Ukraine Pushes Offensive as Russia Says Rebels Seek Talks

Photographer: Genya Savilov/AFP via Getty Images

Ukrainian President Petro Poroshenko, right, wearing a military fatigue shakes hands with a Ukrainian soldier as he rewards him with a medal during his visit to the army's headquarters near the north-eastern Ukrainian city of Izyum, on July 8, 2014. Close

Ukrainian President Petro Poroshenko, right, wearing a military fatigue shakes hands... Read More

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Photographer: Genya Savilov/AFP via Getty Images

Ukrainian President Petro Poroshenko, right, wearing a military fatigue shakes hands with a Ukrainian soldier as he rewards him with a medal during his visit to the army's headquarters near the north-eastern Ukrainian city of Izyum, on July 8, 2014.

Ukrainian President Petro Poroshenko dismissed Russia’s claim that rebels want peace talks as he pressed on with an offensive to regain territory near the frontier, where skirmishes have left hundreds dead.

Poroshenko told French President Francois Hollande and German Chancellor Angela Merkel in a joint phone call yesterday that Ukraine is ready for dialogue with pro-Russian separatists and international observers but “the other side” has shown no willingness, according to his website. Russian Foreign Minister Sergei Lavrov said earlier the militias in eastern Ukraine are ready for talks, but “ultimatums and pre-conditions” must not stand in the way of peace efforts.

Ukrainian forces are pressing their advance after rebels shifted thousands of fighters to the provincial capitals of Donetsk and Luhansk, Andriy Parubiy, head of the country’s national security and defense council, said yesterday, adding that President Vladimir’s Putin’s claims of non-involvement are “100 percent propaganda” aimed at Europeans. As the European Union considers expanding its list of sanctioned Russians, Putin is calling for negotiations amid the biggest showdown between Cold War foes since the fall of the Berlin Wall.

Reach Settlement

“We have to do everything to make sure both sides sit at the negotiating table and agree on a cease-fire,” Lavrov said after meeting with Federica Mogherini, his counterpart in Italy, which holds the rotating EU presidency. Italy agrees with Russia that negotiating a truce is key to reaching a final settlement of the months-long conflict, Mogherini said in Moscow.

Three Ukrainian soldiers were killed and 27 were wounded in yesterday’s fighting in eastern Ukraine, the Defense Ministry’s press department said on its Facebook page today. Rebels also attacked a Ukrainian checkpoint in the Luhansk region three times, the ministry said.

“We will definitely advance,” Parubiy told reporters in Washington via video link from Kiev. “Our ring around the terrorists becomes tighter and tighter every day.”

Ukrainian forces control 13 of 18 districts in the Donetsk region and 10 of 18 in Luhansk, with new “population points” being freed daily, Parubiy said.

Hollande and Merkel reiterated the need for a bilateral cease-fire in their phone conversation with Poroshenko, Hollande’s office said in a statement. The two EU leaders also called on Putin to use his influence with the rebels to prevent the influx of arms, German government spokesman Steffen Seibert said in an e-mailed statement.

Place and Time

Ukraine will agree to a cease-fire if the militias lay down their arms, something they’re unwilling to do, Deputy Foreign Minister Danylo Lubkivsky said yesterday. Ukraine offered talks with representatives of the rebels, Russia and members of the Organization for Security and Cooperation in Europe last weekend but they couldn’t agree on a place and time, Lubkivsky said.

When Ukraine announced a unilateral cease-fire last month, militants attacked government troops more than 100 times, killing tens of soldiers, according to Poroshenko.

As diplomacy continued, the U.S. Treasury Department said it was pushing ahead with preparations to impose more sanctions on Russia if Putin “does not take immediate steps toward de-escalation,” Assistant Secretary Daniel Glaser told the Senate Foreign Relations Committee in Washington.

The U.S. is coordinating its sanctions policy for Russia with the EU, the Group of Seven countries and other partners “to maximize the impact on the Russian economy,” Glaser said.

Facing ‘Isolation’

“To grow, Russia needs foreign direct investment and to integrate with the global economy,” Glaser said. “The isolation Russia now faces as a result of its actions in Ukraine will have a significant impact on Russia’s growth prospects over the medium term.”

Russia’s economy avoided recession in the second quarter, with zero growth, Deputy Economy Minister Andrey Klepach told the Interfax news service in Moscow in comments confirmed by the ministry yesterday. The Economy Ministry had predicted a 0.1 percent drop in the period, according to Klepach. A technical recession is defined as two straight quarters of contraction on a quarterly basis.

“A technical recession seems to have been avoided,” Klepach said. Still, the economy faces “a period of stagnation or pause in growth.”

Crimea Annexation

Russia’s $2 trillion economy is projected to grow in 2014 at the slowest pace since a 2009 contraction in the wake of sanctions levied after the annexation of Crimea from Ukraine in March. The International Monetary Fund said in April that Russia was already in a recession. The probability of a slump within the next 12 months decreased to 40 percent from 50 percent a month earlier, according to a Bloomberg survey of economists published June 26.

Ukraine’s economy may contract as much as 7 percent this year because of the armed conflict in the mainly Russian-speaking eastern part of the country, Interfax cited Economy Minister Pavlo Sheremeta as saying.

The IMF in May approved a $17 billion loan to Ukraine with an immediate disbursement of $3.2 billion to help the country pay its debt. Prime Minister Arseniy Yatsenyuk said he’s holding meetings with officials from the lender in Kiev to discuss the second installment.

Ukraine has met the IMF’s terms for the second part of the bailout, Yatsenyuk said at a government meeting in Kiev. He also said the country had qualified for a $1 billion loan from the World Bank, which is also based in Washington.

Rebuild Infrastructure

Yatsenyuk said the country needs about 8.1 billion hryvnia ($693 million) to rebuild infrastructure in Luhansk and Donetsk.

Ukraine’s army has won the biggest victories of its three-month campaign during the past few days, retaking the towns of Slovyansk and Kramatorsk.

Any decision by the EU on sanctions this week will build on the asset freezes and travel bans the bloc has already imposed on 61 people accused of backing the rebels.

Its first opportunity to consider wider penalties on Russian industry, investment or trade will be at a July 16 summit. Objections by countries such as Italy, Austria, Slovakia, France and Greece have frustrated moves toward broader sanctions, which require unanimity.

“Sanctions should be seen as a tool rather than a goal,” Italy’s Mogherini said, adding that possible EU measures are being studied.

To contact the reporters on this story: Henry Meyer in Moscow at hmeyer4@bloomberg.net; Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net; Kateryna Choursina in Kiev at kchoursina@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net; James M. Gomez at jagomez@bloomberg.net Andrea Dudik, James M. Gomez

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