Roubini Urges Ukraine to Sign EU Accord Over Russian Deal

Ukraine should work with the European Union rather than a Russian-led customs union in order to boost its economy, said Nouriel Roubini, a professor of economics and international business at New York University.

Ukraine’s “macroeconomic condition is fragile” because of widening current-account and fiscal deficits and growing needs for external financing, Roubini said today at the annual Yalta European Strategy Conference on Ukraine’s Black Sea coast.

Ukraine plans to sign the EU Association Agreement, which includes a free-trade accord with the 28-member bloc, in November. Russia wants the former Soviet republic to join the customs union it formed with Kazakhstan and Belarus instead. If Ukraine signs the EU deal, Russia has said it would impose trade restrictions to protect its market. Russia disrupted the passage of Ukrainian goods over its border last month.

“If you join the EU, it means harmonization of regulation,” Roubini said, adding that the trade accord could boost Ukraine’s trade with “any part of the world.”

The EU agreement was delayed after ex-Prime Minister Yulia Tymoshenko, an opponent of President Viktor Yanukovych from Ukraine’s 2004 Orange Revolution, was handed a seven-year sentence for abuse of office in 2011, a move the bloc deems selective justice. Ukraine hasn’t dealt with Tymoshenko’s case.

Ukrainian Prime Minister Mykola Azarov told that conference today that “we are sure that the signing” of the accord with the EU “does not hold any risks for Russia.”

Credit Rating

Moody’s Investors Service cut Ukraine’s credit rating by one level to Caa1 yesterday, citing “increased political and economic risks due to deteriorating relations with Russia,” low central bank reserves and “increased downside risk related to future negotiations” with the International Monetary Fund.

“Given the significant risks facing the country, we see very little upward potential in the rating in the foreseeable future,” Moody’s said.

Ukraine’s economy contracted 1.3 percent in the second quarter after shrinking 1.1 percent in the first three months of the year because of weak demand for its exports in global markets. The government has failed to sign a new IMF bailout loan because of disagreements over household energy subsidies.

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