Merkel Joins Obama in Pressuring Russia Over Crimea

Photographer: Krisztian Bocsi/Bloomberg

German Chancellor Angela Merkel said, “If Russia continues on the course of the last weeks it won’t just be a catastrophe for Ukraine. It would also cause massive economic and political harm to Russia.” Close

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Photographer: Krisztian Bocsi/Bloomberg

German Chancellor Angela Merkel said, “If Russia continues on the course of the last weeks it won’t just be a catastrophe for Ukraine. It would also cause massive economic and political harm to Russia.”

The U.S. and Germany stepped up pressure on Russia to back down from plans to annex Crimea from Ukraine after the region holds a referendum in three days, warning they’ll exact an economic toll if Russia goes ahead.

“If there is no sign of any capacity to be able to move forward and resolve this issue, there will be a very serious series of steps on Monday in Europe and here with respect to the options that are available to us,” U.S. Secretary of State John Kerry told a Senate panel in Washington today. Kerry, who said “nobody doubts” Crimea will vote to leave Ukraine, spoke to Russian Foreign Minister Sergei Lavrov by phone today and will meet him face-to-face in London tomorrow.

German Chancellor Angela Merkel said the Kremlin is risking “massive” political and economic damage. “If Russia continues on the course of the last weeks it won’t just be a catastrophe for Ukraine,” Merkel told lawmakers in Berlin. “It would also cause massive economic and political harm to Russia.”

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With Ukraine accusing Russian forces of seizing Crimea in the run-up to the referendum, Western powers are trying to muster economic and diplomatic sanctions to force Putin to defuse the situation. Russia has held firm in the worst dispute between the two sides since the end of the Cold War.

Photographer: Paul J. Richards/AFP via Getty Images

U.S Secretary of State John Kerry speaks before the U.S. Senate Appropriations Committee, State, Foreign Operations and Related Programs Subcommittee on the FY2015 Budget Request for the Department of State in the Hart Senate Office Building on Capitol Hill on March 13, 2014. Close

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Photographer: Paul J. Richards/AFP via Getty Images

U.S Secretary of State John Kerry speaks before the U.S. Senate Appropriations Committee, State, Foreign Operations and Related Programs Subcommittee on the FY2015 Budget Request for the Department of State in the Hart Senate Office Building on Capitol Hill on March 13, 2014.

Contingency Plans

In his remarks to a Senate Appropriations subcommittee, Kerry questioned whether Russian President Vladimir Putin is serious about a solution and said the U.S. is considering “contingencies” if Russia moves into eastern Ukraine.

“We’re watching every day the movement of troops,” Kerry said.

Shots were fired by a Russian armored vehicle today near a Ukrainian border-patrol plane close to Crimea’s northern border, the Border Service said in a statement on its website, adding that it wasn’t clear if the aircraft was targeted. Another such plane took evasive action five days ago to avoid machine-gun fire, the service said.

Tomorrow’s Kerry-Lavrov meeting “will be a crucial moment, given the effective deadline of Sunday’s referendum, whether they want to de-escalate the situation,” U.K. Foreign Secretary William Hague told reporters in London.

‘Last Chance’

German Foreign Minister Frank-Walter Steinmeier said the talks are “apparently the last chance” to defuse the crisis before the referendum. “Considering what’s happening on the ground, you wouldn’t have a great amount of hope at the moment that something will move before Sunday,” Steinmeier told reporters in Budapest.

Russia’s actions are “absolutely, entirely unacceptable in the 21st century,” Ukraine’s acting prime minister, Arseniy Yatsenyuk, told the United Nations Security Council in New York today. He said the conflict is not just a regional one and goes beyond Ukraine’s borders.

Yatsenyuk said after meeting President Barack Obama yesterday that Putin’s refusal to pull back troops who he says seized the Crimean peninsula after an uprising in Kiev toppled the Moscow-backed president, Viktor Yanukovych, would be a signal that the Russian leader wants to “revise the outcome of the Second World War” and destabilize the existing order in Europe.

Stocks Decline

Russian stocks fell today to the lowest level in almost four years and government bonds declined. The Micex Index (INDEXCF) sank 2 percent to 1,248.56, the lowest close since May 2010. The yield on 10-year government bonds rose seven basis points to 9.41 percent. The ruble weakened 0.1 percent to 42.9445 against Bank Rossii’s target basket of dollars and euros. Gold futures gained to a six-month high.

The International Monetary Fund said a team that’s in Kiev assessing the needs of Ukraine’s economy will probably complete its work as early as tomorrow. The U.S. and its allies are seeking to bolster the country, which needs as much as $15 billion in loans to repay billions in foreign debt after investors withdrew funds and central-bank reserves plummeted.

“The next steps would be for that fact-finding team to make their presentation, their assessment to brief IMF management,” spokesman Gerry Rice told reporters in Washington today. He said the discussions in Kiev made “good progress.”

The EU has outlined an 11 billion-euro ($15 billion) package of loans and grants tied to Ukraine agreeing on measures with the IMF. A U.S. offer of $1 billion in loan guarantees has been tied up in Congress in a dispute over increasing the U.S. quota for the IMF.

Ethnic Russians

Putin’s government contends ethnic Russians in Crimea are at risk after the ouster of Yanukovych, an assertion Ukraine’s new leaders deny. The Kremlin supports Crimea’s recently appointed administration, which organized the March 16 referendum.

“I want to assure you that Russia wasn’t the initiator of the circumstances we have faced,” Putin said at a meeting with heads of national Paralympic committees in the Black Sea city of Sochi.

Putin’s approval rating climbed to a three-year high of 72 percent, the state-run All-Russia Center for the Study of Public Opinion said on its website. That compares with 67 percent last month when Russia hosted the Winter Olympics in Sochi. Another poll by the Levada Center found that 58 percent of Russians back some degree of military intervention in Ukraine.

OECD Accession

The Organization for Economic Cooperation and Development, a club of wealthy nations Russia is trying to join, “postponed” the country’s accession process, according to a statement on its website today. OECD members also agreed they “should respond positively to Ukraine’s request to further strengthen existing OECD-Ukraine cooperation.”

About 2,000 pro-Russian demonstrators clashed with a similar number of supporters of Ukraine in the eastern city of Donetsk today, the Interfax news service reported. At least 10 people were injured, Channel 5 television said.

Russia stepped up military maneuvers on the border with Ukraine, the Russian Defense Ministry said today, according to Interfax. Six Russian fighter jets and three transport planes arrived in Ukraine’s northern neighbor, Belarus, for joint drills, the Defense Ministry there said.

Military Deployment

Russia has deployed 80,000 troops, 270 tanks and 140 military aircraft along the Ukraine-Russian border, the head of Ukraine’s Security and Defense Council, Andriy Parubiy, said according to a March 12 statement on the council’s website. There are also 380 Russian artillery systems and 18 rocket-launcher systems in the border area, according to the statement.

Russian forces “aren’t conducting any military operations on Ukraine’s borders that would threaten Ukraine’s security,” Russia’s Deputy Defense Minister Anatoly Antonov said in a statement on the ministry’s website yesterday.

“At the same time, we’d like to note that an effort to conduct sizable military exercises by Ukraine’s military in eastern and southern Ukraine, close to regions where mass protest meetings against the coup d’etat are being held, is a rather risky undertaking, which could lead to an even bigger undermining of the political situation in Ukraine,” he said.

While the U.S. has moved some military forces into the region, the main pressure point on Russia is economic. The U.S. has already imposed a visa ban on some individuals, whom it hasn’t identified, and Obama has authorized the imposition of financial sanctions.

Second Stage

“If negotiations with Russia don’t take place in the next days -- and by that is meant negotiations that bring results and don’t play for time -- then the EU foreign ministers will at their council meeting next Monday, March 17, seal further second-stage measures,” said Merkel, who likened Russia’s efforts to annex Crimea to the imperialism of centuries past. “That includes bars on travel, freezing bank accounts and cancellation of the EU-Russia summit.”

There’s been a “significant hardening of the German government’s stance over the past week or so,” making it “the most significant international political development since the east-west standoff over Ukraine escalated dramatically last month,” Nicholas Spiro, the managing director of Spiro Sovereign Strategy in London, said in an e-mail. “Mr. Putin was doubtless counting on German resistance to sanctions against Russia. It now appears that Berlin is willing to get a lot tougher with Moscow.”

Russian government officials and businessmen are bracing for sanctions resembling those applied to Iran, according to people with knowledge of the preparations. Putin met senior officials yesterday in Sochi, his spokesman, Dmitry Peskov, said by phone. Putin urged the government to ensure Russia’s “ability to react immediately to internal and external risks.”

Iran-style sanctions, which would include freezing foreign reserves and banking assets and halting lending to companies, are an unlikely worst case, according to the people, who asked not to be identified as talks are confidential.

To contact the reporters on this story: Indira A.R. Lakshmanan in Washington at ilakshmanan@bloomberg.net; Jake Rudnitsky in Kiev at jrudnitsky@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net Eddie Buckle, Francis Harris

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