Raw Deal

The deal unraveled in the blink of an eye.

Treasury Secretary Scott Bessent had just touched down in Kyiv on Wednesday to make President Volodymyr Zelenskiy an offer: US access to Ukraine’s rare earth metals in exchange for Washington’s continued military support.

With Ukraine’s military struggling to hold back Russia’s invasion after almost three years of war, Zelenskiy seized at the offer, telling Bessent he was “sure” the sides would make a deal.

Little did he know that Donald Trump and Vladimir Putin were hatching a deal of their own at the same time. In a 90-minute phone conversation, the first officially confirmed exchange since Trump’s return to power, the US president appeared to effectively sell Ukraine out.

In one swoop, Trump ruled out NATO membership for Kyiv and rejected deploying US peacekeepers as part of future security guarantees for Ukraine. He also said Russia may end up holding on to much of the Ukrainian territory it occupies.

While a settlement with Russia was always going to be politically wrenching for Ukraine, Trump’s call was tantamount to the nightmare scenario for the war-torn nation, one in which its future would be decided over its head.

It also blindsided allies in Europe, raising concern about the continent’s security architecture in the second Trump era and beyond. A fresh Estonian intelligence report said Putin maintained his goal of rolling back NATO’s presence in eastern Europe.

The sense of collective apprehension will likely be on display at the Munich Security Conference, which Zelenskiy and US Vice President JD Vance will both attend.

In a phone call of his own after Trump and Putin’s talks, Zelenskiy told the US president that the Russian leader couldn’t be trusted and that he was the one “seeing it more realistically.”

That’s unlikely to have gone down well with a president who’s fashioned himself as a supreme dealmaker.

Around the Region

Kosovo: Prime Minister Albin Kurti’s party won an election on pledges of cracking down on corruption and tightening Pristina’s control over Serb-majority municipalities. He may struggle to form a coalition government though after falling short of a parliamentary majority.

Romania: Klaus Iohannis resigned from the presidency to defuse political tension after the shock cancellation of an election last year extended his tenure. Police in the meantime are probing the campaign manager of Calin Georgescu, the pro-Russian candidate who won the first round of the canceled presidential ballot and who’s the frontrunner in the repeat of the vote due in May.

Poland: The European Union’s most coal-reliant economy needs to scale up investments in renewable energy to cut utility costs, according to the European Bank for Reconstruction and Development. While Poland aims to rely more on nuclear power in the future, technological advances and falling costs make renewables a better alternative, the EBRD said.

Moldova: Moldova’s breakaway region of Transnistria struck a short-term agreement with a European energy trader to supply gas to the pro-Russian enclave after Gazprom turned off the taps on Jan. 1., causing rolling blackouts. Transnistria, which said the deal was backed by a Russian loan, rejected further EU assistance amid a geopolitical tug of war.

Hungary: Prime Minister Viktor Orban hosted the Alternative for Germany’s lead election candidate in Budapest, a further sign the firewall erected around the far-right party in Berlin was under strain ahead of this month’s snap national ballot.

Chart of the Week

Eastern Europe’s Trump Dividend

Region’s stock markets among best performers this year

Source: Bloomberg

Note: Local-currency performance of benchmark indexes versus EM benchmark index

Stock markets in central Europe have been among the world’s best performers on bets that Trump will move Russia and Ukraine toward the negotiating table after nearly three years of war. Orban’s close allegiance to the US leader gave equities in Hungary an early boost after the American ballot in November while Ukraine’s dollar bonds have also staged a strong rally. However, the threat of US tariffs still hangs over the region’s assets, with details of any peace plan for Ukraine yet to be worked out.

By the Numbers

• ​​​​​e& PPF Telecom agreed to acquire Serbia Broadband to expand its business in the Balkans. The deal was valued at €825 million ($858 million) for the provider of cable and broadband internet, which has more than 700,000 customers.
• Serbia kept its key interest rate at 5.75% for a fifth month after mass protests triggered the government’s fall. Romania, which is also gripped by political uncertainty and has endured bond market volatility, is also poised to keep its key rate unchanged at 6.5% today.
• Hungarian annual consumer prices surged 5.5% in January, in a pre-election political headache for Orban. The government, which had earlier declared inflation vanquished, said it may re-introduce some food price caps in response.

Things to Watch

• President Aleksandar Vucic called for a pro-government rally on Saturday in a test of his support after street protests over corruption and mismanagement triggered the fall of his prime minister.
• Meanwhile opponents of Prime Minister Robert Fico are planning demonstrations across Slovakia a week from today to protest the government’s foreign policy tilt toward Russia.
• Romanian central bank Governor Mugur Isarescu is expected to speak early next week about the bank’s quarterly inflation report. It’ll be his first public remark since the country was plunged into political turmoil after the cancellation of the Nov. 24 presidential election.

Final Thought

The arrest of Tirana Mayor Erion Veliaj on corruption charges is sending shockwaves through the political establishment in Albania, one of Europe’s poorest countries. Prosecutors allege Veliaj, one of Prime Minister Edi Rama’s closest associates, embezzled public funds to lead a lavish lifestyle, which included more than €870,000 his wife spent on luxury goods such as clothing and jewelry. They also found about the same amount in bank accounts under her name and cash worth more than €100,000 in a safe. While Veliaj and his wife deny the charges, Rama’s defense of his ally on social media didn’t quite go as planned. After calling the allegations fiction, Rama – unaware that he was still live – was seen pounding his fist on his desk and cursing, in a video that has since gone viral. The premier later said that he was just showing his “passion” for Albania.