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March 18, 2014

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There never was any way out for Ukraine, any more than there was for Greece. You need a primary trade/currency surplus for that. Failing that, you need friendly relations with the countries that matter to your exporters. Ukraine trades with Russia, and gets its primary energy from Russia. If anyone would like things to be different, they should convince the EU to allow Ukraine's products (and labor) to travel into EU markets. But that's not happening, for obvious reasons.

Hasn't the EU granted Ukrainian exports tariff-free access to its market?

The relative speed of the EU reaction to the Crimean invasion makes me suspect that, perhaps, EU-Ukrainian relations might be set to shift quickly.

The reduced tariff access (I don't think it was tariff-free) is supposed to be provisional as I understand it, until Ukraine signs on to the Deep and Comprehensive Free Trade Agreement with the EU. That agreement (the DCFTA) would remove most tariffs between the EU and Ukraine but not remove labour barriers.

As Ukraine has already long had a trade deficit with the EU (according the EU's own reports on trade with Ukraine as well Ukraine government statistics), it's hard to imagine Ukraine turning an ever increasing trade deficit with the EU into a trade surplus as shah8 says they need with the DCFTA. Throw in increased energy prices for domestic Ukrainian producers as a result of the EU and IMF conditions for loans and it is hard to see how Ukraine is supposed to be competitive enough in the short or medium term to do what is actually needed.

And without freedom of movement for labour between the EU and Ukraine it means Ukraine won't have access to the safety valve of migration that Greece has, so as Ukrainian industries/companies are out-competed with EU products and some close down, there will probably be increased unemployment in the short and medium term with little prospects for the newly unemployed to move to the EU to take up work.

A heavily indebted country, with an electorate that is faced with increased unemployment, increased energy prices and unrealized expectations over the association agreement with the EU and increasing cynicism and apathy towards the current political class -----> Ukraine in a few years time?

"And without freedom of movement for labour between the EU and Ukraine it means Ukraine won't have access to the safety valve of migration that Greece has"

My understanding is that there is already a considerable amount of labour migration from Ukraine to points in the European Union as various as Portugal and Poland, with a total population of migrants in the millions. (There's also Russia, but who knows how that will evolve?)

"My understanding is that there is already a considerable amount of labour migration from Ukraine to points in the European Union.."

Yes, of that I am sure. However that labour migration is still subject to the normal procedures (and barriers) that any third state's nationals face when wishing to work in the European Economic Area. So Ukrainians need work permits and or visas to migrate for labour related purposes.

I doubt that this kind of arrangement will facilitate the movement of much more unemployed Ukrainians as a result of Ukrainian industries being out-competed in the short and medium term.

The thing is, those migrant flows do exist already. Admittedly there are regional issues: from my limited knowledge and broadly speaking, western Ukrainians go to the European Union while eastern Ukrainians go to Russia. In principle, it's imaginable that these eastern Ukrainian flows could head west. It might even be possible that these flows could be regularized.

I'm not disputing that these migrant flows already exist. And they are already regularized as Ukrainians are covered under the category of "non-EEA" nationals for immigration purposes. What I have been trying to point out is that without EEA membership (which is not on offer) then Ukrainians will still require work permits for the most part to migrate to the EU. And these are subject to limitations. For instance Italy still has quotas for work permits given to non-EEA nationals for all but a select group of professions. And Germany's residence permit scheme (which bundles the work permit with the residence permit) requires that those applying either have a job offer already or limits them to seeking out a job for a defined time (18 months I think) but only after completing studies at a German university. So what's going to happen if say.....100,000 jobs are lost in Ukraine as a result of closure of some industries that can't compete with EU goods and services but without there being 100,000 extra jobs and/or work permit quotas being available for work in the EU? It isn't like Ukrainians can simply get up and move to the EU countries and start their own businesses or work as self-employed persons like how EEA nationals can now is it? So while Ukraine will have access to the EU internal market it will not become a full part of that internal market and there will never be completely liberalized movement of labour between Ukraine and the EU unless Ukraine joins the internal market via EU membership, EFTA/EEA membership or hammering out a bilateral deal like Switzerland's. For the time being such a bilateral deal is politically impossible as longtime EU members such as the UK have already been reluctant to remove the transitional arrangements in place for new EU members like. Romania, Bulgaria and Croatia before the scheduled expiration of such arrangements. They are unlikely to approve such a deal with a country that I considerably poorer than Romania, Bulgaria and Croatia.

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