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What consequences for the economy ?

06.02.2015 par La Rédaction

This space has talked about the Ukraine numerous times, both with regards to the political and economic miseries.

The icing on the cake has clearly been the 5.5% rate hike to 19.5% overnight and the subsequent floating of the exchange rate. They could have left rates where they were, as the currency plunged into oblivion nonetheless.

The free fall has taken the Hrvnia from 16 the day before to 24.50 for one dollar overnight, in pretty much one go. Compared to a year ago this is almost 190% more. In January the currency reserves dropped yet again by over 1 billion dollars from December, to now a mere 6.42 billion. In 2011, the central bank still commanded 38 billion.

It is an end game of sorts. Economic output has literally been crumbling over the past 2 years. Automobile production, once a fortress of the Ukrainian economy has become virtually non-existent. You have to wonder what approx. 30,000 people in this industry do assembling 800 odd vehicles a month, passenger cars, trucks, buses, all included.

God knows what the unemployment rate really is. The country is starving, let there be no doubt. Support from the population for the senseless war against ethnic Russians in the east is dwindling. Losses of material and people are enormous. Vast areas of the country have become lawless.

What an odd time for Francois Hollande and Angela Merkel to go to Kiev now, and together. Providing support to a puppet government of a failed state can’t be the reason. There wasn’t even a joint declaration after their meeting with Petro Poroshenko. So unless they carried suitcases of Euros with them, what was really the point?

I guess it was only opportune, if not politically correct vis-à-vis big brother America, to go to Kiev for some show of solidarity before the duo moves on to Moscow later today, walks into the lion’s den and sees Vladimir Putin. Granted, this is probably the biggest peace effo rt in the making since the conflict broke.

But even if an agreement with Putin can be reached resulting into a ceasefire, who is going to pay for Ukraine to continue to exist? Unless the country gets its hands on around 50 billion dollars, like instantly, a human tragedy of still unanticipated magnitude will unfold.

Who is to provide that money? Sure, the IMF aka US taxpayer will have some token contribution but way too little too late. The EU and eurozone have got their own Ukraines in the Old Continents periphery, plus the associated problems they are very apparently not in a position to master.

Leaves Russia and China. Russia experiences a financial predicament to say the least, courtesy of Western sanctions, and would only help if major concessions with regards to the ethnic Russian east were made. China is always interested to build further parts of Eurasia into a Chinese economic zone for the long-run but won’t do anything much without Putin’s nod.

It seems to me that Hollande and Merkel don’t exactly travel to Moscow from a position of strength. If anything, and nothing has really changed here, Putin continues to command the upper hand. Or is one really to believe that the duo will put the foot down in the Kremlin insisting on mainly US geopolitical demands?

To believe that would be ridiculous. Germany is economically suffering from the loss of a major trading partner, just like Russia is. No doubt is it good to take a stand on political principal, particularly for Germany, but to side with the by definition losing party of a conflict and then be presented with the humongous bill to pay for it isn’t what the doctor ordered.

So it can only be in the interest of Germany, and also France as well as the rest of the EU, to end this futile stand-off, as long as there is still a chance to do it without risking catastrophic fall-out. The West to keep insisting on the moral high ground will not get us there. Both sides will have to deliver, and the gesture to go see Putin may be a decent start.

 

Roland Hinterkoerner, RBS Corporate and Institutional Banking.

La Rédaction


Economie Ukraine
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