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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

March 4, 2014 at 10:04 AM

The economic stakes in Ukraine

How horrible, fantastic, incredible it is that we should be digging trenches and trying on gas-masks here because of a quarrel in a far away country between people of whom we know nothing. — Neville Chamberlain

Well the Ukraine girls really knock me out. They leave the West behind — The Beatles

Here are five things to know about the crisis in Ukraine and the economy.

1. The country holds strategic importance for Europe. Russia provides 25 percent of Western Europe’s natural gas. Of that, half is pumped through pipelines running through Ukraine. To be sure, Russia needs the income. But if the standoff continues or worsens, it could have a serious effect on world energy prices.

2. Ukraine remains “the breadbasket of Europe,” a major exporter of wheat, corn and vegetables. Grain prices could rise.

3. Like many emerging markets, Ukraine is facing an economic crisis. It owes $13 billion in sovereign debt this year, with another $16 billion coming due before the end of next year. Kiev had been hoping for help from the European Union before Vladimir Putin leaned on now ousted President Viktor Yanukovych to join a Russian-led customs union. This led to the unrest in the two-thirds of the country that wants closer ties with Europe. Now Putin has put a $15 billion bailout on hold. The U.S. has pledged $1 billion and there’s pressure on the International Monetary Fund to step in.

4. Ukraine bought $1.9 billion in merchandise exports from the United States last year. Washington was its second-largest export partner, after West Virginia. Washington sold more than $177 million to Ukraine, 56 percent in transportation equipment. Meanwhile, Russia is a much more important customer and partner for Boeing. Which brings up the uncomfortable issue that American companies could be hurt by American sanctions against Moscow.

5. With 44.5 million people, Ukraine is not a little, far away country. But it is deeply troubled. Economic liberalization has not really taken root. Each side has its corrupt oligarchs. Its GDP growth rate was 188th in the world last year and 24 percent of the population lived below the poverty line in 2010. Fixing this will be a burden for the West or for Russia. Also, Ukraine is heavily dependent on Russia for natural gas. It is no secret that Putin, the former KGB man, would love to reconstitute the Soviet Union or Tsarist Russia. Unfortunately, our moral credibility about preemptive invasions and maintaining naval bases in foreign enclaves is not strong.

The stock market is up today as strongly as it fell Monday, but don’t be fooled. This crisis has yet to play out. One critical player will be Germany: Not militarily (how things have changed in a century) but economically, as Russia’s biggest trading partner in the West.

Potential outcomes: A complete invasion of all Ukraine; Russian partition of the Russian-speaking eastern part of Ukraine, or Kiev backing down and accepting a president acceptable to Putin. The West has a weak hand.

And Don’t Miss: The next big thing you missed — How Starbucks could replace your bank | Wired

Today’s Econ Haiku:

Bill replaced Carlos

As the richest man on earth

Will that be with fries?

Comments | More in Global economy | Topics: Ukraine crisis

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