March 7 (Bloomberg) -- The U.S. and European Union put Russian President Vladimir Putin on notice that they will be united on imposing sanctions if he’s unwilling to defuse the Ukraine crisis and pursue a negotiated solution.
As Crimean separatists backed by Russian forces pushed to split from Ukraine, the U.S. banned visas for Russian officials and others it said were complicit in violating the sovereignty of the ex-Soviet state of 45 million. U.S. President Barack Obama signed an order authorizing financial sanctions, while EU leaders halted trade and visa talks with Russia and threatened punitive economic measures in what’s become the worst rift between Russia and the West since the Cold War era.
Despite signs of divisions among EU leaders, Obama said yesterday he’s confident that “we are moving forward together” to press Russia toward the “path of de-escalation.”
The U.S. and its allies will keep increasing pressure “to impose a cost on Russia and those responsible for the situation in Crimea,” he said at the White House. Implementation will be flexible “based on Russia’s actions,” he said.
Obama told Putin in an hour-long phone call yesterday that Russia’s actions have violated Ukraine’s territorial integrity and brought on the penalties unveiled by the U.S. and EU, according to a White House statement. The standoff can be resolved diplomatically, through talks between Russia and Ukraine’s government, Obama told Putin, the White House said.
Neither Russia nor the EU want an unstable government in Ukraine “in view of the enormous amounts of gas that are pumped to Europe from Russia to Ukraine,” said Templeton Emerging Markets Group Chairman Mark Mobius in a blog post.
Putin and Obama hold differing views on the crisis, though U.S.-Russia relations shouldn’t be sacrificed, the Kremlin said in an e-mailed statement on the leaders’ conversation.
“This is a matter of political will, but there’s also a matter of diplomatic strategy,” said Juan Zarate, senior adviser at the Center for Strategic and International Studies, a Washington policy group, and author of “Treasury’s War: The Unleashing of a New Era of Financial Warfare.” The U.S. doesn’t want to be “too out in front in a way that not only presents a division in the West, but also that ultimately hurts European interests.”
Tensions in Ukraine have “increased risks” to Russia’s economy, already suffering from currency depreciation and capital flight, Fitch Ratings Ltd. said. The crisis threatens to derail $8 billion of international loans sought by at least 10 Russian companies, according to data compiled by Bloomberg.
At a summit in Brussels, eastern EU states urging a tough line on the Kremlin clashed with some western counterparts that wanted to offer Putin more time to pull back. The mood shifted after a speech by Ukrainian Prime Minister Arseniy Yatsenyuk, Polish Prime Minister Donald Tusk told reporters in Brussels.
French Foreign Minister Laurent Fabius said today on France Info Radio, says Putin risks “serious consequences” if he doesn’t back down.
The EU leaders agreed yesterday to make preparations for sanctions, as well as accelerate the timetable to draw Ukraine closer to the 28-nation bloc, EU President Herman Van Rompuy said. If Russia doesn’t back down, European nations “will decide on additional measures, such as travel bans, asset freezes and the cancellation of the EU-Russia summit,” he told reporters.
Obama, in the executive order, authorized Treasury Secretary Jacob J. Lew to take steps that could include freezing assets or blocking American companies or individuals from doing business with Russians, Ukrainians or others deemed a threat to Ukraine’s security.
The Treasury Department is redoubling efforts to prevent illegally acquired Ukrainian assets from leaving the country, concerned that such transfers might destabilize the global financial system, said a department official who spoke by phone under the condition of not being further identified.
The U.S. wants to prevent misappropriated state assets, or proceeds of bribery or corruption, from entering the financial system. The Treasury’s Financial Crimes Enforcement Network released a list of 18 people, including former Ukrainian President Viktor Yanukovych, subject to a Feb. 26 advisory for banks to monitor suspicious asset transfers. It hasn’t yet compiled a list of people and entities that might be targeted by the sanctions announced yesterday, the official said.
The U.S. has held back on implementing such sanctions to give Putin time to consider a western proposal, Secretary of State John Kerry said. His remarks reflect uncertainty about how Putin will respond to such threats.
“Even as we will keep faith with what we have said we would do, we want to be able to have the dialogue that leads to the de-escalation,” Kerry said yesterday in Rome, where he met with Russian Foreign Minister Sergei Lavrov at an international meeting on Libya.
Anders Aslund, a senior fellow at the Peterson Institute for International Economics in Washington, said the Europeans have greater economic leverage than the U.S. does -- and greater financial stakes given their own trade ties to Russia.
“Economic pressure essentially depends on Europeans taking strong actions, because Europe receives nearly half of Russia’s exports, while the United States only takes 3 percent of Russia’s exports,” he said in an e-mail.
The crisis already is having an economic impact.
Ukraine’s international bonds due in June gained 2.4 percent to 95 cents on the dollar at 9:26 a.m. in Kiev, reducing the yield by 11 percentage points to 30.774 percent. The Russian ruble weakened 0.5 percent to 42.6233 against the central bank’s dollar-euro basket in Moscow today as delegation from Crimea arrives in Moscow.
Russia’s Micex Index was little changed at 1,336.01 in Moscow. About $55 billion was erased from the value of the nation’s equities on March 3 after Russian lawmakers approved troop deployments to Ukraine.
“So far, we’ve seen a major impact on the Russian economy and on the Ukrainian economy,” and some financial impact on bordering countries, European Central Bank President Mario Draghi told reporters in Frankfurt yesterday. “It’s very, very difficult to foresee what is going to be the impact over a horizon of two, three years” if the crisis were to continue.
“For example, the impact on the energy market, what could this be on Europe?” Draghi said. “If we look at the next six months, the answer is going to be very mild. If we look at a year-and-a-half, it could be very serious.”
Europe depends on Russia for almost a third of its natural gas needs, including gas sent via pipelines through Ukraine.
With Ukraine’s problems magnified by the threat of default, the U.S. and Europeans also are taking steps to aid the new government.
The U.S. House of Representatives voted 385-23 for a bill to allow $1 billion in loan guarantees for Ukraine sought by the Obama administration. Further aid is being developed by Representative Ed Royce, a California Republican who leads the House Foreign Affairs Committee, and his Senate counterparts, Senate Foreign Relations Committee Chairman Robert Menendez, a New Jersey Democrat, and Bob Corker, a Tennessee Republican.
Arizona Republican John McCain, one of four senators working on measures to help Ukraine, said in an interview the package will include a loan-guarantee authorization, direct aid and language authorizing sanctions against Russia, including banking and travel restrictions.
The European Commission, the EU’s executive arm, outlined a wide-ranging Ukraine aid package on March 5 worth 11 billion euros (about $15 billion) in loans and grants over the next few years, tied to the Kiev government striking a deal with the International Monetary Fund.
Obama discussed Ukraine last night with Japanese Prime Minister Shinzo Abe and agreed to work with the IMF to help support the new government in Kiev, according to a White House statement. The leaders insisted that Russia respect Ukraine’s sovereignty and pursue a diplomatic solution to the crisis, according to the White House. The U.S. and allies including Japan this week halted preparations for the Group of Eight summit planned for June in Sochi, Russia.
As Western powers moved to deploy their economic weapons against Russia, Ukraine’s new prime minister said on a visit to the North Atlantic Treaty Organization’s headquarters that “no military option is on the table.”
NATO Secretary General Anders Fogh Rasmussen called the Crimea crisis “the gravest threat to European security since the end of the Cold War,” while offering political support to Ukraine, which is not a member of the Western military alliance. Asked if Ukraine wants to join NATO, a move that would further rile Russia, Yatsenyuk said, “It’s not on our radars.”
Controlled by pro-Kremlin local leaders, Crimea, part of Russia until 1954 and home to its Black Sea Fleet, has been rocked by threats from Moscow to “protect rights and freedoms” of the region’s Russian-speaking community since Moscow-backed Yanukovych was ousted from Ukraine’s presidency last month. Russian-speaking troops wearing unmarked uniforms have surrounded Ukrainian bases in Crimea, demanding that their forces surrender.
Kerry told reporters in Rome that he had discussed a path for lowering tensions, which Lavrov said he would convey to Putin. The top U.S. diplomat called for talks between Russia and the Ukrainian government with international participation, and sending monitors into Ukraine, including Crimea. Kerry said under that path, Russia could “maintain its basing rights in Crimea, provided that it abides by its agreements and respects Ukraine’s sovereignty and territorial integrity.”
In contrast, lawmakers in Crimea voted in a non-binding measure to become part of Russia if voters agree in a referendum March 16. They also asked Putin and the parliament in Moscow to begin crafting procedures to make the province part of the Russian Federation, the state-run Crimean Information Agency reported.
Western leaders, including Obama and British Prime Minister David Cameron, said yesterday that such a referendum would be unconstitutional and illegal.
Former Ukrainian Prime Minister Yulia Tymoshenko, who was jailed under Yanukovych, rejected a referendum as illegal and said Russian withdrawal is the “point of departure” for any negotiations.
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