Ukraine Ceasefire Deal Agreed After Negotiations All-Nighter; Doubts Remain About Its Implementation

It would have simply been too much to handle for Europe and the risk off algos if hours after the embarrassing failure of the emergency Eurogroup meeting in Brussels failed to reach any deal involving Greece, the Ukraine ceasefire negotiations in Minsk were also to fall apart. Again. Which is probably why after a marathon session lasting 17 hours, and following repeated trial balloons that a deal had and/or had not been reached, a short while ago all major media outlets were delighted to finally blast some Risk On news namely that leaders of France and Germany brokered a renewed deal to end Ukraine’s 10-month civil war in the separatist eastern region, which means that we have a Minsk-signed Ukraine ceasefire. Again.

As the WSJ reports, "details of the agreement weren’t immediately available" but it involves a cease-fire starting on February 15, Sunday, with each side pulling back heavy weapons, as well as steps to give greater autonomy to the Russia-backed separatist regions in eastern Ukraine. All negotiators, namely Ukraine’s Petro Poroshenko, Russia’s Vladimir Putin, Germany’s Angela Merkel, and France’s Francois Hollande said there are no alternatives to peaceful solution.

Some more from Bloomberg according to which Ukraine would start getting border control day after regional elections and full control after constitutional reforms, including decentralization, according to copy of document signed by contact group in Minsk, Belarus.

  • Cease-fire to start Feb. 15, midnight Sat. to Sun. in Kiev
  • Accord sets amnesty covering conflict in Donetsk, Luhansk regions
  • Accord sets a minimum 50km buffer zone, 70-140km for missile systems; withdrawal set from front line as of Sept. 19 for rebels, current front line for Ukraine army 
  • Ukraine to pass constitutional reforms, including permanent special status to Donetsk, Luhansk, by end-2015
  • Ukraine to restore economic ties, banking links, pension, social benefits to east
  • Withdrawal of heavy artillery to start no later than 2nd day after cease-fire starts; to be completed w/in 14 days
  • Agree to create oversight mechanism to ensure peace accord is implemented
  • Agree to support 3-way talks w/ Ukraine, Russia, EU on gas supplies
  • Germany, France to help rebuild banking system in Ukraine regions affected by conflict
  • All “illegal” groups to disarm

Ukraine's president Poroshenko was quick to preempt accusations that this was yet another major concession by Ukraine which has already ceded Crimea to Russia - a topic that was not touched with a ten foot pole -and said that there will be no autonomy for the separatist, natural gas and industry-heavy Donbas region and that the agreement won’t move to federalization. Still one can't quite explain the 50km buffer zone, whose purpose is not exactly clear if not to provide precisely that: autonomy.

Others were quick to point out that the agreement was not really a breakthrough, such as Germany's foreign minister, Frank-Walter Steinmeier, who said in e-mail that parties to Minsk talks sought to gain more from agreement sealed Thursday but achieved most important goal of sealing ceasefire. "We achieved something while  chance remains that Feb. 15 ceasefire accord could be upturned by intervening violence."

“Today’s agreement is not a comprehensive solution and not at all a breakthrough” but added that the most "important” aim of ceasefire achieved in talks.  “For the first time we have clear tasks with time allotments for the implementation of the Minsk obligations: on voting, border controls, exchanging prisoners among others.”

Others chimed in as well: “Much, much work is still necessary,” Ms. Merkel said after the talks ended. “But there is a real chance that things will turn for the better.” Merkel said both Mr. Putin and Mr. Poroshenko acted constructively in the negotiations.

“President Putin indeed did all he could to achieve the possibility of ending the bloodshed,” Ms. Merkel said. She added: “In the end, President Putin also put pressure on the separatists” to agree to a cease-fire taking effect Saturday night. 

Merkel concludes by saying that "All things considered I would like to say that what we’ve reached now is giving us more hope than if we hadn’t agreed on anything. I don’t have any illusions, we don’t have any illusions that a lot of work is still required but there’s a real chance for things to take a turn for the better."

Mr. Hollande described the pact as cause for “serious hope,” and said France and Germany had committed to verifying the implementation of the deal. “Everything is not yet accomplished, but this is a serious hope for Ukraine and a relief for Europe,” he said.

But the questions already emerged: the negotiations hit some snags along the way. Mr. Putin blamed the last-minute delay on what he called Ukraine’s refusal to negotiate directly with the separatist leaders. There was no immediate response from Kiev to that.

Mr. Putin also said one area of disagreement remained about the town of Debaltseve, where Ukrainian forces have been under siege from rebels for days. Separatist leaders called on Kiev’s forces to surrender and abandon the town, something Ukraine so far has refused to do.


By Mr. Putin’s account the agreement appears to split the difference on one key area of controversy—the dividing line between the two sides on the ground.


Mr. Putin said Kiev’s troops would pull back heavy weapons from the current front line, which reflects months of rebel gains, while the rebels would pull their equipment back from the line in the original September agreements.

Even before the negotiations had reached an agreement, the IMF sent out a notice that its staff had agreed on new US$ 17.5 billion extended fund facility with Ukraine.

“The mission has reached a staff-level agreement with the authorities on an economic reform program, which can be supported by a four-year Extended Fund Facility, in the amount of SDR 12.35 billion (about $17.5 billion, €15.5 billion), as well as, by considerable additional resources from the international community. The staff level agreement is subject to approval by IMF Management and the Executive Board. Consideration by the Executive Board is expected in the next few weeks, following the authorities’ implementation of decisive front-loaded actions to achieve program goals.


“The policies under the new arrangement, developed by the Ukrainian authorities jointly with Fund staff, are designed to address the many challenges confronting the Ukrainian economy. Economic activity contracted by around 7-7½ percent in GDP in 2014, weighed down by the conflict in Eastern Ukraine, which has taken a significant toll on the industrial base and exports, undermined confidence and ignited pressures on the financial system. The economic reform program focuses on immediate macroeconomic stabilization as well as broad and deep structural reforms to provide the basis for strong and sustainable economic growth over the medium term.


“The 2015 budget initiates an expenditure-led adjustment to strengthen public finances within the availability of resources. This required bold, but necessary, measures, including keeping nominal wages and pensions fixed. The budget is supported by revenue reforms, including increasing the progressivity of the personal income tax and streamlining the tax system. The authorities are committed to medium term reforms of the civil service and the important health and education sectors, aiming to improve quality and efficiency, as well as widening the tax base and improving customs and tax administration. Fiscal consolidation would continue over the coming years which together with the debt operation envisaged by the authorities will strengthen debt sustainability.

Alas, with Ukraine having no gold left, the probability of the IMF staying to implement a long-term structural reform in the country is slim to none which means hyperinflation is almost certainly inevitable, but while Ukraine may or may not have reached a (temporary) ceasefire, it will at least have the cash to pay for its external obligations. Mostly to Russia.

Finally, as a reminder, this is the second time Ukraine peace has been signed on paper in Minsk, only for hopes to crash and burn in the days that followed. Many are skeptical this time will not be different, most certainly if headlines such as the following continue to appear in the coming hours and days, until the actual ceasefire is implemented on Sunday.