Tuesday, February 25, 2014

The Russian bailout allergy

A Wall Street Journal article explains the complicated politics of a western financial bailout for Ukraine --

Without Russian involvement, the politics of a bailout organized by Europe and the U.S. would become more complicated, since a big chunk of the bailout money would go toward paying Ukraine's gas bills to Russia.

That's indeed true, but just about every bailout in recent years has involved loaning countries money to repay to people outside the country -- bankers, bondholders, or indeed back to the countries delivering the bailout money. The same aversion to bailout money heading to Russia was previously seen for Cyprus. But what these reservations highlight is that bailouts are rarely foreign wise men providing cash in exchange for a package of reforms. It's foreign wise men making sure that their own loans get paid back.