A Bigger Problem than Greece

Western Financial Support for Ukraine: What Can Be Learned from the Bailout of Greece

by Elliott Morss, Morss Global Finance


For some time, I have been following the economic problems of Greece. These include:

  • Its inability to compete in world markets using the € as its currency;
  • The IMF, supporting Germany on ‘austerity” as the proper policy for Greece;
  • The IMF realizing austerity is not the answer as unemployment skyrockets;
  • The IMF asking Eurozone countries to forgive more Greek debt, and on….

Greece continues to be an economic disaster.

Ukraine is now in the news and we hear that its economy is near collapse. There is discussion of the West providing a bailout. In what follows, I compare the two countries economically. I then use lessons learned from the Greek bailout experience to suggest what the West needs to worry about in trying to help Ukraine.


Ukraine is larger than Greece: Ukraine’s population is 45.5 billion, four times larger than Greece’s and Ukraine’s GDP is 36% greater than Greece’s. This means a bailout of Ukraine will probably be more costly than the Greek bailout. By 2016, the Greek bailout will have cost the IMF $48 billion and European countries $220 billion. In addition, debt forgiveness by 2016 will probably exceed another $100 billion. That totals $368 billion.

To get a better idea of what Ukraine will need, the economic problems facing both countries need to be compared.

GDP Growth

Table 1 provides GDP growth rates for the two countries. There was of course a downtick in both countries following the 2008-09 global depression. Most countries started to recover in 2010, but not Greece. The world stopped buying Greek debt, something that should have happened much earlier. Ukraine followed the normal pattern for a couple of years, but in 2012, the wheels came off.

Table 1. – GDP Change

Source: IMF

Government Deficits and Unemployment

Half way through the IMF/Germany-imposed austerity bailout of Greece, The IMF realized it was not working. Efforts to reduce the government deficit caused a massive unemployment increase that even today threatens destabilizing political protests. With no such austerity program in Ukraine, unemployment has remained under 10%. The obvious question: what sort of program should be adopted for Ukraine and what will its impact be?

Table 2. – Unemployment and Government Deficits

Source: IMF

Government Debt and Current Account Deficits

Table 3 illustrates just how bad the Greek debt situation has become. One wonders what investors were thinking when buying Greek debt as far back as 2008. And at that time, bank regulators were allowing this debt to be included with cash in calculating bank reserves!

Ukraine does not have the unsustainable debt overhang that Greece has, but its large current account deficit is extremely worrisome.

Table 3. – Government Debt and Current Account Deficits

Source: IMF


For Greece, energy imports are 3 times its domestic production as measured in “oil equivalents”. Ukraine is quite different. Its energy imports are just under 68% of its total production. But Ukraine provides large subsidies to energy consumers and is one of the top ten energy consuming countries in Europe/Eurasia. More than half of the country’s primary energy supply comes from its uranium and coal resources, but 20% of its total imports are natural gas from Russia.

Table 4 gives a more detailed picture of Ukraine’s international trade position. Its growing deficit is in part attributable to its natural gas imports from Russia that constitute about 20% of its imports. The government provides large energy subsidies to its consumers thereby increasing energy consumption. Perhaps most notable is its international reserve deficit. This is very unusual.

Table 4. – Ukraine: International Trade and Reserves

Source: IMF


According to Transparency International, Greece is more corrupt that any other OECD country, ranking 36th out of 175 ranked countries. But Greece does not hold a candle to Ukraine ranking 144 out of 175. And Ukraine’s problems are more than corruption. Like Russia, Ukraine has very little experience using or appreciation of market mechanisms. Top-down control has been the tradition.

What the West Needs to Worry About

a. Bad Ukraine-IMF Experience

In all likelihood, Western nations will ask the IMF to lead a Western coalition for a Ukrainian bailout. Why the IMF? Because the IMF has long experience in “forcing countries” to implement economic reforms by setting targets and only providing funds when the targets are met. The IMF already has some experience with Ukraine, and it is not good. Bloomberg reports several cases in which the IMF froze payments because Ukraine failed to meet targets.

b. Needed Reforms

Interim Prime Minister Arseniy Yatsenyuk has put out the “welcome mat” to the West. WE need to see what happens when needed reforms to curb government deficits and reduce energy subsidies are adopted. Both of these actions will need to be done with care to avoid the unemployment explosion that took place in Greece.

c. Corruption

As mentioned above, corruption in Ukraine is of a totally different scale than it is in Greece. Afghanistan provides a closer analogy where billions of US dollars disappeared on a regular basis.

d. IMF Reluctance

While the politicians at the top of the IMF will do what Western nations want, the IMF staff will not enjoy working under pressure to disburse money in Ukraine. At least they have some experience working in the country.

e. Amount

The Greek bailout has so far been $368 billion. In all likelihood, Ukraine will need more.

Investment Implications

It should go without saying that this is not a good time to invest in ETF’s with any Ukrainian exposure such as: Junior Miners ETF (JUNR), iShares MSCI Poland Capped ETF (EPOL), Frontier Markets ETF (FRN), MSCI BRIC Index Fund (BKF), or iShares MSCI Emerging Markets Eastern Europe ETF (ESR).

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3 replies on “A Bigger Problem than Greece”

  1. There is one huge difference between Ukraine and Greece – Ukraine has its own currency and can devalue, Greece didn’t and couldn’t. If it plays its cards properly Ukraine can have an experience more like Iceland than Greece. Pain in the short run, ending fairly quickly instead of dragging out for years (decades?)

  2. jimgmcc  
    From Elliott Morss, by e-mail:
    Thanks for your comment. On Greece, I agree with you and have been http://www.morssglobalfinance.com/the-european-debacle-could-it-cause-a-new-global-recession/ since 2010 that Greece cannot survive if it has to use the Euro as its currency. However, I do not agree that economic problems in Ukraine will be quickly resolved. Ukraine has no sympathy for market mechanisms and the oligarchs benefiting from current structures will not give up without a fight.”

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