Ukraine Risks Financial Meltdown After Break With EU

KIEV, Ukraine -- Ukraine is risking a financial crisis of monumental scale by ditching the EU as it faces a cash crunch before imminent debt repayments, analysts said Friday.

Vitaliy Klitschko, World Heavyweight Boxing champion and leader of the Ukrainian political party UDAR (Punch), addresses thousands of Kiev protesters.

Ukraine received warnings from senior EU officials and the United States after it dropped its EU membership bid, European Observer said.

U.S. officials cited difficulties Ukraine could face obtaining credit from the International Monetary Fund after it snubbed the EU, said. 

Ukraine's ties with the IMF are already fraught over recent mishaps, including a $15 billion line of credit that fell through.

Renewed Ukrainian attempts to obtain IMF cash are aimed at securing a line of credit for $10 billion or more to enable Kiev to head off default on loan repayments. 

Ukraine needs to make regular repayments on more than $60 billion of external debt. 

Thousands of protesters in Kiev and other Ukrainian streets Friday pushed the argument Ukraine belongs in the EU, not in a Russian sphere.

But the question of how Ukraine will make its debt repayments is more pressing than emotional pronouncements about the country's future outside the EU, analysts said.

If Ukraine fails to make loan repayments due it will face the risk of default and will be solely at the mercy of Russia for a financial bailout, analysts said.

The suspension of EU-Ukraine talks on an association deal -- a step toward full membership -- also means that a European loan, worth about $830 million, is likely to be put on hold, European Observer said.

Continuing street protests across Ukraine renewed risks of confrontation between demonstrators and police.

EU foreign relations chief Catherine Ashton said Ukraine's EU membership would have given the country international credibility and prepared it for international capital markets.

It would also have helped Ukraine's negotiations with the IMF on a new standby credit arrangement, Ashton said.

U.S. State Department spokeswoman Jen Psaki echoed the view that EU association would have reassured international financial institutions about the country's commitment to democratic reform.

An EU-Ukraine pact in preparation for EU membership for the country was due to be signed in Vilnius, Lithuania, next week.

Analysts said support still exists in Brussels for continuing to give Ukraine a lifeline to discourage it from signing a deal with Russia it could ill afford to reverse.

Political and trade links between Russia and Ukraine remain uneasy, mainly over delays in Ukrainian payments for gas.

In 2009 Russia cut gas supplies to Ukraine in a dispute over prices.

The stoppage also affected supplies to EU member countries, causing fuel shortages across Europe in the middle of winter.

Protesters opposed to the suspension of links with Europe shouted "President Viktor Yanukovych -- enemy of the country."

Opposition critics have accused Yanukovych of treason for going back on an EU deal.

Ukraine Prime Minister Nikolai Azarov said the decision was the result of economic pressures.

"The decision the government has made is based on economic reasons," he said.

"It is of a tactical character and does not change our strategic objectives."

Under the EU association deal, Ukraine would have been required to release imprisoned former Prime Minister Yulia Tymoshenko, an arch rival of Yanukovych and consistent critic of Moscow.

In a letter released from captivity, Tymoshenko warned Yanukovych "you are making the mistake of your life... You will remain one-on-one with Russia and you will have to live according to her road map. Later Russia will give you a choice: either it will save you from the social and economic collapse at the expense of the loss of independence or will not react at all."

EU diplomats interviewed by European media said Ukraine's move did not secure its position within the Russian sphere and made its future more uncertain.

Ukrainian opposition says the country is ripe for another revolution, this time driven by social media, especially Twitter.

Source: UPI


Igor Skakovsky said…
Ukraine must not rush either direction, and choose traditional partners and European values to benefit both sides. Like in the good marriage, no one is perfect and all must have respect for each other and if necessary to compromise without harming its own people.
People of Ukraine please go home and take care of your families. Ukraine is working on becoming a part of Europe. It must take some time for excepted laws to show the results. AA agreement could be singed or not singed it makes no different at this point. Ukraine can be better or worth in EU or with Russia, in either case Ukraine must negotiate favorable conditions for its industries and as a result for its people. In either case Ukrainian industrial complex and agriculture must be heavily subsidized in order to be adapted to EU standards. It is critical for Ukraine that national industry and agriculture do not get destroyed and in its majority must belong to Ukrainians.
When negotiating with EU, Ukraine must ask for EU to open up its borders for Ukrainian goods only, not for EU products to come to Ukraine, for the sett period of time so, its industries could have a chance for adaptation. Opening of the EU borders could be set up for the selected sector of industry for specified period of time, in stages. After completion of each stage Ukraine will open its borders as well and agreement should move to the next stage.
When negotiating with Russia, Ukraine must protect its independence in the sense that Russian model may not be suitable for Ukraine and it should have an exit strategy in case things will not go right so, Ukraine do not end up as it did with the gas contract. For example each country jointly with Russia should find its one steps of progressing. Many steps and programs which are common for all participants could first be tested in Ukraine to see if they work and then adopted by others. Whatever is being worked out Ukrainian nationals must keep majority of its key industries to them self in order to guaranty that changes will be made for the interest of its businesses and its people, in that order.
Business must be profitable but not barbaric nor harmful for the community, no matter with whom Ukraine will associate. Russia is known to us but, law must restrict barbaric practices of business take over. With EU, law exist for everyone so, same subsidies for the all industries that exist in EU must be applied in Ukraine. It is most important to understand what is best for your people and then for the government and act with those understandings in mind.