Is Ukraine the world’s next financial crisis?

Here are some simple numbers:

To grow, Ukraine’s $176 billion economy needs gas imports from Russia to be cheap and its steel exports to be expensive.

The opposite is now the case. The government ends up taking the strain because it subsidizes most of the cost of gas sold to households across the country of 46 million that borders Russia to the northeast and four new EU states to the west.

Yanukovich walked away from the trade deal because it lacked a hoped-for stand-by loan of as much as $15 billion from the International Monetary Fund.  The global lender was not prepared to lend new money without gas-price reforms.

Russian President Vladimir Putin has meanwhile made a gas discount conditional on Ukraine joining a Russia-led customs bloc that includes Kazakhstan and Belarus. He has not, however, ruled out possible further funding.

Jacob Nell, a Moscow-based economist at Morgan Stanley, estimates that Ukraine will have to raise external financing of $18 billion for Yanukovich to make it to the 2015 election.

The yield on the June 2014 bond is now closing in on 20 percent.  The full story is here.