After Russia invaded Ukraine in 2014, Europe and the United States moved swiftly and enforced sanctions on Russia. George Soros argues that the sanctions have worked beyond the expectations of everyone. They have greatly weakened Russian economy. The sanctions have denied financial institutions and firms hailing from Russia from accessing the global capital markets. The sharp reduction of oil price inflicted further damage to the Russian economy according to George Soros Ukraine. The country is heading into a financial crisis similar to the one that occurred in 1998.
In 1998, Russia exhausted all of its hard currency and failed to pay its debt, causing havoc in the global financial system. Currently, the hard currency reserve has declined by over 50 percent, inflation is on an upward trend, and interest rates are increasing at a rate that is rapidly steering Russian economy into a downturn. Fortunately, the country has significant foreign currency reserves today than it had in 1998. The Russian Central Bank has boosted the economy with $100 billion and arranged a swap line worth $24 billion with the Bank of China.
The current policies have resulted in severe consequences for both Russia and Ukraine. Therefore, George Soros says they need to be adjusted. George Soros advocates for a two-pronged strategy that focuses on offering more assistance to the Ukraine and reducing the sanctions imposed on Russia. George Soros suggested the following reasons for rebalancing sanctions against Russia.
1. Sanctions are evil but compulsory
Sanctions are evil since they affect the economy of the nation on which they are enforced as well as the nations that execute them. The current economic sanctions are compulsory because both the United States and EU are avoiding war with Russia
2. The outcomes of assisting Ukraine is positive
The EU and the US authorities are aware that defending Ukraine is a strategy for indirectly defending their nations. Boosting the economy of Ukraine would result in significant growth of the European economy by creating more investment opportunities in Ukraine and encouraging exports according to George Soros.
How the EU can increase its financial support to Ukraine
Soros advises the European political leaders to take advantage of the EU’s untapped borrowing capacity and identify other sources of funds for increasing the financial support offered to Ukraine. George Soros believes that a greater financial package than the existing one will allow the government of Ukraine to execute a radical reform. These sources include:
• The Balance of Payments Assistance Plan has $47.5 million of unutilized funds while the European Stability Mechanism dedicated for Ireland and Portugal has nearly $15.8 billion of unspent finances. Although both programs are restricted to EU member countries, the European Commission can modify their regulations and allow them to be used for supporting Ukraine.
• Funding from both the European Bank for Reconstruction and Development and World Bank
• IMF can offer an additional $13 billion to Ukraine by leveraging the EU’s matching funds
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