Thursday

2nd Apr 2020

EU neighbour Ukraine at risk of going bust

  • Angel statue over Kiev's Independence square (Photo: Wikipedia)

Bank analysts predict that Ukraine is heading for a historic default on its national debt, in a scenario that could complicate EU-Ukraine relations and have an impact on the recent Russia-Ukraine gas transit deal.

"The market is pricing in a probability of sovereign default of almost 90 percent," Commerzbank analyst Ulrich Leuchtmann told EUobserver on Monday (16 February). "It could happen in the next couple of quarters."

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or join as a group

Ukrainian industrial production has plunged 26 percent compared to last year. The hryvna has lost over a third of its value against the US dollar and the International Monetary Fund is hesitating on payments of a rescue loan as Kiev declines to keep down public spending.

The political battle between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko ahead of upcoming presidential elections is making matters worse.

Some experts even fear that Mr Yushchenko will use his influence over the central bank to prevent it from bailing out the Tymoshenko government on debt repayments.

"One party could provoke this kind of sovereign default to reap a political benefit," HSBC bank expert Alexander Morozov said. "In that case, Tymoshenko could not fulfill promises to her electorate in terms of paying wages and pensions and so on."

The biggest national default in history, Argentina, in 2001 plunged ordinary Argentines into deep poverty for several years and saw international creditors snatching up Argentine state-owned assets abroad.

A more likely model for Ukraine would be Russia's financial crisis of 1998, which saw Russia write off billions in foreign debt. The Russian economy bounced back by 2000, however, as investors returned because of the country's long term growth prospects.

Ukraine fallout

If Ukraine defaults, Austrian, French, Swedish, Italian and German banks stand to be the worst losers, with collective exposure of around €30 billion ($40bn) in the country, according to the Bank of International Settlements.

A default could also have implications for Ukraine's gas trade with Russia, hot on the heels of the January gas crunch, which saw Moscow halt the flow of gas to the EU over a bilateral price dispute with Kiev.

"[Russian gas supplier] Gazprom could be a victim," HSBC's Mr Morozov said. "If there is no money, then decisions will have to be made on what kind of debts won't be paid and Russian gas could be the first among these."

The European Commission is monitoring the situation with "concern." But for the time being, there is no talk in the EU of crafting a rescue package from institutions such as the European Bank for Reconstruction and Development, as EU states concentrate on economic tensions at home.

Business as usual?

Negotiations on an EU-Ukraine free-trade agreement and a political "association" pact are continuing as normal, with industry commissioner Gunther Verheugen in Kiev on Monday launching an EU scheme to help Ukrainian small and medium-sized enterprises.

But if the EU does nothing to help even as Ms Tymoshenko courts Russia for a rescue loan, it risks further dampening Ukraine's hopes of a post-Soviet era allegiance with the West.

"This issue puts everyone's attention on the Western world and what it could do to help Ukraine from going bust," Credit Suisse analyst Cristian Maggio said. "But in this wider crisis, everyone is out for themselves."

In Saudi Arabia, contacting the EU is a crime

Women's rights activist Loujain al-Hathloul is facing trial. One of the allegations is contacting the EU delegation. Despite pressure from Brussels, Saudi Arabia remains unimpressed.

EU declares Africa 'most important' global partner

The European Commission has a new strategy for Africa. The proposal, whose details have yet to be worked out, spans broad issues like climate, energy, digital transformation, jobs, peace, governance, and migration.

Opinion

Trump's 'plan' for Israel will go against EU values

As someone who has been personally targeted by Benjamin Netanyahu's incitement against Arabs and Palestinians, Christians, Muslims and Druze, I still believe that peace is possible. But Donald Trump's 'plan' will be a gift to Netanyahu's campaign.

China spy suspect worked for EU for 30 years

The former EU ambassador suspected by German prosecutors of spying for China was Gerhard Sabathil, according to EU officials speaking on condition of anonymity.

Stakeholders' Highlights

  1. UNESDAMaking Europe’s Economy Circular – the time is now
  2. Nordic Council of MinistersScottish parliament seeks closer collaboration with the Nordic Council
  3. UNESDAFrom Linear to Circular – check out UNESDA's new blog
  4. Nordic Council of Ministers40 years of experience have proven its point: Sustainable financing actually works
  5. Nordic Council of MinistersNordic and Baltic ministers paving the way for 5G in the region
  6. Nordic Council of MinistersEarmarked paternity leave – an effective way to change norms

Latest News

  1. Court: Three countries broke EU law on migrant relocation
  2. Journalism hit hard by corona crisis
  3. EU fighting shortages and faulty medical supplies
  4. New EU navy operation to keep migrant details secret
  5. MEP: Constituents are our window into this tragedy
  6. Without European patriotism, EU decline is inevitable
  7. EU cancels April Fool's 'fake news'
  8. A coronavirus 'Marshall Plan' alone won't be nearly enough

Join EUobserver

Support quality EU news

Join us