MBS Blog

The tension between Europe and Ukraine is increasing on another front. This article at www.unian.net seems to confirm some of the rumours swirling about; Ukraine is threatening to end the visa free regime that Europeans enjoyed over the last several years.  No word on how or if this will affect citizens of the United States or the U.K.

Several years ago, Ukraine broke with the cumbersome and expensive Soviet visa scheme still practiced in Russia. This has brought a small but measurable wave of investment, new business and tourism into Ukraine.

It has certainly made it easier for entrepreneurs to work and develop new businesses here. The continuation would certainly go a long way towards increasing further investment when the global economic crisis eases, and will facilitate an even greater transfer of wealth from West to East.

Many companies in Europe will relocate their manufacturing in the next decade. A positive atmosphere as evidenced by a visa free regime, would help with this process just as a streamlined visa process did in China during the 1990s. This does not take into account the agricultural sector which will see a flood of Euro investment when laws regarding the sale and leasing of land change.

As expats who look towards the future with optimism and hope for even more business and opportunities, let’s hope that this latest threat is merely a negotiation ploy designed to get the attention of bureaucrats in Brussels.

The Ukrainian government is certainly correct about the lack of reciprocity from the EU in terms of visa issues as well as immigration. The EU continues to treat Ukraine more as a threat than as an asset and until this mentality changes within the councils of Europe, Ukraine will have to swallow some pride, be tough and creative with regards to policy, and walk the “tightrope” between the EU and Ukraine’s powerful neighbor to the East.

Ukraine considers re-introducing visas for Europeans soon - official

Kiev, Apr 04, 2009 (BBC Monitoring via COMTEX) – 

Visa-free travels between Ukraine and Europe will be cancelled soon, maybe even before 7 May, the deputy head of the presidential secretariat, representative of the president [Viktor Yushchenko] in the Supreme Council [parliament], Ihor Popov, said in an interview with the Radio Liberty on Saturday [4 April].

“We will cancel visa-free regime with Europe soon and we will benefit from this. This will happen very soon, maybe even before the summit in Prague on 7 May 2009,” Popov said.

He said that “law-enforcement agencies complain that since Europeans come to Ukraine without visas, every three months police catch some kind of a ‘paedophile’ or a ‘maniac’”.

“Entering Ukraine, a foreigner shows a passport on the border, 10 seconds and off he goes. Later it appears that the man should not have been let in. As a result, he is put on the national wanted list since he entered without a visa and is not registered in the database,” Popov said.

Popov also said that this action can “push Europeans to cancellation of visas for us”.

Source: UNIAN news agency, Kiev, in Ukrainian 1843 gmt 4 Apr 09

As reported this morning in The Financial Times of London (www.ft.com) , the adaptation of the EURO currency by non-EU countries is being advanced as a possible solution to some of aspects of the credit and banking crisis in Eastern Europe.

While it does present a very good alternative to current solutions advanced by the IMF who are grappling with the reticence of governments to adopt additional reforms attached to loan packages, it could force even more drastic reforms on nations like Ukraine if they choose to adapt the European currency.  It could also politically destabilize Ukraine further.

While the adaptation of the EURO could moderate inflation in the intermediate term…depending on the inflationary policy of the ECB…. it could cause price increases for Ukrainians as soon as the EURO were adopted. This would generate social unrest in an already fragile nation, and the central government and the Ukrainian central bank in Kyiv would have little power or recourse to address local conditions. The ECB would in the driver’s seat and Ukrainian sovereignty would be limited.

We are not sure that Ukrainians would welcome the EURO.  While having a hard currency would make loan repayments easier, and smooth out currency disparities related to international trade, it could impoverish many here. Ukrainians recall the experience of Romania which saw huge price increases for food, gas and other products as well as the transitional exchange of local currency to EUROS was reduced.

Essentially, adaptation of the EURO is a mixed bag. Sometimes the cure can be worse than the disease.

IMF urges eastern EU to adopt euro

By Stefan Wagstyl, Eastern Europe Editor

Published: April 5 2009 22:04 | Last updated: April 5 2009 22:04

Crisis-hit European Union states in central and eastern Europe should consider scrapping their currencies in favour of the euro even without formally joining the eurozone, according to the International Monetary Fund.

The eurozone could relax its entry rules so countries could join as quasi-members, without European Central Bank board seats, says the fund.

 “For countries in the EU, euroisation offers the largest benefits in terms of resolving the foreign currency debt overhang [accumulation], removing uncertainty and restoring confidence.

“Without euroisation, addressing the foreign debt currency overhang would require massive domestic retrenchment in some countries, against growing political resistance.”

Disclosure of the confidential report, prepared about a month ago, could reignite a fierce debate over strategies to assist central and east Europe.

Even though global leaders hailed last week’s G20 summit as a success, eastern Europe’s challenges remain. Amid deepening recession, Ukraine and Latvia, two states already in IMF programmes, have in recent days balked at approving IMF-mandated reforms. A third, Hungary, is struggling to create a government capable of implementing reforms.

The IMF report was compiled to support a campaign by the fund, the World Bank and the European Bank for Reconstruction and Development to persuade the EU and eastern European states to back a region-wide anti-crisis strategy, including a regional rescue fund. The campaign failed amid widespread opposition from both west and east European states.

Eurozone members also oppose easing the eurozone’s entry rules, as does the ECB.

The IMF, which forecasts a 2.5 per cent decline in regional gross domestic product in 2009, estimates that “emerging Europe” – including Turkey – must roll over $413bn in maturing external debt in 2009 and cover $84bn in projected current account deficits.

The report estimates that “the financing gap” – money needed from international financial institutions, the EU and governments – will be $123bn this year and $63bn next, or $186bn in total.

Much could come from the IMF. But the report says “up to $105bn” could be needed from other sources, including the EU.