Russian Finance Squeezed Further by EU Over Airliner

Russia’s financial sector faced further pressure as the European Union threatened to restrict the nation’s access to capital markets and sensitive energy and defense technologies unless President Vladimir Putin expedites the probe into the downing of Malaysian Air flight 17.

“This lethal cocktail of allowing weapons and armed personnel to go into eastern Ukraine and support separatists has ended in this appalling tragedy,” U.K. Prime Minister David Cameron told reporters during a visit to the Shetland Islands today. “We need to stop the Russian destabilization of Ukraine and that means further sanctions.”

The U.S. has been pushing Europe to toughen its stance on Putin after the downing of the Malaysian jet last week by a missile that the Obama administration says was probably supplied by the Russian military. Any European move on capital markets would follow on from a U.S. measure last week that prevents some Russian companies from accessing U.S. equity or debt markets for new financing with a maturity beyond 90 days.

“A brand-new and positive act on Russia’s part is needed to avoid an increase in sanctions,” said Italian Foreign Minister Federica Mogherini after meeting with her EU counterparts today in Brussels to decide on the course of further sanctions. “That is the state of play.”

Russian Bonds

Russia already has been feeling the squeeze of international restrictions.

The price to protect Russian bonds against default, already the highest among the world’s four largest emerging markets, has surged since the July 17 tragedy in eastern Ukraine. The Micex Index (INDEXCF) has declined, putting the losses since Putin began his push into Crimea in late February at 4.2 percent through yesterday and wiping out about $28 billion in market value, even as stock gauges from the U.S. to India jumped to all-time highs.

The Micex index gained 1.6 percent to 1,405.97 today at the clsoe in Moscow, the first daily increase after six days of losses. The ruble advanced 0.6 percent to 34.9640 per dollar by 6 p.m. in Moscow.

Russia canceled its first ruble bond auction in three months after borrowing costs surged to the highest level in more than two months yesterday on the U.S. and EU moves.

The Russian Finance Ministry said it pulled tomorrow’s sale, citing “unfavorable market conditions” in a statement on its website today. The yield on Russia’s ruble debt due February 2027 fell nine basis points to 9.14 percent as of 2:31 p.m. in Moscow after jumping 19 basis points yesterday.

EU governments paired their ultimatum with a decision to blacklist Russian businesspeople and companies for the first time, as Putin rejected allegations that Russian-backed rebels shot down the plane, killing all 298 aboard. The widened EU list will be announced on Thursday.

‘Without Delay’

“We’re also ready to ready to introduce without delay a package of further significant restrictive measures if we don’t see full and immediate cooperation,” EU foreign policy chief Catherine Ashton told reporters after foreign ministers met today in Brussels.

EU governments would move toward the stiffer sanctions if Putin refuses to abide by a United Nations resolution calling for an international probe into the disaster and unimpeded access to the crash site. The timetable was left open, depending on proposals to be made by the European Commission, the bloc’s executive arm.

Amid market turmoil provoked by the Ukraine conflict, the 19 richest Russians lost $17.4 billion since the start of the year, compared with an increase in wealth of $55 billion for the richest 64 Americans, according to the Bloomberg Billionaires Index.

To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net; Lorenzo Totaro in Rome at ltotaro@bloomberg.net

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net Leon Mangasarian, Kevin Costelloe

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