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.

Weekly Review: Last Week’s Top 5 International Business Headlines

1France Eyes Libya Deals After Unfreezing $2 Billion Assets   (arabiangazette.com)

France said on Monday it was ready to start releasing almost $2 billion in frozen assets belonging to Libya’s sovereign wealth fund, as it looks to secure investment from the oil-producing nation. France’s Foreign Minister Laurent Fabius made the announcement during a visit to Tripoli, the latest in a series of high-level French political and business delegations to the OPEC member. France spearheaded efforts to oust Libyan leader Muammar Gaddafi last year and, as part of wide-ranging international sanctions, froze about $8-9 billion in assets held in France. Read all.

2. East or West? Ukraine to Choose its Path Ahead of EU Summit this Month (Washington Post)

According to an old folk tradition, if a man knocks on the door of a Ukrainian beauty with a marriage proposal but does not win her heart, she will reject her suitor by presenting him with a pumpkin. Who will get the pumpkin from Ukraine at the end of this month — Russia or the European Union? Read all.

3. Europe’s Economic Rules. Berlin vs Brussels (The Economist)

SINCE the euro crisis started in early 2010, the debtor nations on the periphery of Europe have become used to strictures from Germany, not least for running big balance-of-payments deficits. On November 13th, for once, it was Germany’s turn to face a possible ticking-off. For the first time since more stringent rules and oversight were put in place to try to avert future crises, the euro area’s unofficial leader, hub economy and chief creditor is to be investigated. Its misdemeanour? Running too big a current-account surplus. Read all.

4. Is Europe Turning Japanese? (Wall Street Journal)

The euro zone’s 0.7% October inflation reading convinced the European Central Bank to cut interest rates last week. It also spurred a lot of nervous talk that low inflation and slow growth mean Europe is entering a Japanese-style “lost decade.” There are ominous similarities between the euro zone today and Japan at various points in the 1990s, even if you allow that economies can stagnate each in their own way. But there are also reasons not to believe that Europe is doomed to suffer Japan’s malaise. Read all.

5. Economic Overhaul: China Opens Doors to More Private Competition       (Russia Today)

In the biggest economic turnaround in two decades China’s leaders have pledged more private competition in dominant state industries. The new economic plan aims at rejuvenating a slowing economy and also eases limits on foreign investment in e-commerce. The changes promised in a Friday report issued after a closely watched Communist Party conference compares with the effort at market-style reforms in 1978 that launched China’s economic boom, the Associated Press says citing the state media. Read all.