The Ukraine-EU Association Agreement

The rejection of the European Union association agreement by the Ukrainian president came as a surprise to many. The announcement was met with a huge wave of protests throughout the country, which have now turned into a broader outcry against government corruption and police violence. Even though the free trade agreement, which Ukraine has been working towards for many years, would have had some major associated costs, the long-term payoffs could have been huge – it would have provided support to unlock Ukraine’s immense potential, offered the possibility of EU integration, opened up the borders to commerce, eased travel restrictions, etc. However, the Ukrainian President, Mr. Yanukovich, claims that the EU wasn’t offering enough cash to offset the damage to trade with Russia, and slammed the IMF’s economic-overhaul conditions, such as raising the gas price for households, as unbearable for Ukrainians.

Moscow had strongly opposed the Ukraine – EU trade deal and even offered a lavish $20 billion bailout package to keep the former Soviet republic in Moscow’s orbit. This deal, much bigger than that offered by the West, gives Ukraine loans, enough to meet $9 billion in debt obligations for 2014, and cheaper gas supplies, which is favorable to Ukraine’s factories that are reliant on Russian gas. Nonetheless, this deal does not address the concerns of Ukrainian citizens, who want to live in a European country.

The US had also shown its concern with the revolution and the actions of the Ukrainian government by imposing visa sanctions against officials. The “Euromaidan” revolution itself has affected the economic expectations for 2014 in a way that there are no planned foreign direct investments being made into Ukraine in the short-run, and the inflation rate is supposed to increase to 5%, leading to a possible financial crisis. Since the purchasing power of people may decrease, Ukrainian businesses may suffer significant losses.

How could the European Union or the US assist Ukraine in its political revolution?

This text was written and presented by Mr. Vladyslav Kondratiuk, Student at the McDonough School of Business of Georgetown University in the course on International Business (STRT-261-01) on January 29, 2014. You can contact the author here.