One of the biggest risks for the global economy right now is Ukraine. The country’s currency is rapidly depreciating, which is causing serious trouble for the foreign banks who own a majority of the financial sector.
The foreign banks, led by names like Raiffeisen, Unicredit and BNP Paribas, have piled into Ukraine ever since the Orange Revolution in 2006, on the bet that Ukraine would move ever closer to the EU, and eventually accede.
Instead, the government has been riven with in-fighting ever since that revolution, and really the country has barely had a government for the last three years.
Banks are starting to collapse – this week, the ninth biggest bank, Nadra Bank, was nationalised. If the currency depreciates further and corporates and consumers default on their debt, big European banks could take a major hit.
Raiffeisen, for example, has several billion euros invested in Ukraine, where it owns the second biggest bank. Unicredit owns the fourth biggest bank, and BNP Paribas owns the fifth. OTP, Hungary’s biggest bank, also owns a top ten bank there. Russian banks also have alot invested there.
If Ukraine goes under, it could lead to one of the big Austrian banks, such as Raiffeisen or Bank Austria (owned by Unicredit) going under as well, which would be disastrous for eastern Europe, where Raiffeisen and Unicredit own large chunks of countries’ banking sectors.
That’s why the Austrian finance minister, Josef Proll, has been urging the EU to support Ukraine with more emergency funds, to supplement the $16bn the country received from the IMF.
The IMF has frozen that money at the moment, because Ukraine’s PM, Yulia Timoshenko, has refused to cut government spending. Her finance minister resigned because of this last week.
Timoshenko now appears to be trying to get a bail-out from Russia as well, and is probably trying to play EU and the West off against each other to get money.
