Ukraine cosies up to Russia

President Viktor Yanukovych has secured a bail-out from Russia, but at what cost?

Ukraine's president Viktor Yanukovych secured a $15bn bail-out from Russia this week, even as protests have continued against his government's decision to abandon talks with the European Union over closer political and economic ties.

Russia showed its backing for the regime in Kiev by agreeing to buy $15bn-worth of government debt, and to gas price cuts estimated to be worth $4bn.

The deal was hailed as "historic' by Ukraine's prime minister Mykola Azarov, who said it would allow the government both to cut corporation tax and increase social spending. He argued that a deal with the EU would have meant accepting "unfeasibly stringent IMF conditions for economic reform", reports the BBC.

What the commentators say

A deal with Europe would bring many more benefits to Ukraine, said British foreign secretary William Hague, writing in The Daily Telegraph. Ukrainian firms would have "better access to a market of more than 500 million consumers". This would eventually boost Ukraine's GDP "by more than 6%", as "lower tariffs and increased competition would bring prices down, allowing household consumption to increase by up to 12%".

As analyst Lilit Gevorgyan, who works for consultancy IHS Global Insight, warns, Russian aid "is probably going to be a bandage on Ukraine's economic troubles rather than a serious remedy".

Indeed, the deal could end up pushing necessary reforms "onto the backburner". And the support is "unlikely" to be altruistic. Moscow will look "for tangible gains, such as ownership of lucrative Ukrainian assets". Overall, it means Russia has "more clout over the Ukrainian economy and businesses".

Recommended

The charts that matter: the dollar flexes its muscles
Global Economy

The charts that matter: the dollar flexes its muscles

As the US dollar made significant gains this week, everything else sold off. John Stepek looks at how it's affected the charts that matter most to the…
26 Sep 2020
The world's central banks will follow the Federal Reserve's example
Global Economy

The world's central banks will follow the Federal Reserve's example

The US Federal Reserve – America's central bank – has said that it would become more tolerant of inflation and hold interest rates down. Others will f…
25 Sep 2020
Oil producers are back at their Covid-19 lows – is it time to buy?
Oil

Oil producers are back at their Covid-19 lows – is it time to buy?

With demand for oil hammered by Covid-19 and talk of “peak oil demand”, there are lots of good reasons to be bearish on oil producers. So, asks John S…
22 Sep 2020
Jim Reid: an ”age of disorder” is looming
Global Economy

Jim Reid: an ”age of disorder” is looming

The world is headed for a new “age of disorder”, says Jim Reid, the veteran multi-asset strategist at Deutsche Bank, in the latest edition of his annu…
21 Sep 2020

Most Popular

The electric-car bubble could get an awful lot bigger from here
Renewables

The electric-car bubble could get an awful lot bigger from here

The switch to electric cars is driving a huge investment bubble. But that’s not necessarily a bad thing, says John Stepek. Fortunes will be made and l…
24 Sep 2020
Can Rishi Sunak’s winter plan save the UK economy?
UK Economy

Can Rishi Sunak’s winter plan save the UK economy?

With his Winter Economic Plan, chancellor Rishi Sunak is hoping to support the economy through the dark months ahead as restrictions tighten again. Jo…
25 Sep 2020
The rising dollar is proving bad news for most other assets – will it last?
Investment strategy

The rising dollar is proving bad news for most other assets – will it last?

Precious metals, stocks and pretty much every other asset has taken a tumble as the US dollar strengthens. Dominic Frisby looks at how long this trend…
23 Sep 2020