Moldova: The other European country going bankrupt

Moldova: The other European country going bankrupt
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Moldova, a country of 3.5 million on the brink of bankruptcy, risks becoming a failed state. This would increase instability on the EU’s eastern borders by handing Russia another opportunity to extend its influence in the former Soviet-sphere, as it lures Moldova into its “Eurasian Customs Union”.

Moldova: a small country on the periphery of Europe, facing massive corruption and unemployment and struggling to obtain credit from the EU and the IMF to avoid bankruptcy.

Add to this that it is currently without a government and that its breakaway region of Transnistria may prove the next flashpoint for Russia-Ukraine relations, and one may wonder how this story of a failed state on Europe’s borders has not featured more prominently in the news.

Moldova, a country wedged between Ukraine and Romania, has pled for membership in the European bloc since the ascension of pro-European parties to government in 2009. When Russia annexed Crimea in March 2014, geopolitical considerations came in the forefront and the EU scrambled to sign an association agreement with it.

Starting with opening up for free trade, the road to EU membership was embarked upon. Russia swiftly moved to add imports of Moldovan fruits and vegetables to its ban on Moldovan wines, hitting the agricultural nation direly.

One year later, the road to EU membership seems lost, and Moldova simultaneously faces banking, economic, and political crises. In May, a $1bn corruption scandal was discovered involving three of the main Moldovan banks, amounting to one-eighth of Moldova’s annual GDP. The massive hole this has created in the country’s budget has brought it to the brink of bankruptcy. Its banking sector has collapsed.

At the same time, the country is facing a political crisis. In June, pro-European Prime Minister Chiril Gaburici resigned after spending just 100 days in office, amid allegations of falsifying high school documents to gain admission to university. These were made after he called for Moldova’s prosecutor-general and top bank officials to step down for their role in the banking scandal. Moldova is currently without a government.

Without a Prime Minister to negotiate with, the IMF canceled a planned visit in June to discuss the terms of a much-needed financial assistance package. As bankruptcy looms, the EU has kept the door shut, stating Moldova first has to reach a deal with the IMF before any EU assistance can be forthcoming.

Collapse and a drift to Moscow

The failure of the EU to provide assistance as Moldova faces collapse seems short-sighted, as it hastens the collapse of the country and may even drive the country into the arms of Russia.

Support for EU accession among citizens had already fallen sharply over the past few years, as pro-European parties have seen myriad corruption scandals. Meanwhile, Russia has stepped up propaganda for its “Eurasian Customs Union,” which is viewed by many as a geopolitical counter to the EU.

While recent local elections saw pro-European parties win 25 districts and pro-Russian politicians taking the remaining seven, a majority of the population is in favour of deepening ties with Russia, its traditional export market. The pro-Russian municipal administration of Bălți, Moldova’s second city, has called for a referendum on gaining more autonomy, supposedly to improve ties with Russia.

If the EU does not extend a hand to Moldova in order to avoid bankruptcy, the next government may well turn to Russia out of desperation. If Russia promises to lift its import bans and help Moldova with its economic woes, it joining the Russian customs union will seem increasingly likely.

All of this is bad news for the EU and businesses alike. Without economic and technical assistance from the IMF and the EU, the country will go bankrupt and Moldova’s degeneration into a failed state will be unlikely to stop. A move towards Russia would mean the massive corruption in the public sector is unlikely to be tackled, as Russia’s interest is to keep Moldova’s government weak.

Granting Russia another opportunity to meddle in a country on the EU’s borders should be cause for concern for politicians and investors alike. Short-sighted politics may thus increase both geopolitical and economic risks.

Categories: Europe, Politics

About Author

Niels Van Wanrooij

Niels van Wanrooij is a public sector consultant with experience in international policy at the Dutch Parliament and in advocacy with an NGO. He holds an MSc. in International Political Economy from LSE along with a MSc. in International Relations and BSc. in Political Science from the Radboud University in the Netherlands.