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The West's multi-billion pitch to entice Ukraine into the fold

By John Defterios, CNN
updated 11:29 AM EST, Wed March 5, 2014
Ukrainian tanks are transported from their base in Perevalne, Crimea, on Wednesday, March 26. After Russian troops seized most of Ukraine's bases in Crimea, interim Ukrainian President Oleksandr Turchynov ordered the withdrawal of armed forces from the peninsula, citing Russian threats to the lives of military staff and their families. Ukrainian tanks are transported from their base in Perevalne, Crimea, on Wednesday, March 26. After Russian troops seized most of Ukraine's bases in Crimea, interim Ukrainian President Oleksandr Turchynov ordered the withdrawal of armed forces from the peninsula, citing Russian threats to the lives of military staff and their families.
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STORY HIGHLIGHTS
  • There is now no doubt about the West's commitment to Ukraine, writes John Defterios
  • The West has pledged $16B , while Ukraine leaders have said they're facing a $30B hole
  • The latest move is significant because it could lead to support from other lenders
  • The next step is to figure if the G7 will proceed with economic sanctions or not

Editor's note: John Defterios is CNN's Emerging Markets Editor and anchor of Global Exchange, with more than two decades of financial news and current affairs experience. Follow him on Twitter.

(CNN) -- If there were any doubts about the West's commitment to Ukraine, you can dispel them now after the European Union put forward a package of $15 billion, matching the sum initially offered by Moscow before Viktor Yanukovych was pushed out of power.

The current tally is now $16 billion after a $1 billion commitment announced by U.S. Secretary of State John Kerry during his visit to Kiev Tuesday.

Ukrainian leaders have said they will be $30 billion in the hole by the end of 2015. About half of that debt comes due in 2014 and the country reportedly has about three months of cash reserves. Without the support from the European Union, voters would have gone to the polls in "crisis mode" with the state nearly out of cash.

The move by the EU is also significant because it will also likely lead to funding from regional lenders: the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank (EIB), both of which have deep pockets.

NATO meets to discuss Ukraine Crisis

International Monetary Fund officials are on the ground in Ukraine assessing the economic situation. Lending may prove to be more difficult in this period of transition. Shareholders in the fund, 188 member states, usually hesitate to provide money when temporary leadership is in place.

Is Putin looking for a Ukraine 'off-ramp'?

It is complicated by Russian President Vladimir Putin holding the position that Yanukovych was forced out of office. Behind the scenes, commitments must also be coming from the Ukrainians to start cleaning up corruption, something that was flagged as essential by Kerry and during interviews I conducted this week.

Russian troops fire warning shots

But IMF Managing Director Christine Lagarde on Tuesday expressed some willingness to proceed as her team was landing in Kiev, saying in a statement "we are ready to respond," and adding, "we are also discussing with all our international partners -- bilateral and multilateral -- how best to help Ukraine at this critical moment in its history."

This is very different from the tone taken with Egypt after the ouster of Hosni Mubarak and the subsequent two years of turmoil. The $5 billion initially on the table from the IMF never materialized due to differences on how best to proceed with reforms. A crisis was avoided when Arab Gulf states filled the void with $15 billion instead. The stakes, some would say, are higher due to the Cold War history surrounding Ukraine.

The next stage of the high stakes diplomacy surrounds whether G7 countries proceed with economic sanctions or not. While at a global financial forum here in Abu Dhabi, former European Central Bank President Jean Claude Trichet told me, "economic sanctions would be appropriate of course if there is no deal" between the U.S. and Russia.

Former U.S. Secretary of State James Baker took a similar position suggesting that the G7 countries, led by Washington, are marking their support for Ukraine.

"They've sent the right signal so far which is saying 'hey wait a minute this is not acceptable; we don't like this and there is going to be some cost to it," Baker said.

Read more: Key players in crisis in Ukraine

Complete coverage: Crisis in Ukraine

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