MacroScope

Breakneck speed of events in Ukraine

By Mike Peacock
February 24, 2014

 

An extraordinary weekend. Ukraine’s President Yanukovich is gone and is probably at large somewhere in the pro-Russian heartlands of the east.

There’s no prospect of his return given how fast events have moved and after his people saw the shameless opulence stored within his country retreat.

Ukraine’s parliament named its new speaker as acting head of state on Sunday and is working to form an interim government by Tuesday, ahead of May 25 elections.

Oleksander Turchinov, who was elected speaker on Saturday, is an ally of newly freed opposition leader Yulia Tymoshenko, so she may well come back into the frame despite a blemished record when she was premier. She says she doesn’t want to be prime minister. But president?

The EU and Russia are still vying for influence and Washington and London warned Moscow not to think about sending forces in. Turchinov said he wanted European integration while maintaining good relations with Russia.

EU officials said they were ready to help Ukraine while Russia, its strategy of funding Yanukovich via a $15 billion bailout in tatters, is keeping its money on hold until it sees who is in charge. EU foreign policy chief Catherine Ashton will be in Kiev today after the bloc’s economics commissioner said it must meet this historic challenge with billions not hundreds of millions.

IMF chief Christine Lagarde has said the Fund stands ready to help but probably not until a permanent government is in place, and even then it is not clear if it will insist on the same economic reforms it asked of Yanukovich, which would be tough for any government in Kiev to swallow.

There’s no hint of bilateral U.S. aid so the EU is the country’s big hope for now. In Kiev, work will continue to build an interim government.

The other huge question is what Vladimir Putin does next. Without Ukraine his dream of a Eurasian trading bloc with Moscow at its hub is hollow. There are good economic reasons for walking away but reasons of geopolitics, history, culture and nationalistic pride say otherwise.

There is the major Russian naval base at Sevastopol in the Ukrainian province of Crimea for starters. Now the Sochi Winter Olympics have drawn to a close will he be less circumspect? He has been silent so far.

Interestingly, Russian finance minister Siluanov – at the G20 in Sydney – said the IMF could be the answer. Does that suggest Russia will not go to the wall over its neighbour or does Putin think differently? More questions than answers at this stage, I’m afraid.

Here’s another one. How long will Ukraine’s budget and reserves last before it defaults? It can’t borrow on the markets, that’s for sure, so could it last until May 25, particularly if Russia also demanded full payment for gas?

Also worth watching is a meeting of foreign ministers of the Visegrad Four – the Poles, Czechs, Hungarians and Slovaks – plus Bulgaria, Greece and Romania. There are signs that the Germans and French – “old Europe” – may be reluctant to get too heavily drawn in. Whether the newer members can tilt the balance is another question to address.

Italian centre-left leader Matteo Renzi took office on Saturday as his country’s youngest prime minister. He will win a vote of confidence in parliament on Monday and his full programme should be unveiled in a speech to the Senate.

There will be attention on the size of his majority after some leftwingers in his own party threatened to vote against the government. If he falls significantly below the 173 secured by his predecessor Enrico Letta in a confidence vote in December, his authority could be weakened from the start.

By appointing OECD chief economist Pier Carlo Padoan as finance minister, Renzi has sent a signal that he is serious about economic reform. But it’s still easier said than done.

Having decided not to let Letta continue as premier and work on a new electoral law to try and ensure more durable governments in future, Renzi will head a fragile coalition through which it may prove difficult to push through reforms. The New Centre Right party has already said it wants concessions on policy.

The troika of EU/IMF inspectors will finally return to Athens after prolonged spats about whether there was a hole in Greece’s finances that needed to be filled and the sluggish pace of structural economic reform.

The troika left last year due to a lack of progress but since then the Greek economy has shown signs of life. Its primary budget surplus for last year beat forecasts and the economy shrank less than the government or its lenders expected.

So one presumes new bailout loans will start to flow in time for heavy May bond redemptions though talks on some form of further debt relief have been postponed until after May’s EU elections in order to avoid political trouble in countries like Germany.

German Chancellor Angela Merkel visits Jerusalem for two days of bilateral talks. Germany’s February Ifo sentiment index is the big figure of the day.

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