Russia Holds the Strongest Position on Ukraine, Financially and Strategically
March 1, 2014 • 1:25PM

Russia is in by far the strongest position in relation to Ukraine, both financially and strategically—a far stronger position than the United States or the European Union—a City of London analyst said to EIR on Friday. Ukraine's economy has been stagnating since the 2007 crisis, and it now has an all-time high total external debt of almost $138 billion, with $40-$60 billion of that short-term. The new Finance Ministry in Kiev has been asking for $35 billion in the coming weeks.

"The EU is not likely to contribute anything towards supporting Ukraine and its currency financially," the analyst pointed out. U.S. and EU leaders are telling Kiev to go to the International Monetary Fund, "but IMF rules are very strict, which could well prevent it from lending to Ukraine. What are the assurances that the current government will still be there in Kiev during the coming years, to ensure repayment of any loan?"

"It is hard to see any financial solution for Ukraine without Russia—as was the case in December," he said. Russia agreed to buy $15 billion of newly issued Ukrainian sovereign debt over the next two years. Russia bought $3 billion worth in January, but stopped since. Russia has at least $400 billion in foreign reserves, and could provide emergency funds to Ukraine, which would be "very much in Russia's economic interests." Among other things, Russia wants to ensure that the gas pipelines which go through Ukraine remain operating.

The EU itself, however, "has no central mechanism which could offer anything to Ukraine, and it is hardly likely that any individual government, since they are all committed to austerity, would be willing or able, politically or financially, to lend anything substantial to Ukraine. That is what happened at the end of last year, when Russia stepped in."

In terms of western exposure to financial trouble, Franklin Templeton, a U.S. global fund founded on Wall St. in 1947 with current headquarters in San Francisco, is vulnerable, having [foolishly] added about $4 billion worth of Ukrainian dollar-denominated bonds to its emerging market portfolio last year.

Russia is also in by far the strongest position strategically, the analyst pointed out. NATO may talk, but does not have the troops in Europe to make any kind of move towards Ukraine — and certainly does not have any way to transport them there anyway.

Beyond that, "it should be remembered that Vladimir Putin knows very well that Barack Obama had to back down over making a military intervention in Syria, and that would have been far easier than trying to get to Ukraine," he said. Britain would certainly not support any NATO move in Ukraine, whatever PM Cameron says, since he thinks he has to support the U.S. on all issues. The Parliament absolutely vetoed British support for any intervention into Syria last August, just before Obama had to meet Putin, and the Parliament would do the same again now.