March 5 (Bloomberg) -- Russia defied pleas from the West to loosen its grip on Ukraine’s southern Crimea region, as the European Union promised 1.6 billion euros ($2.2 billion) in emergency aid to help the Ukrainian government avert a default.
Russian Foreign Minister Sergei Lavrov said the western-backed government in Kiev no longer rules over Crimea and control has shifted to armed “self-defense” groups. U.S. Secretary of State John Kerry warned Russia against violating “very clear legal obligations” to uphold Ukraine’s unity.
The clashing rhetoric presaged reports of prevailing tension in Ukraine, as pro-Kremlin protesters stormed a government building in the eastern city Donetsk and a United Nations envoy was confronted by a group of unidentified men in Crimea. Lavrov and Kerry met in Paris today for the first time since pro-Russian forces seized control of Crimea.
“All of our partners share a determination to prevent an escalation of this crisis and to find a solution that preserves Ukraine’s territorial integrity,” Italian Foreign Minister Federica Mogherini told reporters after talks at the Elysee Palace with Kerry and Lavrov, plus her French, German, British and Polish counterparts. They were due to reconvene later at the French Foreign Ministry.
A total of 35 unarmed military personnel from 18 countries were dispatched as observers to Ukraine by the Organization for Security and Cooperation in Europe, a 57-nation forum that includes Russia and the U.S. Russia isn’t taking part in the mission.
The Ukrainian border service, citing six instances of Russian troops attacking border guards, said it had set up checkpoints along roads into the Crimean peninsula and reinforced checks along the border with Russia.
UN envoy Robert Serry was “threatened” by about 10 to 15 unidentified men, some of whom were lightly armed and wearing military fatigues, UN Deputy-Secretary-General Jan Eliasson told reporters today in a teleconference from Kiev. The men stopped the Dutch diplomat as he was leaving naval headquarters in Crimea and told him to head to the airport and leave Crimea, Eliasson said.
With tensions on the ground ratcheted up, the Ukrainian hryvnia depreciated 2.7 percent to 9.35 per dollar from yesterday’s one-week high, data compiled by Bloomberg show.
The WIGUKR index of Ukrainian equities listed in Warsaw slumped 3.4 percent, while Ukraine’s dollar-denominated notes due in June weakened 1.5 percent to 93.79 cents on the dollar, lifting the yield to 36 percent.
In Paris, foreign ministers gathering for an international conference on support for Lebanon were focused on Ukraine in the aftermath of the toppling of its Kremlin-backed president and Russia’s move to secure its Black Sea fleet, based in the Crimean port of Sevastopol.
Lavrov, who traveled to Paris from Madrid, earned a rebuke from the U.S., the U.K. and Ukraine governments after he failed to attend a meeting this morning that included his Ukrainian counterpart.
“What we’re really trying to do here today is to bring the Russians into the diplomatic process,” U.K. Foreign Secretary William Hague told reporters. “Unless you’re prepared to sit down with the Ukrainians, how do you find the de-escalation. You need to be talking to each other.”
Western officials are working to flesh out a combination of sanctions against Russia and financial incentives to enable Ukraine’s barely formed government to consolidate power over the economically crippled country of 45 million.
In Brussels, the European Commission, the EU’s executive arm, said its proposed emergency funding would be available once Ukraine strikes a loan agreement with the International Monetary Fund. The commission called for additional grants and project loans that could take the European contribution to more than 11 billion euros over seven years.
The European offer follows Kerry’s unveiling of $1 billion in loan guarantees in Kiev yesterday. An IMF team is in Kiev to assess the country’s needs. On March 1, Finance Minister Oleksandr Shlapak said it will take $15 billion in the next 2 1/2 years to stay afloat.
Russian President Vladimir Putin, speaking at a government meeting at his residence near Moscow, said that he wanted to separate economic matters from politics in Ukraine. Russia should cooperate with all its partners and avoid an escalation, he said.
“No one should be placed in a difficult situation,” Putin said.
EU leaders including German Chancellor Angela Merkel and U.K. Prime Minister David Cameron will meet in Brussels tomorrow for an emergency summit on Ukraine that will discuss repercussions for Russia. Ukraine’s prime minister, Arseniy Yatsenyuk, is also due to attend the summit and meet NATO Secretary General Anders Fogh Rasmussen afterwards.
The summit comes three days after the bloc called on Russia to take “de-escalating steps” or face potential sanctions, without setting a firm deadline. EU steps could start with the suspension of talks to deepen trade ties and ease European travel for Russian citizens, the bloc said March 3. Germany, which relies on Russia for about 35 percent of its oil and gas imports, has resisted tougher measures to give time for a negotiated settlement.
Yatsenyuk leads Ukraine’s “only legitimate government” and Poland is ready to back an EU accord with the country “with all its strength tomorrow,” Prime Minister Donald Tusk told lawmakers in Warsaw. The EU must conduct “tough, patient” talks with Russia to preserve peace and Ukraine’s sovereignty, Tusk said, predicting that “there will be no quick, easy end” to the standoff.
Earlier, Lavrov told reporters in Madrid that it is up to Crimea’s pro-Russian leaders to determine whether to admit international monitors to the region. He said any resolution must be based on last month’s accord negotiated by the foreign ministers of Poland, France and Germany and signed by ousted Ukrainian President Viktor Yanukovych and his oppposition.
“We hope that those who pushed the situation to where it is now will look to find a way out,” Lavrov told reporters. “And it’s possible on the basis of the Feb. 21 accord. Everyone must stand by the agreement signed. We should work honestly and not try to outsmart anyone by playing games in one’s own favor.”
Western governments have kept dialogue open with both Russia and Ukraine, said Mogherini, who is due to meet again with Kerry and Lavrov in Rome tomorrow under the auspices of an international Libya conference, as well as with the foreign ministers of France, Spain and Germany.
“We’ve worked away in Paris and we’ll keep working in Rome if we have to,” she said.
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