EU Offers Conditional "Aid" For Ukraine's "Catastrophic, Pre-Default" Economic State

“There is no money in Ukraine’s Treasury account,” exclaimed ‘Interim President’ Oleksandr Turchynov to the Ukrainian parliament; adding that the Ukraine economy is in a “catastrophic state.”

*THERE ARE PROBLEMS WITH BANKING SYSTEM AND HRYVNIA: TURCHYNOV
*PROBLEMS WITH PENSION FUND ARE “COLOSSAL”: TURCHYNOV
*UKRAINE’S ECONOMY IS IN A `PRE-DEFAULT’ SITUATION: TURCHYNOV

Hardly surprising given the months of protest; but with Russia ‘conditionally’ postponing its EUR2bn ‘loan’, the Europeans are riding to the nation’s aid with promises of EUR20bn (if Ukrainian authorities meet certain conditions). But, as the map below shows, a great deal of the nation’s wealth lies in the eastern (pro-Russia) region.

*NEW UKRAINE GOVT’S PRIORITY IS TO RETURN TO EU PATH: TURCHYNOV
*RUSSIA SHOULD RECOGNIZE UKRAINE’S EUROPEAN CHOICE: TURCHYNOV

Russia is on hold but the Europeans are willing… conditionally…

The European Commission has said it is ready to conclude a trade deal with and offer aid to Ukraine once a new government is in place in Kiev, Reuters reported Feb. 23. An EU official added that the European bloc could give the country more than 20 billion euros (some $27 billion) if Ukrainian authorities meet certain conditions, The Wall Street Journal reported. According to the official, this figure is a conservative estimate of the potential assistance Ukraine could receive from EU members. Russia is currently holding out on economic aid to Ukraine as it waits to see how the country’s political crisis plays out.

But as a reminder, a great deal of the nation’s wealth resides in non-pro-Europe eastern Ukraine…

The Economic Consequences of Ukrainian Federalism (via Stratfor)

For a country like Ukraine, the appeal of federalism, which divides authority between the central government and its constituent regions, is undeniable. Located in Europe’s borderlands, Ukraine has been contested by its neighbors for centuries, a competition that has left it internally divided along linguistic, cultural and religious lines. Broadly speaking, Ukraine is divided between the east and the west, with eastern Ukraine favoring Russia and western Ukraine favoring Europe. Ukraine’s regions are also distinct economically. The country’s industrial base is located in the east. The east’s close proximity to Russia creates strong cross-border trade that enriches regional economies. According to Ukraine’s government statistics service, manufacturing contributes at least three times more than agriculture to the country’s gross domestic product. Thus, eastern regions generally have higher per capita GDP rates. In 2011, the per capita GDP in the eastern region of Dnipropetrovsk, the country’s most important industrial center, was 42,068 Ukrainian hryvnia ($4,748), while it was only 20,490 hryvnia ($2,312) in Lviv region, which is one of western Ukraine’s industrial centers.

Seven of Ukraine’s 10 largest private companies by revenue are either headquartered or maintain the majority of their operations in eastern Ukraine. These firms are owned by some of Ukraine’s wealthiest and most influential individuals. Three of these 10 corporations — mining and steel company Metinvest, energy firm DTEK and its subsidiary Donetskstal — are based in the eastern industrial city of Donetsk and are owned by Ukraine’s wealthiest man, Rinat Akhmetov. Interpipe, the company that controls 10 percent of the world market share of railway wheels and more than 11 percent of the world market share of manganese ferroalloys, is based in Dnipropetrovsk and belongs to businessman and politician Victor Pinchuk.

The country’s most important businessmen are embedded in the east, where their businesses make disproportionately high contributions to the Ukrainian economy and national budget. Westerners staunchly oppose federalism because they believe it would threaten their economic and security interests. Others believe it could dissolve Ukraine as a country, leaving the west weak and defenseless against the Russia-backed east. Whether or not these concerns are misplaced, federalism would in fact benefit eastern regions disproportionately by giving them more control over state revenue, aggravating the socioeconomic tensions between the regions.

However, the Ukrainians are keeping their options open…