Ukraine pledges to sign EU pact this year

11/05/2013 | Elliot Wilson

Ukraine may finally opt for an alliance with the European Union after carefully playing off Brussels and Moscow against each other

Ukraine will sign a cooperation agreement with the European Union “by the end of the year”, finance minister Yuriy Kolobov told Emerging Markets at the EBRD conference in Istanbul.
The move will be a significant development in the cat-and-mouse game that Kiev has played with Brussels and Moscow over its future commercial and political allegiance.
Ukraine has long played the EU and Russia against each other even as its economy weakens, squeezed between two giant, troubled economic blocs - aware that both sides are keen to wield greater influence in and over a key bridge between Europe, Russia and Central Asia.
However it still remains unclear whether politicians in Kiev and Brussels can or will agree on a deal before the year is out.
Ukraine has long been seen as the first likely signatory of the Eastern Partnership, a loose and long-standing plan to draw six former Soviet satellites - Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine – closer to the EU’s political and economic orbit.
Ukraine stands between possible EU membership on the one hand, and a future that could see it become part of a single customs union spanning Russia, Kazakhstan and Belarus.
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Politicians in Kiev would like to be part of both clubs, joining Russia’s customs union. EU officials have long made it clear that it can only join one.
Experts remain divided over Ukraine’s chances of joining the Eastern Partnership this year. Kolobov and his colleagues believe it will happen. Alexander Pivovarsky, lead economist for Eastern Europe and the Caucasus at the EBRD, says while he would “like to see Ukraine sign the deal”, the odds against that happening are currently no better than “50-50”.
Europe has consistently said it would like to sign the deal – which is already written, drafted and is ready to be signed in November in the Lithuanian capital Vilnius.
But European politicians have made it quietly clear that any agreement is linked to the release from jail of former premier Yulia Tymoshenko, who is viewed by Brussels as a political prisoner.
But the country has other problems with which to contend. Its economy is slowing sharply, hit by fading economic growth prospects in Russia, and by the still-troubled eurozone, its two chief trading partners. The EBRD has downgraded Ukraine’s GDP target for 2013 twice in the past seven months, from 2.5% to 1% this January. This week the EBRD again revised that figure downward, tipping the economy to contract by 0.5% this year.
Pivovarsky also warned that Ukraine faced a series of stark economic challenges, from a widening current account deficit to the steady decline in output from key sectors including steel, machine goods and chemicals.
The country is raising capital from global investors to balance its budget and use as collateral to pay existing debts. Finance minister Kolobov told Emerging Markets the country would issue a further $2 billion in sovereign debt, probably in the second half of the year, adding that there “was no hurry”.
Ukraine issued $1.25 billion worth of ten-year dollar bonds on April 9 with a yield of 7.5%, slightly below the 7.625% yield placed on a $1 billion February debt sale.

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Tagged as: Ukraine EU geopolitics sovereign bonds alliance Russia EBRD

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