When Ukraine President Viktor Yanukovich said last month that he would not be pursuing a trade/political agreement with the EU that the two entities had been negotiating for six years, the news was not well received by the West or by a large portion of Ukraine’s citizens.
Demonstrations broke out, likely far exceeding any protests Yanukovich might have expected, and the dispute rages on even after an early December meeting between Yanukovich and Russian President Vladimir Putin to discuss deepening ties with the country’s former Soviet master.
Politics, however, isn’t the only concern investors should have. Aside from the failure of an agreement that took so many years to broker, there are other worries that range from downgrades to industries to a possible default.
Russia had not been happy at the possibility of Ukraine’s defection to the West, and Putin brought pressure to bear on Ukraine that ranged from sticks—the possible cutoff of natural gas in the midst of a Ukrainian winter (something Russia has already done repeatedly, so no idle threat) and constraints on Ukrainian exports to Russia on which the smaller country depends—to carrots: debt forgiveness to Gazprom in the amount of $1.3 billion, duty-free imports, and subsidies.
While Russia and Yanukovich’s spokesman both insist that a deal between the two has not yet been inked, it’s all but certain that it will. That is unless protests turn the tide. Not only were Yanukovich’s attempts to meet EU requirements for the agreement desultory, at best, but the Ukrainian president also began to push for more from the EU: more money, more concessions, a standby loan of $15 billion from the International Monetary Fund with no strings attached rather than just the possibility of loans conditional on gas price reforms. The EU refused to budge from the already-negotiated agreement, and Yanukovich simply walked away.
Although he has since said that he wants to keep the door open to closer ties with the EU, and even suggested three-way talks among Ukraine, Brussels and Moscow, the EU has nixed the idea, saying that the agreement it had brokered with Ukraine was bilateral and Russia had nothing to do with it.
Should Yanukovich sign a customs union agreement with Russia it will severely curtail his country’s ability to make any trade agreement with the EU or any other entity. The EU agreement, on the other hand, would have left Ukraine free to pursue some sort of agreement with Russia regardless.
The massive protests that erupted in Ukraine after the news broke were met with violence by law enforcement. But instead of dispersing, demonstrators are now threatening Yanukovich’s hold on power, particularly since the protesters now say they will not negotiate with Yanukovich unless he fires his government and installs one that is actually committed to pursuing closer ties with Europe instead of Russia. They are also demanding new elections.
Demonstrators toppled a statue of Lenin and broke it up with hammers, in a symbolic attack on Moscow; also during the weekend, both European Commission President Jose Manuel Barroso and U.N. Secretary-General Ban Ki-moon spoke with Yanukovich about the situation in the country.