and SPD “did it” anyway and formed a new cabinet. 

In my opinion, this will indeed be the future cabinet of Germany: I suspect that the sense of responsibility of the SPD grassroots will vanquish their feelings of disappointment and resentment against the CDU/CSU combination. This will happen, in spite of the Prime Minister’s bonus that will undoubtedly be rewarded to Angela Merkel again.

The following snippet is from the article mentioned behind the previous hyperlink:

This is the consequence of a phenomenon, called the Prime-Minister’s bonus: where the largest party in a two-party coalition (the party, which delivers the PM) often receives the credits for the things that went right during the previous government stint, the smallest coalition party is often blamed for everything that went wrong in the coalition. Especially, by the people who voted for the latter during the last elections.

In other words: the smallest party is punished for having been smaller and for not having as much influence as the largest party. This happened to the FDP during the 2013 elections and to the SPD in 2009 (to 23% from 34.2% in 2005). 

This new cabinet might be a very stable one; the Germans don’t have a tradition of large political arguments and devastating cabinet crises, like in The Netherlands and Belgium.

Anyway, the $1000,000 question is: will it be a cabinet that is good for Germany and Europe?! I have serious doubts, with Merkel at the helm.

Merkel’s conservatism and lack of courage is one of the reasons that the Euro-crisis took such a long time to solve; in reality the Euro-crisis has not even been solved  yet, only nobody whines about it anymore, at the moment.

Germany, irrespective whether it has been Angela Merkel, the Bundestag or the Federal Constitutional Court in Karlsruhe, has “sabotaged” almost any attempt to save the Euro-zone and the Euro, spur the European economies and solve the European banking problem. 

Therefore, I hold Germany (together with The Netherlands) responsible for a large share of the financial and economic misery in especially the PIIGS countries over the last five years.

This makes the red and bold statement of SPD's Sigmar Gabriel about "maintaining confidence in Europe" so peculiar: perhaps Germany's past actions maintained the German confidence in Europe, but it put the confidence of many, many other Europeans under jeopardy.

And will this ‘German N.I.M.B.Y. (“not in my back yard”) politics’ change in the coming years?!

The distinguished and savvy ING economist Carsten Brzeski is very clear about this, in an interview with Petra Grijzen of BNR News Radio:

Carsten Brzeski: First and foremost, there were a lot of "No's" in the formal statement of both coalition partners. They know best what Germany is NOT going to do: 
  • "No" against the European Transfer Union
  • "No" against a common deposit guarantee system.
  • "No" against a completion of the European Bank Union
  • "No" against the mutualization of [government and bank] debt among the European society
  • A remaining "No" against Eurobonds 

There were indeed a lot of "no's", but the coalition didn't make clear at all what Germany stands for in the future. 

I'm afraid that the German policy will largely be the same as now. This means muddling through the crisis in Europe, instead of solving it.

Petra Grijzen: What does that mean for us in Europe?

Carsten:  What we see as an interesting development, is that the German government will retreat from the current plans for the European banking Union. One of the most important parts of this banking union plan was the following proposition: in 2014, the ECB would be allowed to rescue banks on their own initiative with money from the European emergency fund, without asking permission from the European governments in anticipation.

The new German government states, however, that this ECB plan will only be allowed by Germany, when a European banking settlement mechanism for defaulting banks is established. Such a European banking settlement mechanism is not established yet and it might at least take two or three years for the EU to develop it.

A banking union that could break the vicious circle between banks and governments is something that we will not get so easily, I'm afraid.

Petra: What does that mean for the banks?! The biggest problem in the EU is the weak banking industry. What can we expect?! The next crisis, perhaps?!

Petra Grijzen of BNR News Radio
Picture copyright of: Ernst Labruyère
Click to enlarge
Carsten: This means that the lionshare of responsibility will remain with the European Central Bank. The ECB has the responsibility to supply the financial system with sufficient liquidity, without the European governments backing it up.

And when we look at the stress tests results for the European banks next year and we see then that new banks will have to be rescued, this will be again the task of national governments. Especially, in those cases when the money of shareholders and bondholders does not suffice to let the bank properly default. This development is exactly what we wanted to prevent with a banking union.

I don't think that this will lead to a derailment of the financial industry, but it means that what we wanted so badly - an integral and fully operational banking union for the EU - will be a thing of the future.

Summarized: Angela Merkel will be "Frau Dr. No" in a German N.I.M.B.Y-cabinet, which rather lets the Euro-crisis fester on for another 5-odd years, than to take a few decisions that might hurt the Germans a little, financially.

The same Germans, by the way, who saved about €40+ billion in national interest payments, due to the extremely low interest rates for Bunds, currently. It would be funny, weren’t it so sickening…

Monday, 25 November 2013

Ukraine was stuck between ‘rock’ Russia and ‘hard place’ Europe. The country choose to stick with the rock, thus alienating the hard place and many of their own people. This might be a blessing in disguise for all parties.

The Ukraine is a former Soviet republic with about 45 million inhabitants in 2012, neighbouring with Belarus and Russia.

Since the Soviet Union collapsed and the Ukraine turned into a market economy, the country has been suffering from those symptoms that are so typical for many of the post-Soviet Union states:
  • a chaotic political situation;
  • ubiquitous corruption, merging into what you could call “numerous signs of scoundrel capitalism”;
  • high unemployment and general poverty among the less lucky parts of the population;
  • above all, economic and industrial backwardness.

Although the economy enjoyed some years with remarkable GDP growth during the last twenty-odd years, the 2008 economic crisis hit the country like a hammer.

Wikipedia: Ukraine was caught up in the worldwide economic crisis in 2008 and the economy plunged. GDP fell 20% from spring 2008 to spring 2009, then leveled off as analysts compared the magnitude of the downturn to the worst years of economic depression during the early 1990s.

Next to the usual problems that a developing country has after more than 70 years of dictatorship, there has been one other constant issue during the last twenty years: the difficult and often sub-zero relations with ‘giant brother’ Russia, leading to verbal aggression and sometimes even abuse of the latter.

You must know that the Ukraine has a pivotal position, when it comes to the transport of Russian gas to the southern countries in Europe. The reason for this position is the vast gas transport network of Russian gas behemoth Gazprom ( the so-called Urengoy – Pomary – Uzhgorod gas pipeline), that is partially positioned on Ukrainian soil. If you look at the following picture, you immediately see what I’m talking about:

The role of the Ukraine in the gas transport
from Russia to South-Europe
Picture courtesy of: Google Maps
Click to enlarge
The Ukraine wants to pay the lowest price possible for the Russian gas, as a courtesy from Russia to the Ukraine for hosting Gazprom’s pipelines. Russia, on the other hand, wants an undisturbed and unrigged delivery of their gas to their customers in South-West Europe. All the gas that comes into the Ukraine should get out of the Ukraine as well, except for the gas that Ukraine itself buys from Russia.

This… probably did not always happen in the past. As a consequence, there have been numerous reciprocal accusations between Russia and Ukraine:

  • Russia stated on a number of occasions that Ukraine had stolen gas from the pipelines, owned by Gazprom;
  • Ukraine accused Russia of manipulating the gas prices, when the Ukraine didn’t want to sing to the tune of Russia.
  • Besides that, Russia has been accused of heavily interfering with the Ukrainian politics in the recent past

One other very important fact to keep in mind, is that approximately 17% of the people in the Ukrain are ethnic Russians. You could safely state that the western part of the Ukraine – with probably the majority of the population – dislikes the Russians (“the big bully”), while the eastern part of the country, where the ethnic Russians live, feels very much attached to Russia. All these conditions caused an explosive political situation between Russia and the Ukraine in recent years.

And there is more: during the last few years, the European Union had been luring the Ukraine to become a member of the European Union. The bait was an association agreement, that would offer a free-trade zone between the EU and the Ukraine and could eventually emerge into a full membership of the EU for Ukraine.

The Ukraine – at least the western, pro-European part of the country – was very enthusiastic about this EU membership plan, that would probably bring vast European subsidies, improved trade opportunities, economic growth and eventually prosperity to this very poor country, with its strategic position in Europe. Therefore this EU plan almost succeeded.

That was much to the disliking of Russian president Vladimir Putin. The thought that Ukraine could become a future member of the EU, outraged Putin, who accused the EU of hunting in his backyard. Putin ‘invented’ a customs union (a free-trade zone in EU-style) with Kazakhstan, Belarus and Russia and made the Ukraine ‘an offer that they couldn’t refuse’.

And this indeed happened: last week, the Ukraine ultimately abolished the plan for the association agreement with the EU and ‘voluntarily’ chose for a pact with Russia and its customs union.

The flabbergasted EU officials added in a cutting tone of voice to the Ukraine, that this decision would cause that the door to Europe would be closed for years and years to come.

The Economist wrote upon this unfolding story:

ONE can always count on Ukrainian governments to renege and surprise.  And so it did this time. On November 21st, one week before the European Union summit in Vilnius during which Ukraine was supposed to sign an association agreement, its government suspended talks with the EU.

The suspense and excitement were replaced by deep disappointment. As one Ukrainian paper put it the government managed to snatch defeat from the jaws of victory (again). This was the closest Ukraine had ever come to crossing the border between Russia and the West.

The official version of Ukraine’s turn around is that it could not withstand Russia’s pressure. The government cited the “benefit of Ukraine’s national security” as the reason for “resuming active dialogue with Russia and other countries of the customs union of Belarus and Kazakhstan….aimed at restoring the lost production output and trade and economic relations.” Carl Bildt, the Swedish foreign minister and the co-author of the whole project, tweeted upon learning the news: “Ukraine government suddenly bows deeply to the Kremlin. Politics of brutal pressure evidently works”.

Disappointed as they were with Viktor Yanukovych, the president of Ukraine, the EU accepted his version of events. After all, Russia’s restrictions have already reduced Ukrainian trade by 25% and more was in store. Mr Yanukovych estimated the potential economic loss from Russian sanctions to be in the order of $15 billion. This is at a time when the Ukrainian economy is already shrinking, and its budget hole is growing with no access to international capital markets. Ukraine is broke and beggars can’t be choosers. Unless, of course, the beggar is Ukraine.

This story by the Economist is an absolute must-read: I urge all my readers to read the whole, quite surprising article about the background of Ukranian president Yanukovich’ decision to sign a treaty with Russia, instead of the EU.

For me personally, it is not surprising that Ukraine signed a treaty with Russia and rejected the association agreement with the EU. That the reason for this decision WAS surprising does not change one bit about this.

My only question is: what has the EU been thinking, when they offered the association agreement to Ukraine?! Especially, when you take the following into consideration:

  • The EU suffers from a steadily waning popularity in many western countries, where populism and anti-European/anti-EU feelings go hand in hand.
    • Many of these feelings have been caused by the EU’s decision to let poor and economically backward East-European countries like Slovenia, Croatia, Romania and Bulgaria into the EU.
  • With the Ukraine, an extremely large, very poor and divided country, with a high level of corruption and political disorder, would enter the EU. 
    • In its current unstable form, the country would probably hardly benefit from the EU and its political situation would cause many EU officials a migraine headache;
    • This country could eventually become a financial black hole for European structure subsidies, which would probably vanish without a trace;
    • And the EU would have very little to gain from the Ukrainian membership, except for a new market to dump EU exports;
  • And last but not least: this association agreement could spark a new cold war within Europe, as Russia would consider it unacceptable behaviour from the EU to openly hunt for new members among their former fellow Soviet-states, like Ukraine and Georgia.

According to BNR News Radio’s savvy Foreign Relations analyst Bernard Hammelburg, this association agreement for the Ukraine has been an extremely stupid idea of the EU and the plan would have been ‘dead on arrival’. I happen to agree with him.

Bernard Hammelburg of BNR News Radio
Picture copyright of : Ernst Labruyère
Click to enlarge
Please do understand me right: I am neither a particular friend of Vladimir Putin and his policy, nor fundamentally against the Ukraine as a member of the EU!

To the contrary: I have much hopes and expectations for a united Europe, as it is the best warrant for peace in this formerly heavily battered continent, with its numerous small and big wars in the past.

People, however, just have to understand that the time is not right for a Ukrainian membership of the EU yet!

Before the Ukraine could become a member of the EU, the relations between Russia and the EU must have become so much better, that the mistrust and envy between these parties have finally faded away.

This will take years and years and (probably) a new generation of Russian and European leaders, who grew up without the socialist/communist inheritance and post-Cold War feelings that blur the relations between us, until this day.

So let us not grief about losing the Ukraine as a future EU member, but instead be happy that a grave political mistake has been prevented. This might be a tough and enraging message for the EU-oriented Ukrainians, but that is the way it is, in my humble opinion.