International Communist Party Against Capitalist Wars

The maneuvers of the imperialisms in the Ukraine: preparations for the future world war

(Translated from Il Partito Comunista, no.364, March-April 2014)


The Ukraine, with its 603,700 square kilometers, is a bit bigger than France. With its vast central plain washed by the Dnieper and its fertile black soil, it is a large agricultural country and a major grain exporter, mainly of maize. In 2011 France produced 64 million tons of cereals and the Ukraine 51 million. For the period 2013-2014 it is predicted that it will export 28 million tons.

The Ukraine is bordered to the east by Russia, to the north by Byelorussia, to the west by Poland, Slovakia, Hungary, Moldova and Rumania, and to the south by the Black Sea. It occupies an important geopolitical space acting as a buffer between central Europe and Russia, and it serves as bridge head, with the Crimea, for maritime access to the Mediterranean.

After the dismemberment of the Russian empire, the old USSR, in December 1991, which was due to the crisis of Russian capitalism, Russia’s republics, the Ukraine, the Baltic states etc, formed independent states. But it is important to underline that, contrary to the expectations of America, which forecast that the dismemberment of the USSR would start with the Muslim states in the south of Russia, which had been treated as real colonies, it has been the rich states, that is, Russia, the Ukraine, the Baltic states, which wanted, and organized, their separation. The system of the equalization and adjustment of wealth across the USSR, in favor of the poorer republics, had become too much of a burden for them.

The terrible crisis of overproduction which hit the economies of all these states before 1998 caused a major decline in industrial and agricultural production. In Russia, industrial production fell by 56%, worse even than the crisis which hit America between 1929 and 1932 (- 43%)!

For the Ukraine we don’t have the figures for industrial production over that period, but figures for Gross Domestic Product give an idea of depth of the crisis: -60% in 1999. Between the years 2000 and 2007 industrial and agricultural production in the Ukraine, same as in Russia, experienced a vigorous recovery with an average annual increase in production of over 9%.

Nevertheless, despite this positive trend, industrial production has not returned to its 1989 level, this can be seen in the constant value GDP, which in 2008 was just 70% of the 1989 level. Similarly, in Russia, industrial production in 2008 corresponded to 82% of that in 1989.

The crisis has provoked major emigration. The population, which was 52,179, 210 inhabitants in 1993, declined regularly over the following years, dropping to 45,593,300 in 2012. This indicates the harshness of the crisis and the suffering which the people had to endure. For the proletariat and the middle classes, it was like being in a war.

However, between 2000 and 2008 the Ukraine, as in Russia and the Baltic states, profited from the influx of capital which hadn’t found a home in western Europe and North America, and it was thus able to modernize its industry and agriculture.
Gross Domestic Product
In constant billions dollars from 2000
1989 1999 2008 2012
146.317 56.220 102.026 95.507
100.0% 38.4% 69.7% 65.3%

Currently the Ukraine possesses a solid industrial base, mainly in the mining and manufacturing sectors, with a labor force that is highly qualified, but whose wages are on a par with Chinese workers. Its main exports are steel products, mainly piping for the transfer of gas and oil, products of the mechanical industry, such as engines for airplanes and helicopters – an industry that is vital for Russia and China, chemical products, from carbon coke to fertilizers, sulfuric acid, etc. and arms, exported mainly to China.

The Ukraine has benefitted over this period from modernizing its agriculture and privatizing the Kolkhozes, those centers of social conservatism, and has thus become a major exporter of grain. In 2012 it brought in 17.61 billion dollars from export to Russia, and 17.06 billion from export to the European Union, about the same for both.

Percentage of Exports
By Type in 2012
agriculture 27.0%
mining 12.0%
manufacturing 59.7%

The global recession of 2008-2009 hit the Ukraine very hard. In 2008 industrial production fell by 5%, then in 2009 by 22%, that is, 27% in two years. To this should be added a chronic foreign trade deficit, which started to rise in 2005. This was aggravated by the attempt by the Ukrainian economic authorities to maintain the exchange rate of the national currency, the Hryvnia, at an inflated level. In 2009 Russia ended its policy of “fraternal pricing” and started selling its gas at the international market price - even higher if we compare it to the price paid by Germany - expressed in dollars. Ukrainian banks and businesses have contracted heavy debts in foreign currencies – dollars and euros – and half the public debt is expressed in dollars as well. So as not to make its gas debt, and ongoing gas bill, worse, the central bank maintains the parity of the national currency at an elevated level with respect to the US dollar. (This is what Argentina did, when before the crisis in 2001 it pegged its currency to the Dollar) But the central bank’s monetary policy of keeping the Ukrainian currency at an elevated rate of exchange does not favor exports, particularly in this period of global recession, and it is costly in terms of foreign currency.

Exchange of Goods - in 2012
  Export Import
Billions of $ 68.53 84.64
Russia 25.7% 32.4%
European Union (27) 24.9% 30.9%
Turkey 5.4% 9.3%
Egypt 4.2% 6.0%
Kazakhstan 3.6% 3.4%

After having made a strong recovery in 2010 and 2011, the second international recession caused a new blip in industrial production in 2012 and in 2013, with a fall in profits for businesses and banks. After the United States emerged from the recession at the end of 2013, with the FED announcing a progressive arrest of ‘quantitative easing’ (from September 2012 the FED bought up 85 billion dollars in mortgages and treasury bonds each month to keep the rates of interest low, making money cheaper and more available) and after the announcement of the economic recovery of the European Union, capital abandoned the emerging countries, the BRICS (Brazil, Russia, India, China and South Africa) and returned to North America and Europe, causing the currencies of the former countries to sink, and provoking recession there. Ukraine is suffering from this tendency as well.

The central Ukrainian bank in 2013 spent tens of billions of dollars to maintain the parity of its currency and this has exhausted its reserves. As the year went on, despite these interventions and the drastic restrictions on the movement of capital, the exchange rate of the Hryvnia dropped by 10%. The devaluation of the currency favored exports and put a brake on imports, but the national debt, calculated in dollars or euros, was made a lot worse.

The course of capital, its currencies and its markets, as Marxism has demonstrated, is totally uncontrollable and resistant to any control by the state. The entire historical course of Russian capitalism – the final dismemberment of the USSR finally bringing a halt to all the bragging by the Stalinian counter-revolution about so-called state control of the economy – has amply confirmed this aspect of capitalism, and the present crisis of the global economy, bringer of anguish and misery, evidences this in an even more tragic way.

The result of the Ukraine’s exchange rate policy, despite a rate of indebtedness that is relatively low – 43% of Domestic National Product in 2012 against 90% in France and 127% in Italy – is that businesses can no longer get financed on the international market. The rates of interest on short-term public bonds, which only a month ago stood at 5%, have risen in just one week to 35%. Bonds on a ten-year term have gone up to 11.5% from 8.5% in January. In the central bank the reserves held in foreign currency have been much reduced and the state deficit, due to the recession, has now gone up to around 55% of GDP. In a word, the Ukrainian state is on the edge of bankruptcy and a payments’ freeze.

According to the interim Minister of Finance, Iuri Kolobov, the Ukraine is going to have to face 12 billion dollars of indebtedness in 2014: 4 billion of it is owed to the International Monetary Fund from the central bank; 2 billion consist of stocks and bonds in Euros issued by the State, and the rest is represented by payments for gas owed to the Russian state-owned gas company Naftogaz. According to the minister himself, the Ukraine, in order to meet its obligations in 2014-2015, will need 35 billion dollars, that is, around 25.5 billion Euros.

The Ukraine has had to appeal twice to the IMF. On the first occasion, in November 2008 under the Yushchenko-Tymoshenko government, an agreement was made scheduling a loan of 16.4 billion dollars; on the second occasion in 2010, under the government of Viktor Yanukovych, a second agreement was made for a loan of 15 billion dollars. All these agreements involved certain conditions being met, including cancelling the subsidies on gas bills for both businesses and private individuals. But each time the government failed to apply these conditions which, in a situation of economic crisis, could have been explosive. The IMF had, as a consequence, to stop paying the instalments within the space of a few months.

 The ongoing crisis

Due to its geographical situation and its commercial links, the Ukraine finds itself caught between its Russian big “brother” and the European Union. The Ukrainian bourgeoisie, same as Poland and the Baltic States, would like to be part of the European Union in the expectation that it will attract the investment that is necessary for its economy and have easier access to the capital market. For the European Union’s part, in the current situation of global market saturation, it can only but hope for a greater opening up of the Ukrainian market, and the English, French, German and Italian multinationals cannot but eagerly anticipate the possibility of investing, under advantageous conditions, in a country that has a solid industrial base with cutting edge technology in the electronics sector and the military sector and, above all, a highly qualified labor force on wages which are on a par with China’s. The latter integration, or more simply approach, with a readymade contract of 20 billion dollars already proposed by the European Union would, however, be conditional on: economic restructuring, harsh cuts in public expenditure, and also include, most important of all, the suppression of subsidies for the consumer on gas, and, perhaps easier to achieve, a legal system conforming to the requirements of business, that is, which is transparent, functioning and not arbitrary.

Russian imperialism, meanwhile, does not look favorably upon this approach. The fact is that the integration of the country into the European Union would also lead to its integration into NATO. This would mean that Russia would find NATO forces on its borders again, representing a serious threat to the Crimea and the important port of Sebastopol there. For these reasons Russia has used both the carrot and the stick with President Yanukovitch to try and prevent any further moves towards Europe being made: with the stick consisting of threats to cut off the supply of gas and to increase custom duties on everything imported from the Ukraine (although in contravention of the rules of the World Trade Organization, which Russia joined two years ago): and the carrot consisting of the prospect of a loan of 15 billion dollars, without conditions, and a reduction by a third in the price of gas. The Yanukovitch government didn’t take long to decide between the carrot or the stick.

The following is well-known: under the impulse of the disappointed hopes of a part of the middle classes including the small entrepreneurs, and with the support of some of the oligarchs who do business with Europe, and certainly also due to the work of professional agitators financed by European and American imperialism – as Russian imperialism is doing today in the Crimea and some regions in the Eastern Ukraine – Maidan Square in Kiev was occupied, and after two or three months of struggles with the police and the special forces, the government fell, as happened during the Arab Spring in Tunisia and Egypt.

As in other regions of the world, the worldwide crisis of capitalism has set the classes in motion, but as opposed to what happened in Tunisia and Egypt, where the proletariat played an important role, chiefly due to a network of trade union organizations which were capable of organizing long and fiercely fought strikes, the proletariat in the Ukraine has been notable by its absence. A certain number of proletarians certainly took part in the demonstrations, but these were distributed throughout the mass of demonstrators and their demands were indistinguishable from the purely bourgeois ones being made in Maidan Square. The great mass of the proletariat certainly understood in an instinctive way that nothing that was any good could be expected from either of the contending parties.

The small states, above all when they get into difficulties, become easy prey for the big imperialist states. Will it be Russia, or the United States – via the European Union – who gobble up the Ukraine?

Russia doesn’t have the economic means to absorb the Ukraine and cannot prevent its approach to Europe. Russia today, in 2014, is in no way comparable with the old USSR which shared ruling the planet with the USA. How much weight does Russia carry today without the Ukraine, the Baltic states and central Europe? If we take the production of electricity as a rough indicator of industrial production, using data from 2007, before the great crisis in 2008-2009, its global weighting is 5% of global production against 22% in the United States and 16% in China. Germany, applying the same criteria, would come in at around 3%. Russia is therefore a big Germany with nuclear missile shaped teeth, but a big Germany none the less. In no case can it claim to be America’s rival as was able to do in the past.

The real adversary of the United States is China. The Chinese bourgeoisie is preparing to take the place of American imperialism. It is counting on time: with rhythms of industrial growth of 5-6% (even if official figures are 9-10%), it is counting on catching up with, and then overtaking, the United States and producing more arms than them. What the Chinese bourgeoisie forgets, like every bourgeoisie, is the crisis of overproduction. The crisis of over-production threatening China is a formidable one, a crisis whose intensity will be at least as bad as that in 1961-62, if not worse. The question is not if the crisis will happen, but when. Maybe it will be at the end of the present cycle of production, predicted to happen around 2017, or perhaps even earlier? Whenever it happens this gigantic crisis of overproduction will mark the beginning of a global crisis of deflation that will be even more intense than the one in 1929.

The military intervention of Russia in the Crimea and its threatening maneuvers on the eastern borders of the Ukraine, are evidence of its weakness. The United States are reacting by sending a war ship to the Black Sea and reinforcing the air defenses in Poland but they are not exerting pressure in other theatres of war, like in Syria for example. This demonstrates two things.

The first is, despite some alarming developments in the Far East (a few weeks ago Chinese war ships fired on Philippine fishing boats; in effect China is claiming as its zone of influence the entire China Sea and the corresponding air space), in the Middle East, and now even in Europe, the conditions for a third world war are not yet mature. Before that there will be a major global economic crisis which will bring back the proletariat on to the path of class struggle; and then the alternative will be posed: third world war or international communist revolution.

The second thing that the restricted intervention of the two imperialist powers demonstrates, is that the United States is not counting for now on its military might to subdue Russia but on an equally powerful weapon: financial capital. It is the same weapon that the United States used in 1956 following the Anglo-French military intervention in Cairo and Suez: the two allies still believed themselves then to be masters of the world, but under financial pressure from the United States they had to quickly pack their bags and head home, even if on the ground the conquest would clearly have been easy. One can easily imagine the rage of the French bourgeoisie and the anti-American sentiments it harbored at the time.

Today Russia is not only suffering from the international crisis but, like other emerging countries, it needs to do something about the reflux of capital. We need, moreover, to take into account that industrial production stagnated in 2013 to the point that in 2014 a recession was declared. “Russia last year registered growth of just 1.4% of GDP (against 3.4% in 2012, a long way from the 7% registered in the ten years after 2000 and the 5% promised by President Putin in 2012) and the authorities were hoping for a bounce back of 2.5% in 2014. The central bank has already gone back on its forecast, lowering it to less than 2% per year until 2016 at least. The cause, as everyone knows, is the lack of enthusiasm from foreign investors, faced with a lack of any real industrial diversification, of any concrete plans for privatization, or of a good climate for business and a transparent legal system” (Les Echos of March 4, 2014).

This situation has provoked a devaluation of the Ruble, and it is now aggravated by Russia’s military expenditure. After the announcement of a possible military intervention in the Ukraine the Euro went over the symbolic threshold of 50 Rubles, never before seen, and the Dollar broke the record set in 2009 with 36.85 Rubles to the Dollar. In order to counter this trend the central bank has, on the spur of the moment, had to raise the base rate, the rate that regulates inter-bank exchanges, from 5.5% to 7%.

In the event of an embargo on investments in Russia, which the American Secretary of State John Kerry has been threatening, Russian capitalism would be severely damaged. A few banks would certainly risk going bankrupt. Thus, in a gesture of appeasement, Putin called a halt to the military maneuvers on the border with the Ukraine.

Undoubtedly negotiations are under way. But what does the Russian bear want? To increase the security of its own naval base in the Crimea, to ensure that the Ukraine does not join NATO and consequently join the European Union, and that the Kiev government does not become declaredly anti-Russian.

On this last point every government in the Ukraine, including those that seem more pro-west, have demonstrated their pragmatism and awareness of geopolitical realities. It was this way when the star of the “Orange Revolution” Yulia Tymoshenko was prime minister and passed for being pro-west. It was she who negotiated with Russia the new contract for the supply of gas that would later be judged by Yanukovych, the deposed president who took refuge in Russia, as being too favorable to Russia.

As regards the integration of the Ukraine into Europe, what the European Union has proposed up to now is a partnership. But if the Crimea should be acquired by force, as it appears will happen, there is no doubt that, in the medium or long term, the Ukraine will be integrated into Europe and NATO.

But neither Russia nor Europe are willing to support a bankrupt Ukraine, because that would involve problems for both. If the Ukraine ceases to pay the debt instalments to the Russian state banks, which have invested heavily in the Ukraine, it would suffer grave consequences. On this point both Europeans and Russians have an interest in reaching an understanding.

Russia’s means of retaliation is gas, but it has limits because there is a risk of killing the goose that lays the golden eggs. Russia cannot continue to use its gas as a weapon for long. The production of gas from shale in the United States has revolutionized the market in energy products. By becoming independent from the energy point of view and big exporters of coal, the United States have pushed the price of energy down and obliged their old suppliers to find other outlets. On the other hand, the possibility of liquifying natural gas makes it possible to transport it over long distances. Europe currently consumes 485 billion cubic meters of gas per annum, of which 160 billion come from Russia, but in ten years’ time a good part of this gas will replaced by LNG (liquified natural gas). If Russia were to cut off its supply of gas now, something that would have a detrimental effect on Russia’s economy as well, Europe could be supplied from Qatar, Australia or Canada.

Still on the subject of gas: the deposed Yanukovitch government did everything it could to reduce the consumption of gas and the acquiring of it from Russia, which supplied it at a higher than market price. In the thermal power stations that produce electricity it had gas replaced by coal, which is produced in the Ukraine, and the government has even imported gas from Germany. With these systems in place, it managed to bring the consumption of gas down from 54 billion cubic meters in 2011 to 45 billion in 2012 and reduced its dependence on Russia, acquiring only 34 billion cubic meters from Moscow in 2012. Then again, at the beginning of 2012 the Ukrainian government signed two contracts for the exploitation of two gas deposits from schists, each one of which could provide, according to the government’s own estimates, between 8 and 10 billion cubic meters per year. As for the United States they are accelerating the construction of terminals for the transport of LNG; and export could be directed precisely towards countries such as the Ukraine.

In this arm-wrestling contest, how far does America want to go? Will it organize an embargo on investment in Russia if Russia refuses to leave the Crimea? But might this not then result in China, which up to now has mildly supported Russia, intervening in support of Moscow? But such “help” would come at a price: the Chinese bourgeoisie would only lend its capital on condition it could hoover up Siberia’s mineral resources and have access to Russia’s leading edge technology. The United States, for their part, would need to convince the City, which recycles part of the Russian revenue from gas and oil, to join the embargo. However, the United States may have an interest in not hitting Russia too hard, so it doesn’t find itself on its own facing China.

One can only make suppositions, but what is certain is that no positive solution will ever emerge from all of this haggling between imperialist states; on the contrary they serve only to make the wound fester even more, we need only think of what happened in Cyprus.

In all cases the Ukrainian proletariat can expect nothing from either camp, only bloodshed, tears and insecurity. If an industrial recovery on the world scale were to be confirmed in the big imperialist countries, it would only be a moderate one and be at the cost of greater impoverishment and even greater insecurity for the workers, as much in industry as in the service sector. In Japan 30% of the labor force is already condemned to non-permanent work and the resulting poverty; in Germany the figure is 20%; in France 15% according to data from 2010, and no doubt this percentage has gone up over recent months.

The European bourgeoisie is quite aware that it cannot apply in the Ukraine the brutal remedies it imposed on Greece and Spain; it will be obliged to use less drastic methods, but it will be the Ukrainian proletariat, of course, that picks up the tab. Here is what Eric Berglof, the chief economist at the European Bank for reconstruction and development, had to say: “A country like Ukraine, which has a diversified economy and an educated labor force, must make an effort to generate faith on the part of investors”. That’s crystal clear.

These growing military tensions, in the China Sea, in the Middle East and in Europe, are the premises of the future world war, which the imperialist states are propelled towards by the crisis of world capitalism. When the conditions are ripe just one spark will be enough to set off the conflagration. It would be an absolute disaster if the first missiles were launched and the proletariat were unable to stop the war by means of class action, or if it stopped it too late, as in the First World War.

If the war should break out before the revolution, the transformation of the imperialist war into a civil war would be difficult, but not impossible. If, on the contrary, the third world war were to be fought to its conclusion, not only the planet would have been reduced to a desolate battlefield strewn with corpses, with maybe a billion dead, but all the conditions would be in place, with the proletariat crushed by misery and hunger, for capitalism to start up a whole new cycle of accumulation. The center of economic gravity would have been shifted to the pacific whereas old Europe, incapable of realizing communism, could only retire from the scene.