UARU
Four Things You Need To Know About Brexit’s Impact On Ukraine
24 June, 2016

In spite of the distance, both political and geographical, between the United Kingdom and Ukraine, Brexit will significantly impact future EU/Ukraine relations.

  • Domino effect

Thanks to Britain’s departure from the European Union, other Member-States could be inspired by the UK. For example, in France, far-right leader Marine Le Pen said that if she came to power, she would negotiate a special status for the country within the EU; otherwise, France would conduct a referendum just like in the UK.

Certain policy issues could also split the EU. David Cameron, for example, tried to negotiate a ‘mechanism of protection’ regarding immigration. If the European Commission allows it, some other countries like Poland or Hungary could ask for similar exceptions, and threaten to leave too.

In that case, EU would have two possibilities: face a real risk of dislocation, or accept a kind of Europe “à la carte” regime: There would be a dangerous temptation to collapse to Nations’ personal demands to maintain the organisation.

Certain Member-States are against any expansion of the EU, especially the Netherlands, which voted ‘no’ on the association treaty with Ukraine. It is possible to imagine that Ukraine’s potential EU membership has become much more complicated.

  • Ukrainian politicians fear feebler cooperation

The Ukrainian government was waiting for the results of the vote while knowing that it could hinder the cooperation with EU, especially from the perspective of integration :

"I do not think Brexit would lead to a U-turn on Ukraine, but it would be a serious stick to beat those who favor EU integration," said Serhiy Leshchenko, a member of President Petro Poroshenko's Bloc Petro Poroshenko faction in parliament.

They also worried about the future of EU support in the conflict with Russia. The EU put sanctions on Russia despite the fact it was one of their main trading partners. With economic unity weakened by Brexit, many in Ukraine fear a revival of that partnership along with the potential end of sanctions :

"The outcome of the referendum in the UK could fragment the European Union and theoretically complicate our EU integration. And it shouldn't be forgotten that the EU is a counterweight to Russia on the issue of Ukraine," declared the head of the reformist Samopomich faction in parliament, Oleh Bereziuk.

  • German reinforced leadership

On the other side, Brexit will increase German influence in EU decisions. It's already a powerful Member-State. But experts say that France and the UK used to work as a kind of coalition to balance German influence in the bloc. Now, with the UK’s departure, there is no country currently capable of counteracting Germany’s political sway. Angela Merkel has indicated she is quite determined to maintain sanctions on Russia, which she condemned during the war regarding the respect of Minsk accords. Nevertheless, it does not change anything about the possibility for Ukraine to integrate into the EU, as she said that the association treaty does not necessarily lead to integration.

  • Limited impact on trade

Regarding trade relations, the UK is the 11th commercial partner of Ukraine: Since 2014, bilateral trade of goods and services between the two countries has shrunk by 19%. In 2015, it represented only 2.4% of Ukrainian trade of goods and services; and concerning the FDI, the UK was the 6th biggest investor in Ukraine, but since 2014 the flow of capital has also shrunk, by 618 million USD. From this, we can expect anything: maybe by leaving the EU free trade market, the UK will turn again to countries such as Ukraine, or maybe not. In any case, it will not have a significant effect on Ukrainian economy.

  • An attractive exchange rate?

Brexit has provoked chaos in Europe, especially in the financial sphere. Since the results of the vote, the Pound has slumped, just like the Euro that is very volatile at the moment. On the contrary, the dollar rate exchange has increased, which extends many more the gap. For Ukrainian people, this fact is a good sign for the Hryvnia: we can see today in Kiev the foreign exchange counters publish the Euro for 27,45 instead of 28,10 on the 23th, the day of the results of the referendum. This trend has to be taken into account with caution, as the Euro is extremely volatile and it is difficult to make concrete predictions about the coming weeks.