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PostSubject: Ukraine tilting which way?   Thu Feb 05, 2015 11:33 pm

Russian capital exits as stand-off with West intensifies



Ukraine conflict and Western sanctions hit hard as Putin refuses to back down



A man smokes outside a currency exchange office while an electronic information panel shows the latest exchange rates, in Moscow. Photograph: EPA/Yuri Kochetkov


Fri, Feb 6, 2015, 01:35
First published: Fri, Feb 6, 2015, 01:35


With the latest surge in bloodshed in Ukraine and tightening of western sanctions, the country’s crisis seemed to lurch, not closer to a resolution but deeper into a cycle of escalation that could become impossible to reverse.



The West had hoped to inflict sufficient economic pain on Russia to make it back down, accept that its “gains” in Ukraine should be limited to the annexation of Crimea, and allow Kiev to retake control of Donbas, the country’s eastern industrial heartland.



Once President [url=http://www.irishtimes.com/search/search-7.1213540?tag_person=Vladimir putin&article=true]Vladimir Putin[/url] had publicly committed himself to defending Russian-speakers in Ukraine, however, and stirred up intense nationalist sentiment in his country of 140 million, it would have been political suicide for him to bow to foreign pressure and accept any compromise deal offered by Ukraine and its allies.


  • Merkel and Hollande in Moscs if it arms Ukraine, Moscow warns


Since the start of Ukraine’s revolution in November 2013, Putin told his countrymen that his neighbours were not actually revolting against corruption and Moscow’s influence, but were pawns in a geopolitical game orchestrated by Washington, whose intention was to weaken and isolate Russia.



The Kremlin portrays the war in Ukraine’s Donetsk and Luhansk regions as a continuation of that supposed bid to stop Russia regaining its Soviet- era influence, and economic sanctions as another western weapon deployed to the same end.



“When a Russian feels any foreign pressure, he will never give up his leader,” Russian deputy prime minister [url=http://www.irishtimes.com/search/search-7.1213540?tag_person=Igor shuvalov&article=true]Igor Shuvalov[/url] told the recent world economic forum in Davos. “Never. We will survive any hardship in the country – eat less food, use less electricity.”



Russians’ resistance to foreign aggression and readiness to endure self-sacrifice are central pillars of the country’s self- image, and Putin is leaning heavily on them now as a decade of economic stability and growth comes to a crashing halt.



With no end in sight to a slump in oil prices that halved the rouble’s value against the dollar last year, Russia has urged its people to tighten their belts, with inflation at 12.5 per cent, state and private companies warning of likely job cuts and the economy predicted to shrink by up to 5 per cent in 2015.



The government has unveiled a crisis plan to cut state spending by 10 per cent this year and 5 per cent in 2016, while freezing most major state-funded construction projects.



“There won’t be a fast recovery in oil prices like there was in 2008-2009 . . . this will be a long-term situation,” finance minister [url=http://www.irishtimes.com/search/search-7.1213540?tag_person=Anton siluanov&article=true]Anton Siluanov[/url] said this week.



He said Russians and their economy “will have to adapt to new conditions” and accept that oil at $100 a barrel, upon which the national budget had been based for several years, was a thing of the past.




“We will carry out a reasonable budget policy and see our goal as reaching a no-deficit budget by 2017, with oil prices predicted at $70 a barrel,” Siluanov said.





Special funding

Putin and his allies are not expecting Russians to survive on patriotism alone, however, and the finance minister made clear that two areas of government spending would be exempt from cuts: social welfare and defence.


Pensions are actually going to be increased by 11.4 per cent this month and Russia’s huge arms industry will receive extra funding to offset western sanctions.



The government also includes provision for special funding of more than €600 million to support the farming sector and €3.26 billion for banks, on top of an €18-billion bailout package for banks that was announced in December.



One condition of that bailout for Russia’s top 27 banks is that they increase their provision of credit to the real economy by 1 per cent each month, in a move the government hopes will soften the slowdown and avert complete stagnation.



Siluanov estimated that the crash in the oil income and western sanctions had affected Russia’s balance of payments to the tune of some $200 billion (€176 billion), and he advised caution in the use of the country’s substantial cash pile to bolster government spending and prop up the rouble.



Russia’s foreign reserves fell from more than €450 billion at the start of last year to €334 billion in January, largely due to failed efforts to halt the rouble’s slide, which ended in it being allowed to float freely in November.



As the East-West standoff over Ukraine intensified last year, so did capital flight from Russia, a perennial problem that drains cash and potential investment funds from the country; the central bank in Moscow says net outflows reached $151.5 billion (€133.6 billion) in 2014, more than double the 2013 figure.



If capital flight continues at such a rate, analysts say Russia could impose capital controls, although officials insist they do not envisage this and expect the outflow of cash to slow this year.



The government may also be called upon to help companies and regions service debt, which is becoming harder to manage as sanctions restrict access to global markets and a cut in credit ratings increases the cost of borrowing.



Standard and Poor’s has downgraded Russian debt to junk status for the first time in more than a decade, a move which could be repeated by the other main ratings agencies and have a knock-on effect for major Russian companies; it could also prompt selling of Russian bonds and a ban on further purchases by funds that are mandated to only buy investment-grade debt.



Will any of this have the effect desired by the US and EU, and convince Putin to stop supplying Ukraine’s separatists with reinforcements and weapons, and allow the country a chance of becoming a stable, pro-western state? Probably not.



Putin insists Russia is being punished, not for annexing Crimea and fomenting war in Donbas, but for defending itself from the encroachment of hostile western powers – the US, Nato and some EU states – via Ukraine.



Having convinced Russians that the stakes are so high, he is unable to disengage from the growing chaos in Ukraine without securing a commensurately large prize.



Kiev has already offered a great degree of autonomy to eastern regions where war has now killed more than 5,000 people and displaced more than one million, but that is not enough for Moscow.



Ukraine’s leaders believe Putin is determined to destroy the country’s nascent post-revolutionary order, to show Russians and people in other former Soviet states that any pro-western uprising is doomed to end in bloody failure.



Millions of Ukrainians will not accept a return to any form of pro-Kremlin rule, however, and would also reject, perhaps violently, major concessions from Kiev that might pacify Moscow, such as a binding pledge not to join Nato.



The leaders of Russia and Ukraine cannot back down and so the Kremlin is focusing on eroding support for Kiev in the EU, where Syriza-led Greece is likely to be the most voluble of several states that want to soften the stance against Moscow.



In response to tighter sanctions, Russia could also use its own economic weapons, such as restricting gas and oil flows to the EU – although this would slash much-needed income; Kremlin advisers have also talked about dumping the country’s US-dollar debt and reserves to roil the US financial system.



When asked about possible exclusion from the Swift global payment system, Russian prime minister [url=http://www.irishtimes.com/search/search-7.1213540?tag_person=Dmitry medvedev&article=true]Dmitry Medvedev[/url] made clear Moscow’s anger.



“If such decisions were taken,” he said, “I’d like to note that our economic reaction – and in general all other reactions – would be without limit.”

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PostSubject: Re: Ukraine tilting which way?   Thu Feb 05, 2015 11:34 pm

West Pleads With Bully

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Feb. 6, 2015, 2:08 a.m. | Kyiv Post+ — by Kyiv Post+, Oksana Grytsenko

From left, German Chancellor Angela Merkel, Ukrainian President Petro Poroshenko and French President Francois Hollande meet in Kyiv on Feb. 5. (Volodymyr Petrov)
© (Volodymyr Petrov)


Ukraine's future could be decided in the next days, but not on Ukrainian soil.


As heavy snow descended on Kyiv on Feb. 5, world leaders including U.S. Secretary of State John Kerry, German Chancellor Angela Merkel and French President Francois Hollande came to the Ukrainian capital for urgent talks with country’s leaders.

The nex day, Merkel and Hollande were to head to Moscow to make one more attempt to persuade Russian president Vladimir Putin to stop the carnage in eastern Ukraine, offering him their new peace plan.

Depending on the outcome of their talks with Putin, U.S. President Barack Obama could reassess his refusal to supply Ukraine with lethal defensive weapons, Kerry told journalists in Kyiv.

"We are not interested in a proxy war. Our objective is to change Russia's behavior," Kerry said.
He also disclosed at the press conference that Merkel and Hollande had received a set of proposals on Ukraine from Putin.

“But only this afternoon was it announced that they were going to make some kind of a counter-proposal, and we have not yet thoroughly reviewed that with them,” Kerry said. He said the U.S. still wants a diplomatic solution to end the war that has claimed more than 5,000 civilian lives already

“All of this is a part of the consolidated effort to see if we could put a little bit more meat on the bones of a legitimate initiative that could bring about de-escalation of this situation,” Kerry said. 

Merkel and Hollande remained tight-lipped, cancelling a previously announced statement for the press after their meeting with Ukrainian President Petro Poroshenko.
But before leaving for Kyiv, Hollande -- who has been very conciliatory to the Kremlin -- pleased Russia even more by talking about the undesirability of Ukraine's accession to NATO. “Together with Angela Merkel we have decided to take a new initiative,” Hollande said. “We will make a new proposal to solve the conflict which will be based on Ukraine’s territorial integrity.”

The German newspaper Süddeutsche Zeitung reported, based on its sources, that the Merkel-Hollande plan will be based on September’s Minsk agreement with self-governance in the eastern Donbas territory controlled by Russian-backed separatists. “The essence of the proposal is to arrange an immediate cease-fire and to allow the separatists in eastern Ukraine broad autonomy in an area that is larger than previously agreed,” the newspaper reported.
Ukraine's future could be decided in the next days, but not on Ukrainian soil.
As heavy snow descended on Kyiv on Feb. 5, world leaders including U.S. Secretary of State John Kerry, German Chancellor Angela Merkel and French President Francois Hollande came to the Ukrainian capital for urgent talks with country’s leaders.
The nex day, Merkel and Hollande were to head to Moscow to make one more attempt to persuade Russian president Vladimir Putin to stop the carnage in eastern Ukraine, offering him their new peace plan.
Depending on the outcome of their talks with Putin, U.S. President Barack Obama could reassess his refusal to supply Ukraine with lethal defensive weapons, Kerry told journalists in Kyiv.
"We are not interested in a proxy war. Our objective is to change Russia's behavior," Kerry said.
He also disclosed at the press conference that Merkel and Hollande had received a set of proposals on Ukraine from Putin.
“But only this afternoon was it announced that they were going to make some kind of a counter-proposal, and we have not yet thoroughly reviewed that with them,” Kerry said. He said the U.S. still wants a diplomatic solution to end the war that has claimed more than 5,000 civilian lives already
“All of this is a part of the consolidated effort to see if we could put a little bit more meat on the bones of a legitimate initiative that could bring about de-escalation of this situation,” Kerry said.  
Merkel and Hollande remained tight-lipped, cancelling a previously announced statement for the press after their meeting with Ukrainian President Petro Poroshenko.
But before leaving for Kyiv, Hollande -- who has been very conciliatory to the Kremlin -- pleased Russia even more by talking about the undesirability of Ukraine's accession to NATO. “Together with Angela Merkel we have decided to take a new initiative,” Hollande said. “We will make a new proposal to solve the conflict which will be based on Ukraine’s territorial integrity.”

The German newspaper Süddeutsche Zeitung reported, based on its sources, that the Merkel-Hollande plan will be based on September’s Minsk agreement with self-governance in the eastern Donbas territory controlled by Russian-backed separatists. “The essence of the proposal is to arrange an immediate cease-fire and to allow the separatists in eastern Ukraine broad autonomy in an area that is larger than previously agreed,” the newspaper reported.
Kerry also repeatedly mentioned the Minsk deal as a crucial part of a new peace plan. He said both sides will have to pull out heavy artillery and that Russia will have to remove its troops and restore Ukraine’s sovereignty. He also said both sides will have to release hostages and Ukraine will need to follow up with constitutional reform and pass a law granting autonomy to the separatists.
“President Poroshenko this morning in my conversation with him pointed out that he is committed to supporting the special status law, which is currently on the box, which provides greater economic, municipal and political rights to the Donbas,” Kerry said. He added that Ukraine would be ready to have new elections in Donbas.
Kerry also claimed that Ukraine’s Western allies would not agree to a deal with Putin “at the expense of the sovereignty of Ukraine or its independence.”
But many in Ukraine will not accept the plan to offer powers to people they consider to be terrorists. Poroshenko was criticized for his law that was offering special status to parts of Donetsk and Luhansk oblasts. In November, following the unrecognized elections in the separatist republics, Poroshenko canceled this law.

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