Ukraine Set for Truce as EU Considers Russian Sanctions

Sept. 5 (Bloomberg) -- Bloomberg’s Ryan Chilcote reports on how NATO members meeting in Wales are reacting to new developments in Ukraine as fighting erupts in Mariupol and how President Barack Obama’s calls for a united front against Russia have been received by member nations. He speaks on “Bloomberg Surveillance.”

Ukraine moved toward a cease-fire with pro-Russian separatists to stem months of bloodshed as European officials met to consider more penalties on Russia for its role in the conflict.

The two sides signed a protocol to stop fighting at 6 p.m. today, Interfax reported, citing unidentified people with knowledge of the negotiations being held in Minsk, Belarus. Ukrainian President Petro Poroshenko voiced “careful optimism” yesterday that the Minsk talks will lead to a truce.

Poroshenko told TV5 that his nation “is tired of war.” NATO officials said yesterday that it’s too early to tell whether President Vladimir Putin is genuine about his proposals for peace as the European Union prepares new sanctions.

“Developments in the last 24 hours make it likely that there will be a cease-fire,” Eurasia Group analyst Alex Brideau said yesterday in an e-mailed note. “But a long-term agreement requires concessions from the two sides that, for political reasons, it is unlikely either will offer.”

A lasting truce would be the biggest breakthrough yet in the conflict, which has killed more than 2,500 people and soured Russia’s relations with its former Cold War foes to the worst in more than two decades. Ukraine, the U.S. and Europe say Putin is backing the insurgency in Donetsk and Luhansk with financing, weapons and manpower. Russia denies any involvement.

Photographer: Leaon Neal/AFP via Getty Images

Ukrainian President Petro Poroshenko (C) arrives to address the media on the second day of the 2014 NATO Summit at the Celtic Manor Resort in Newport, South Wales, on Sept. 5, 2014. Close

Ukrainian President Petro Poroshenko (C) arrives to address the media on the second day... Read More

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Photographer: Leaon Neal/AFP via Getty Images

Ukrainian President Petro Poroshenko (C) arrives to address the media on the second day of the 2014 NATO Summit at the Celtic Manor Resort in Newport, South Wales, on Sept. 5, 2014.

Markets Rally

Russia’s ruble, which has weakened 11 percent against the dollar this year, and the Micex Index of 50 shares extended gains after the Interfax report.

In Brussels today, representatives of the 28 EU governments will consider tightening the economic sanctions that were imposed on Russia in July. Proposals include barring some Russian state-owned defense and energy companies from raising capital in the EU, a U.K. official said.

“Based on experience, what would be sensible would be to go ahead with the plan for increased sanctions,” U.K. Foreign Secretary Philip Hammond told BBC TV today, saying there’s skepticism over the proposed truce and its implementation. “We can always take the sanctions off afterwards.”

Today’s talks bring together representatives of Ukraine, the separatists, Russia and the Organization for Security and Cooperation in Europe, which would police any cessation of hostilities. A summer truce crumbled July 1 as the government cited more than 100 violations by the rebels.

Putin Plan

Ukraine expects a deal for a bilateral cease-fire, two people familiar with the matter said earlier today, asking not to be identified while the talks continue. The agreement will include a prisoner swap and the withdrawal of forces from eastern Ukraine, they said.

Photographer: Philippe Desmazes/AFP via Getty Images

Ukrainian army soldiers on the outskirts of the key southeastern port city of Mariupol, on Sept. 5, 2014. Close

Ukrainian army soldiers on the outskirts of the key southeastern port city of Mariupol, on Sept. 5, 2014.

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Photographer: Philippe Desmazes/AFP via Getty Images

Ukrainian army soldiers on the outskirts of the key southeastern port city of Mariupol, on Sept. 5, 2014.

Putin unveiled a seven-point plan on Sept. 3 that calls for an end to the rebel offensive in Ukraine’s easternmost regions and the pullback of government troops from residential areas. The self-declared people’s republics of Donetsk and Luhansk said they’ll agree to a cease-fire if the government in Kiev accepts their plan for a political settlement.

As well as agreeing on a truce, the parties must resolve differences over the legal status of Donetsk and Luhansk and Ukraine’s NATO plans after Prime Minister Arseniy Yatsenyuk said last week that his nation should join the alliance.

Poroshenko met yesterday with leaders of the North Atlantic Treaty Organization, whose Secretary General Anders Fogh Rasmussen said it’s too early to tell whether peace overtures by Putin are genuine.

‘A Smokescreen’

“We have seen similar statements and initiatives, and they have actually just been a smokescreen for continued Russian destabilization of the situation in Ukraine,” Rasmussen told reporters at the summit in Newport, Wales. “Based on experience, we have to be cautious.”

NATO’s supreme military commander, U.S. Air Force General Philip Breedlove, has labeled Putin’s offer a ploy to lock down rebel control of chunks of Ukrainian territory in the east and south, close to the border with Russia.

“I don’t see a lot of credibility in what Mr. Putin has put on the table,” Breedlove said before the NATO summit. “Any cease-fire without closure of the border benefits Russian actions inside Ukraine.”

NATO’s summit and European Union moves toward imposing more sanctions on Russia formed the backdrop for the diplomacy to stop the conflict. The U.S. has been working on a new round of sanctions “for some time” and is consulting with Europe, White House national security adviser Ben Rhodes told reporters yesterday on a conference call.

Russian Troops

Fighting continued in Ukraine’s southeast, with rebels saying they’d entered Mariupol and the government saying the battles were taking place near Shyrokyne, east of the city.

Taking control of the strip of land on which Mariupol is located would connect the rebels to Crimea, which Russia annexed in March. Ukraine’s army killed 100 rebels overnight, the Defense Ministry said on Facebook.

More than 3,000 Russian troops with tanks are inside Ukraine and the number is growing, Sky News cited NATO officials as saying yesterday.

Ukraine’s military is waging “a desperate fight” with Russian forces and its supplies need to be replenished, Polish President Bronislaw Komorowski said.

To contact the reporters on this story: Aliaksandr Kudrytski in Minsk, Belarus at akudrytski@bloomberg.net; Kateryna Choursina in Kiev at kchoursina@bloomberg.net; Volodymyr Verbyany in Kiev at vverbyany1@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net; James M. Gomez at jagomez@bloomberg.net Andrew Langley, Paul Abelsky

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