Claire Jones

Mario Draghi has warned that, though unlikely, Europe’s fledgling economic recovery could be derailed by the turmoil in Ukraine.

While the direct financial and trade linkages between the European Union and Ukraine are small, the ECB president told lawmakers in Brussels yesterday that the geopolitical dimensions of the tensions could have a strength that goes beyond mere statistics on capital and current accounts.

One of the most important economic aspects of those geopolitical dimensions is the supply of Russian gas to the EU.

The EU’s reliance on Russia has dwindled over the past decade, but it still matters. The relationship still accounts for 30 per cent of all gas imported into the bloc and when Gazprom cut off Ukraine in 2009, the disruption to energy supplies hit the EU hard. And though the EU is now less reliant on receiving its gas via this route, there’s no way of Russia using the gas button against the Ukraine without it having some impact on the rest of Europe.

The popularity of this tweet by Reuters’ Jamie McGeever highlights the interest this geopolitical dimension has received:

But there are good reasons to bet against Russia turning off the gas tap, regardless of whether or not one believes relations with the EU are the direst since the Cold War. Read more

It’s all change in the Ukraine. Parliament has approved the replacement of the central bank chair with his deputy a year before his term had been due to end.

President Yanukovich made the request to replace Volodymyr Stelmakh on Monday, according to a statement on his website. Mr Stelmakh resigned this morning, and parliament approved the chairmanship of 34-year old Serhiy Arbuzov, with 282 of 450 legislators voting in favour. Mr Arbuzov has been first vice-governor since September of this year. Prior to this, he headed up PAO Ukrainskyi Biznes Bank, the country’s 63rd largest lender, which is based in the eastern Ukrainian city of Donetsk, Yanukovych’s home town, according to Bloomberg. Read more

Ukraine is still cutting rates – the discount rate has been reduced from 8.5 to 7.75 per cent. Collateralised and unsecured overnight rates remain at 9.5 and 11.5 per cent, respectively.

It was hardly a surprise when Ukraine passed the bar for a $15.5bn IMF bailout. Desperate to plug a budget gap and stay financially afloat, Kiev caved in to unpopular but economically necessary austerity measures in recent weeks.

While painful for average cash-strapped Ukrainians, a nod from the IMF should reopen the door to international debt and capital markets. But in which currency?

Ukraine was expected in coming months to try (again) to raise some $2bn on international debt markets through a eurobond issue. Earlier this month, it cancelled a similar sized issue after balking at the prospect of paying more than 8 per cent on 10 year debt. Ukraine now hopes that with the IMF deal in place, it can secure cheaper money. But there’s a growing question for bankers, bond investors and fund managers eyeing the country: could Ukraine opt for rouble bonds instead? Read more

Ukraine’s central bank will not give $2bn of IMF funds to the government to finance the state budget, though is willing to sell the foreign currency in exchange for the Ukrainian hryvnia. “The central bank is ready to sell any necessary amounts of foreign currency to the finance ministry to secure the government’s external payments, if necessary,” the central bank said in a statement on its website (not yet translated).

The Romanian Finance Minister has announced today that if their IMF loan payments are re-started, funds will be used to plug the deficit. (Notice who’s calling the shots there.) Read more

Ukraine has made an urgent appeal to the International Monetary Fund for about $2bn in emergency loans to ease “an extremely difficult situation” in meeting its external obligations and avoid the danger of a “spill-over effect” on other economically vulnerable states. Read more here.

Decoupling? Asian economies discuss increasing intra-regional trade that is less dependent on exports to the West. Conflicting indicators from the US and warnings of bubbles in the UK Read more

Yuan-denominated bonds and rapid overseas expansion sound good for China, but could tomorrow lead to civic unrest? Inflation is a lesser concern than heading back into recession, as new US consumer debt figures indicate a long hard slog back to normality Read more