Obama Calls Russian Moves a Challenge to Global Order

Photographer: T.J. Kirkpatrick/Bloomberg

U.S. President Barack Obama. Close

U.S. President Barack Obama.

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Photographer: T.J. Kirkpatrick/Bloomberg

U.S. President Barack Obama.

President Barack Obama said the U.S. and its European allies stand united against Russian attempts to redraw Ukraine’s boundaries, while warning that indifference would ignore the lessons from two world wars.

The U.S. and Europe are being tested as Russia challenges the ideals of democracy, free markets and international law that have spread peace and prosperity, Obama said yesterday. After his remarks, stocks fell in the U.S. and Asia on investors’ concern that the U.S. will boost pressure on Russian President Vladimir Putin over the annexation of Crimea from Ukraine.

“Once again, we are confronted with the belief that bigger nations can bully smaller ones to get their way, that recycled maxim that might makes right,” Obama said in a speech at Palais des Beaux-Arts in Brussels. “We must never take for granted the progress that has been won here in Europe.”

Obama’s speech capped three days of rallying opposition to Russia’s takeover of the Black Sea peninsula. While in The Hague and in Brussels, he shuttled from the Nuclear Security Summit, an emergency meeting with Group of Seven leaders, a sit-down with the presidents of the European Commission and European Union as well as NATO’s secretary general.

He cast the most tense confrontation for the North Atlantic Treaty Organization since the collapse of the Soviet Union as a battle between 21st Century ideals and “the old way of doing things.” Obama visits Italy today for meetings with the Italian president and prime minister, and also with Pope Francis.

U.S. Stocks

As Obama spoke yesterday, U.S. stocks fell, erasing earlier gains, on investor concern that the conflict may escalate. The Standard & Poor’s 500 Index (SPX) dropped 0.7 percent to 1,852.56 yesterday in New York, after earlier climbing to within three points of its record closing level reached March 7.

In trading today, the MSCI Asia Pacific Index slipped 0.4 percent by 11:03 a.m. in Tokyo with Japan’s Topix index sliding 1.3 percent as most stocks traded without the right to their latest dividend. Australian shares tumbled.

Before the speech, Russian markets rebounded to levels seen ahead of Putin’s decision to annex Crimea. The Russian Micex Index (OPNMICX) rose 1.9 percent to 1,349.39, the highest since March 5 by the close, though it is down 10 percent this year.

“There’s definitely the chance that things will escalate on the fact that the U.S. has been speaking increasingly strongly about actions,” Angus Gluskie, managing director at White Funds Management Ltd. in Sydney where he oversees about $550 million, said by phone. “It’s likely that the market will get nervous.”

Financial Sanctions

The U.S. and European Union have imposed financial sanctions on Russian and Ukrainian officials as well associates of Putin, leaving open the threat of broader sanctions targeting the Russian economy, including its energy and financial sectors.

European governments, faced with youth unemployment rates above 50 percent in some southern-tier countries, are debating the costs of additional sanctions against Russian interests. Banking curbs would hurt Britain, an arms embargo would bar France from selling Mistral-class helicopter carriers to the Kremlin, and cutbacks in purchases of Russian gas would harm a swathe of EU countries, starting with Germany.

Russia provides about 30 percent of Europe’s natural gas, which flows through pipelines that cross Ukraine.

Investors have pulled $5.5 billion from Russian equities and bonds this year through March 20, already approaching the total outflow of $6.1 billion for all of 2013, according to data compiled by EPFR Global, a Cambridge, Massachusetts-based company that tracks fund flows.

‘Bully’ Neighbors

Obama yesterday dismissed Putin’s justifications for taking over the Black Sea peninsula and said Russia can’t be allowed to run roughshod over its neighbors. He said twice in his speech that larger nations can’t “bully” less powerful ones.

“This is not another Cold War” because Russia doesn’t lead a bloc of nations or a global ideology, he said. While the U.S. and NATO don’t seek conflict with Russia, they will defend “the sovereignty and territorial integrity of our allies.”

The situation in Ukraine has neither an easy answer nor a military solution, Obama said. Even so, he said, every member of NATO “must step up and carry its share of the burden” for the alliance’s collective defense and its role in maintaining international security.

“We must meet the challenge to our ideals -- to our very international order -- with strength and conviction,” Obama said in the speech.

‘Old Way’

Failure “would allow the old way of doing things to gain a foothold in this young century. And that message would be heard -- not just in Europe -- but in Asia and the Americas; in Africa and the Middle East,” he said.

Obama rejected Putin’s assertion that the invasion of Iraq and military intervention in the former Yugoslavia show NATO’s hypocrisy. He noted his own opposition to the Iraq war and said the U.S. sought to work within the international system.

“We did not claim or annex Iraq’s territory, nor did we grab its resources for our own gain,” he said. “Instead, we ended our war and left Iraq to its people and a fully sovereign Iraqi state could make decisions about its own future.”

To contact the reporters on this story: Julianna Goldman in Brussels at jgoldman6@bloomberg.net; Mike Dorning in Brussels at mdorning@bloomberg.net

To contact the editors responsible for this story: Steven Komarow at skomarow1@bloomberg.net Joe Sobczyk, Michael Shepard

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