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Ukrainian President Petro Poroshenko has announced a “complete ceasefire” in eastern Ukraine following a conversation this morning, September 3, with Russian President Vladimir Putin.

Poroshenko made the announcement on his Twitter account following serious setbacks to the Ukrainian army over recent weeks in fighting in eastern Ukraine.

"Mutual understanding was achieved concerning the steps which will enable the establishment of peace," he said in a statement after speaking to Putin by phone.

The announcement comes after a summit in Minsk last week opened the way to the start of a peace process. Rebel leaders from eastern Ukraine are still in Minsk talking with the Kyiv officials and trying to find a formula that would bring the fighting to an end. Rebels and the so-called Contact Group are due to meet again on September 5. On September 1, the rebels made several promises necessary to make peace work, including a pledge to maintain the unity and integrity of the Ukrainian nation.

For his part, the Ukrainian president needs to bring the fighting to an end as soon as possible. The country is teetering on the brink of bankruptcy and the national currency has lost over 40% of its value since the start of this year. The International Monetary Fund (IMF) has agreed to concertina the next two tranches of its $17bn stand-by loan agreement into one payment and that money is due in Kyiv today. However, with a Russian gas bill outstanding of more than $5bn, even the IMF aid will not be enough to bail out the Ukrainian economy. Poroshenko desperately needs to launch deep structural reforms to get the Ukrainian economy working again.

The announcement will upstage President Barack Obama, who arrived in Estonia September 2 for talks with Baltic leaders about the crisis in Ukraine. The leaders of Estonia, Latvia and Lithuania are reportedly concerned about possible Russian aggression following the recent intervention in Ukraine.

The peace announcement also comes on the eve of the Nato summit in Wales. The military alliance is expected to create a rapid reaction force as a response to Russian intervention in Ukraine. Relations between Western Europe and Russia have deteriorated so rapidly that there is pressure from some Nato members to arm the Ukrainian army, which could  lead to a much more serious confrontation.