EU's Ashton says 'biggest fear' is over Ukraine's economy

Sat Mar 22, 2014 3:10pm EDT

Related Topics

* EU and U.S. have both offered aid to Ukraine

* Keeping Ukraine's economy afloat is the priority, Ashton says

* EU trade chief criticises Russia over "frozen conflicts"

By Adrian Croft

BRUSSELS, March 22 (Reuters) - European Union foreign policy chief Catherine Ashton voiced deep concern on Saturday over the fragility of Ukraine's economy and urged the rest of the world to rally round to support it.

"We have to make sure that Ukraine, economically, does not fall over ... My biggest fear right now is the state of economy and the need for us all to offer the support that they need," Ashton told an event organised by the German Marshall Fund think tank. "How do we make sure this economy holds together?"

Ukraine's new government, which took power when pro-Russian president Viktor Yanukovich was ousted after months of street protests, has said it desperately needs cash to cover expenses including gas imports and avert a possible debt default.

Ashton said a short-term budget deficit problem had to be resolved "relatively quickly".

Another problem was the "economic viability of industry, many parts of which need to be modernised, an issue ... which needs a slightly longer-term plan," Ashton said.

"And then there are the underlying structural problems in how to make sure that they are able to generate the resources they need to be able to pay their bills and to be able to develop that economy without running into the buffers of not having enough money day-to-day."

U.S. President Barack Obama's administration has asked Congress to approve a $1 billion loan guarantee package for Ukraine while the European Union has said it is willing to provide $15 billion in loans and grants over several years to help get the economy back on its feet.

The EU aid requires widespread reforms by the new Ukrainian government and the signing of a deal between Ukraine and the International Monetary Fund, which is due to report next Tuesday on advanced talks with Ukraine on a loan programme.

AID FOR UKRAINE

The EU has also agreed to extend nearly 500 million euros ($690 million) of trade benefits to Ukraine, removing duties on a wide range of farm goods, textiles and other imports.

The protests against Yanukovich erupted after he pulled out of signing a political cooperation and trade agreement with the European Union in favour of closer ties with Russia. After he fled, Russia sent troops into Ukraine's Crimea region and annexed it in what Ashton described as a "land grab".

The United States and the EU responded by imposing visa bans and asset freezes on Russian officials, including some close allies of President Vladimir Putin.

The EU this week also began preparations for possible trade and economic sanctions against Russia if its forces move beyond Crimea into southern and eastern Ukraine.

EU Trade Commissioner Karel de Gucht accused Russia on Saturday of creating a "line of pearls" along its border - referring to Crimea as well as so-called frozen conflicts in Georgia and Moldova.

"What's the sense of that? Do we have to swallow that? No, I think there is a price for that and I think we should be very clear - the United States and the EU together - that they simply cannot do this," he told the meeting.

Before Yanukovich jilted the EU last November, Moscow had put pressure on Ukraine by tightening checks on imports and threatening to cut off its gas supplies in the depth of winter.

That has fuelled fears in the EU that Moldova and Georgia, two other ex-Soviet republics that have negotiated free trade agreements with the EU, could come under Russian pressure to change their minds before they sign them, most likely in June.

"We are being extremely active with Moldova and with Georgia. We are concerned about things that can suddenly happen - how their wine is suddenly not accepted, what can happen in terms of pressure, and we are ready for that," Ashton said.

Russia responded to Moldova's overtures towards Brussels last year by cutting off imports of Moldovan wine. (Editing by Kevin Liffey)

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