America Is Too Broke to Rescue Ukraine

If only America were fighting more wars, Russia would never have taken Crimea. That’s basically the argument John McCain made last Friday in The New York Times. “For five years,” he complained, “Americans have been told that ‘the tide of war is receding’.… In Afghanistan and Iraq, military decisions have appeared driven more by a desire to withdraw than to succeed.” As a result, “Obama has made America look weak,” which emboldened Vladimir Putin to invade Ukraine.

I have no earthly idea what McCain means by ‘succeeding’ in Afghanistan and Iraq, but we can be pretty sure that in addition to claiming more American lives, it would require a lot more American money. Iraq and Afghanistan, according to a 2013 report by Linda Bilmes, a public policy lecturer at Harvard’s Kennedy School of Government, are the most expensive wars in U.S. history, costing the U.S. between $4 and $6 trillion when you factor in medical care. For Ukraine’s sake, McCain believes, that number needs to go up.

There’s an irony here. If America and Europe have failed to adequately defend Ukraine, it’s not for lack of guns. It’s for lack of money. Over the last year, the real contest between Russia and the West hasn’t been a military one (after all, even McCain knows that risking war over Ukraine is insane). It’s been economic. In part because of two wars that have drained America’s coffers, and in part because of a financial crisis that has weakened the West economically, the United States and Europe have been dramatically outbid.

The current Ukrainian crisis has its roots in Vladimir Putin’s desire to build a “Eurasian Union”—an economic zone comprising as many former Soviet republics as possible—that re-establishes Russian regional dominance. Putin badly wants Ukraine to join the bloc. But that desire has collided with the European Union’s bid to get Ukraine to sign a free-trade agreement linking it to the West. (EU rules, perhaps unwisely, made doing both impossible). 

Last March, then-Ukrainian President Viktor Yanukovych pledged to work toward an EU agreement. Then, in mid-November, he abruptly stopped doing so, sparking the pro-European protests that eventually toppled him. For Yanukovych, the EU deal—although popular with the Ukrainian public—carried serious risks. For starters, it would have infuriated Putin. Secondly, it would have required him to release his jailed political foe, Yulia Tymoshenko. Thirdly, bringing Ukraine into compliance with EU regulations would have proved costly. As part of the negotiation, Yanukovych asked for €20 billion in aid. But the EU, struggling with its own severe economic woes, offered less than one-thirtieth that amount: a mere €610 million. The United States, which now speaks gravely about defending Ukraine from Russian aggression, at the time gave Kiev barely any foreign assistance at all.

Then, in mid-December, Russia made its own offer. It pledged to buy $15 billion worth of Ukrainian debt and to discount the price of Russian gas sold to Ukraine by one-third, which amounted to another $7 billion in savings. This money, Putin added, would not entail any “increase, decrease, or freezing of any social standards, pensions, subsidies, or salaries”—a swipe at the IMF-imposed austerity measures that would likely have accompanied an EU deal.

While this gap between Russia’s massive offer and the West’s meager one helped keep Yanukovych in Moscow’s orbit, it didn’t keep him in power. In late February, he lost control of Kiev to a surging protest movement and fled the country—giving America and Europe yet another chance to devise economic incentives that could point Ukraine in a pro-Western direction.

But yet again, the West’s response has been underwhelming. After Russia seized Crimea last month, the EU belatedly raised its offer to $11 billion in a bid to stabilize Ukraine’s weak, post-Yanukovych government. But the package will release only $1.6 billion in the first year, and even that money depends on an IMF deal that would likely require Kiev’s new leaders to take wildly unpopular steps like raising home-heating bills. For its part, Washington has pledged loan guarantees worth $1 billion. But that assistance is now stalled in the Senate, where Democrats are linking it to IMF reforms and Republicans, if you believe Harry Reid, are using it to stop new IRS rules that would limit the political activities of nonprofits like those funded by the Koch brothers. The West may no longer be in a bidding war with Putin, who is more interested in destabilizing Ukraine’s new government than wooing it. But countering Putin’s efforts requires helping Ukraine secure itself economically. And so far, the West’s attempts don’t nearly accomplish that.

If any of this sounds vaguely familiar, it should. The U.S. and its European allies have been getting outbid a lot lately. Last fall, for instance, as the Obama administration considered withholding America’s annual $1.5-billion aid package to Egypt to protest its recent military coup, several oil-rich Persian Gulf states—thrilled to see an Islamist regime ousted from power—offeredEgypt’s generals a cool $12 billion.

Whenever the United States debates using its money to buttress democracy and Western influence in a strategically important part of the world, commentators offer comparisons with the Marshall Plan that America offered Europe after World War II. But in today’s dollars, according to one estimate, the Marshall Plan would total roughly $740 billion. That kind of money would certainly enable far-reaching economic reforms in Ukraine, and likely anchor the country in the West for years to come. But, of course, the suggestion is absurd. Today’s Senate can barely pass an aid package 740 times as small.

We’re long past the era when America and its allies can spend vast sums to promote Western ideals and interests around the world. Except, of course, in Afghanistan and Iraq, where the U.S. is on pace to spend the equivalent of eight or nine Marshall Plans. Too bad we haven’t spent more on those wars. According to John McCain, the extra money just might have saved Ukraine.