Ukraine steps back from the brink, but problems unresolved

The outbreak of protests in Ukraine has dominated the headlines over the past month. With FX reserves already at perilously low levels, it had looked like the country could be tipped into a full-blown balance of payments crisis. But yesterday's deal with Russia appears to have pulled it back from the brink. Bond yields and CDS premia have subsequently fallen sharply. However, while the deal with Russia brings short-term relief, it comes with risks attached. To start with, it could add fuel to the pro-EU protests and plunge Ukraine into a deeper political crisis. What's more, the structural weaknesses in Ukraine's economy are likely to be left unaddressed.