It will be a disaster for the Ukrainian people if their new rulers sign the EU association agreement argues Reuben Bard-Rosenberg

The EU has hardly been a neutral observer of the recent events in Ukraine. It made its position clear two weeks ago, before the Maidan seized power, when the EU’s Foreign Minister, Baroness Catherine Ashton, called for a change of government prior to any new elections. This was necessary, she said, to ensure a “democratic future for all Ukraine’s citizens”. Presumably she said this with a straight face, oblivious to the irony of an unelected foreign minister and a baroness telling an elected, if corrupt, President that he needs to make way for democracy.

The conflict in Ukraine was sparked by President Yanukovych’s refusal to press ahead with an association agreement with the EU, which would have brought Ukraine deeply into Europe’s economic orbit. This was not a one-off. Since the mid 90s, the EU, like Nato, has deliberately expanded its territory and influence to the Russian border. Nine countries have been admitted into the EU, and deep and comprehensive free trade agreements have been signed with others. The official line is that it is an altruistic project to bring democracy, prosperity and clean government to the benighted peoples of Europe’s periphery. The reality, of course, is rather different. Although the expansion of Europe has created new investment – or, more precisely, rent-seeking – opportunities for European financiers, East European workers have been subjected to attacks on their living standards, mass privatisation and the brutal logic of the free market.

Enlargement of the EU

Europe’s eastward expansion is not based on an association of equals. Some 600 million of the world’s wealthiest consumers reside in the EU, and East European countries that fail to enter into agreements with the EU are threatened with massive trade discrimination. In other words, a Ukrainian business that tries to sell goods in neighbouring Bulgaria is compelled to compete with French and German businesses. Goods produced in France and Germany can be freely imported into Bulgaria, but those produced in Ukraine are subject to tariffs.

More importantly, Europe is an important source of financial capital. European investment in Ukraine exceeds Ukrainian investment in Europe by a ratio of 11 to one. Russia is not a great counterweight to European power: its total economic output is roughly equivalent to that of a single major European economy.

Europe’s eastward expansion has created a beneficial environment for Europe’s investor class at the expense of East European workers. Countries joining the EU are compelled to put themselves on a path towards monetary union by pegging their currencies to the euro, sometimes at problematically high rates. That is fantastic news for European financiers, who are able to lend and invest in the local currency without worrying about its value, and the value of their investments, falling. But the costs of the fixed currency systems are borne by the workers.

The European straitjacket

For obvious reasons, newly acceded countries, such as Latvia, Lithuania and Bulgaria, have found it difficult to compete with Europe’s developed countries – in particular, Germany – where rising productivity has long coincided with stagnating wages. They cannot restore their competitiveness by devaluing their currencies and are not able to withdraw from the race by erecting barriers against Western European exports, so they are compelled to hammer down wages and deflate demand to the point of causing mass unemployment. Thus, the Latvian government, in clearing a path for its membership of the euro, imposed massive cuts to public sector wages, attempted to reduce wages throughout the economy, attacked organised labour and made brutal cuts to public spending.

East European countries that enter into trade agreements with Europe are compelled to accept the straitjacket of European rules and regulations. Most significantly, Europe’s state aid laws prevent governments from supporting or subsidising domestic industries, and even from simply lending money at preferential rates of interest. The rules are bad enough for countries such as Britain, but for the economies of East Europe, warped by the post-Soviet catastrophe and in need of state-led development policies, they are a disaster.

Forced privatisation

Countries that associate with the EU are compelled to open up their public infrastructure – telecoms, transport, postal services and electricity – to privatisation. This, of course, is the real prize for European financiers. These are not really opportunities for productive investment, which is increasingly hard to do profitably in Western Europe, but rent-seeking opportunities to take hold of the infrastructure that local people are compelled to use, and to charge them through the nose for it. In this respect, European capitalists are akin to the feudal lords who made their cash by over-charging villagers to use the village mill.

Among the likely candidates for the presidency of the European Union is a conservative politician named Mr Juncker. Considering the behaviour of the EU towards its Eastern hinterland, his election would represent a rare moment of European transparency.