This is an excerpt from an article that originally appeared in Der Spiegel

Putin, the Kremlin insider says, believes he is in a strong position. "The later the Western states and the Ukraine are prepared to agree to a really stable compromise, the weaker their negotiating position will be," the insider says.

That analysis might not be far off. Ukraine government troops could indeed collapse if the fighting continues. Morale within the army is not nearly as strong as it is among the separatists.

The Ukrainian army was unprepared for the war in the east. Whereas Russia completely modernized its military recently, Ukraine scrapped or sold off much of the equipment it had inherited when the Soviet Union collapsed and radically reduced the size of its military, dismissing two-thirds of its soldiers. The weapons now being used by Ukrainian troops fighting in the east are far inferior to those possessed by the separatists.

At the beginning of the war, the Ukrainian army had some 130,000 troops according to the most optimistic estimates, with half of them fulfilling their compulsory military service.

Now, many young men are doing their best to avoid conscription altogether by heading overseas. The National Guard has a further 35,000 men in uniform. They mostly man checkpoints and guard infrastructure.

President Poroshenko is thus dependent on the help of militias, those voluntary units that fight in the service of oligarchs or out of their own interests. But they often don't follow orders from Kiev, making them difficult to control and unfit for use in strategic operations.

According to a report delivered recently to the Chancellery in Berlin by Germany's foreign intelligence service, the BND, the Ukrainian army is slowly disintegrating, demoralized by the separatist advances and short on personnel.

Even arms deliveries from the West, the BND believes, would be more likely to overwhelm the Ukrainian army than it would to make it a more effective fighting force.

Increasingly Unsettled

Furthermore, the grim state of the country's economy threatens to destabilize Poroshenko's government. The Ukrainian currency, the hryvnia, fell to a new historic low on Wednesday. Just a few weeks ago, the rate was 18 hryvnia to the euro, now it is 30. The country is increasingly unsettled.

The chief public prosecutor has already fallen. He proved unable to recover the billions of dollars that former President Viktor Yanukovych smuggled out of the country to Switzerland, Luxembourg and the US. Furthermore, reform programs for the judiciary and public administration are making little progress.

Frustration among the public at large is growing with some in Kiev even talking about a "new Maidan," a reference to the protests that drove Yanukovych out of office (and out of the country) one year ago.

"If nothing changes in Ukraine, then everything will explode in four to six months," says Mikheil Saakashvili, the former president of Georgia and supporter of the new Kiev leadership.

Aid from the International Monetary Fund and other donors is aimed at preventing such an explosion from taking place. In the next four years, Ukraine is to receive around €40 billion euros -- but the program includes "extremely strict conditions," say senior Berlin officials with concern. Among them is an increase in gas prices for private consumers as well as an unpopular pension reform aimed at cutting government spending.

Berlin is worried that support for the government could rapidly disappear should too much be demanded too quickly. Chancellor Merkel has thus charged her economic policy advisor Lars-Hendrik Röller with encouraging the IMF to exercise political caution. "The aid program cannot be allowed to destabilize Ukraine domestically," said one government official in Berlin.