Is Ukraine More Like Latvia or Greece?

This question might seem odd, but it's at the heart of what world leaders need to grapple with at the G7 summit this week.

As the leaders of the G7 meet in Brussels to discuss what to do to help Ukraine, the big foreign policy question they face is: "How many Ukrainians consider themselves Russians?"

But in economic policy, the real question is: "Will the Ukrainians prove to be Latvians or Greeks?" The answer to the latter question -- a test of Ukrainians' willingness to engage in meaningful structural economic reform (especially if it involves economic belt-tightening) may determine whether Western aid to that beleaguered nation facilitates a much-needed economic revival.

If the Ukrainians turn out to be Greeks, resisting reform because austerity measures are ill-conceived and the people feel they have suffered enough, then Ukraine's ultimate recovery may be delayed, pushing Kiev into Moscow's waiting arms -- once again with offers of assistance, no strings attached. If Ukrainians are at heart Latvians, rejecting Russia's embrace to endure a deep economic downturn in the short run to facilitate long-term economic integration with the West, then the G7's plans for Ukraine may bear fruit.

A new Pew Research Center survey suggests that Ukrainians may be more Greek than Latvian, however: less than half voice a willingness to cut government spending and social benefits in return for Western financial assistance.

That's depressing news, but a bit of history is in order.

In the wake of the global financial crisis, in 2009, Latvia's economy contracted by 17.7 percent, according to a study by Anders Aslund of the Peterson Institute for International Economics. In response, the government in Riga implemented a comprehensive reform program: spending cuts; a reduction in real unit labor costs; curbing the government budget deficit; while making it easier to register property, resolve insolvency, pay taxes, start a business, and enforce a contract. The results have been striking: 4.1 percent economic growth in 2013 and 3.8 percent expected in 2014.

Greece, on the other hand, has struggled. The economy has shrunk by 26 percent since 2008. And the International Monetary Fund (IMF) expects a meager 0.6 percent expansion in 2014. As Aslund points out, the Greek reform program has been neither radical nor frontloaded. Tax increases have predominated over expenditure cuts and those revenues have proven hard to collect. And while real unit labor costs fell 20.5 percent in Latvia between 2008 and 2013, in Greece they declined by only 10.1 percent, according to Eurostat, suggesting that Greek wages are still too high to spark new investment and a renewal of growth.  

The Ukrainian economic outlook is bleak. The economy is expected to contract by 5 percent this year as the nation faces an overvalued exchange rate, a substantial budget deficit, and big losses in the energy sector that have put Ukraine on a "highly unsustainable course," according to a recent International Monetary Fund report. This report, one should note, came before the recent violence and includes Crimea, so expect an even more negative outlook.

To help Ukraine reverse economic course, the IMF has already approved a $17 billion emergency rescue package that unlocks an additional $15 billion in international financing, including loans and other funding from the United States, Europe, and the World Bank.

In return, the government in Kiev has agreed to substantially increase both retail gas and heating prices. It will cancel pension and public sector wage increases planned for this year and freeze public sector hiring. It plans to abandon a cut in the sales tax, hike duties on diesel fuel, and impose new sales taxes on pharmaceutical and medical products.

But such reforms have a history of foundering in Ukraine. In the past six years, two previous IMF-supported economic restructuring efforts have gone off track.

The success of any G7 initiative to help Ukraine hinges on what the Ukrainian people are able and willing to do for themselves. But support for economic reform is not widely embraced by the Ukrainian public. Just 45 percent say the country should accept economic aid from Western nations if their government must agree to reduce spending and social benefits in return, according to the Pew Research Center survey. Fully 28 percent reject such help if it is dependent on cuts in Ukrainian government outlays. Another 27 percent voice the view that neither option is acceptable, or that they want both, or that they have no opinion. (The Ukrainian results do not include data from Crimea.)

Support for belt-tightening in return for aid is particularly low among Ukrainians age 50 and older. Just 41 percent are willing to accept any such bargain. But more than half (53 percent) of younger Ukrainians support a tradeoff.

The complex politics of economic reform within Ukraine are evident in the regional and ethnic discrepancies in public willingness to suffer additional short-term economic pain in the hope of long-term gain. Six-in-ten Ukrainians living in the western and central parts of the country support cutbacks in public spending and benefits in return for Western financial assistance. But just 33 percent of Ukrainians in the embattled eastern oblasts favor such a bargain. Moreover, 43 percent of Ukrainians living in the East who only speak Russian oppose subsidy losses to obtain international aid, while only 26 percent accept any quid-pro-quo.

So while the geopolitics of Ukrainian aid may dominate G7 discussions in Brussels, it may be the regional and ethnic politics of additional austerity that determine whether such assistance ultimately proves successful. And that's at the heart of whether the Ukrainians turn out more like the Latvians or the Greeks.



Xi Jinping's Bad Dream

On the 25th anniversary of the Tiananmen Square crackdown, China is writing a new legacy of repression.

On the eve of the 25th anniversary of the Tiananmen crackdown, the Chinese Communist Party's propaganda machine is in overdrive. Extolling the virtues of President Xi Jinping's "Chinese Dream," which the government plans to enact through a deepening of "reform and opening," the government media has touted Xi's vision for a rejuvenated China based on values like "equity and fairness," and "high morals." Even the untrained observer, however, can see that this "dream" is far from reality. For while officials preach fairness, the public security bureau has been busily rounding up activists and government critics ahead of the Tiananmen anniversary on June 4.

Disturbingly, the latest wave of persecution -- which has seen dozens of activists detained, questioned, or placed under house arrest in recent weeks -- goes further than in previous years. A clampdown on activists at such a politically sensitive time is sadly predictable. The authorities' campaign to prevent people from commemorating the hundreds, perhaps thousands, of unarmed civilians who were killed or injured in the 1989 crackdown is an annual event. But this year, the drive to quiet dissent has been more severe than in years past -- including on the 20th anniversary -- with harsher methods being deployed and more people facing criminal detention.

The Tiananmen anniversary is a critical test for Xi's claims to be delivering greater openness. It is a test he has so far failed, opting for repression over true reform. Just like his predecessors, Xi seems unable to look history in the face. He has persisted in playing politics with the past, trying to wipe out the truth of what happened in 1989. His government has barred mothers and fathers from publicly grieving for children they lost in the bloody crackdown. Parents' calls for truth, compensation, and accountability fall on deaf ears.

Xi has also failed to move away from the stability-above-all-else mindset that leads to a vicious cycle of injustice.

Take the trumped-up charges against prominent journalist Gao Yu. The 70-year-old, who has been an outspoken campaigner for victims of the 1989 crackdown, was detained ahead of a Tiananmen memorial event last month, accused of disclosing state secrets by allegedly leaking an ideological Communist Party paper called Document No. 9 to a foreign website last August. She was last seen on April 24 before appearing on Chinese television on May 8 to "confess." And Gao is just one of the many activists whom the government has targeted under China's vaguely worded and arbitrary state-secret laws.

Document No. 9, an internal memo, can by no reasonable measure be considered a state secret. And it exposes the current leadership's disdain for human rights: The document is scathingly hostile towards universal values, the rule of law, civil society, freedom of the press, and freedom of thought.

Xi's claims to be deepening reform are increasingly being exposed as empty rhetoric, as China's leaders are more and more hostile to any discourse on human rights. Anyone who attempts to raise such issues is perceived as challenging the Communist Party's authority and is severely dealt with.

The death of another activist in March, Cao Shunli, who for months was denied medical care while in detention, shows how far the authorities are prepared to go. Cao had led attempts to allow activists to contribute to China's national human rights report, as part of a U.N. review.

Yet Xi still claims China is a country operating under the rule of law. The fallacy of this assertion is seen in the sentences handed down to those linked with the New Citizens' Movement, a loosely knit grassroots network of activists who discuss issues like government transparency and children's education rights. The most notable sentence was the four years given to the movement's leader, Xu Zhiyong, who was accused of organizing protests. His appeal was denied in April.

On the surface, the calls by the New Citizens' Movement for greater transparency and an end to corruption align with many of those made by Xi. Their so-called crime appears to be urging the party to heed the legitimate demands of Chinese citizens.

There is a direct link from the calls made by protesters in Tiananmen Square 25 years ago to those being made today. Most want to see incremental change within the current political system based on rights enshrined in China's constitution.

If we are to judge Xi on the response to the Tiananmen 25th anniversary, he has failed to seize this historic opportunity to demonstrate that he is a genuine reformer. Instead, he has taken a repressive path, captive to the practices and attitudes of the past. Dealing with history honestly and genuinely promoting human rights will build the foundation for a stable future, a government with legitimacy both at home and abroad. Without that, China's dream will end up as a continuing nightmare.

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