July 1 (Bloomberg) -- Ukraine’s military resumed its campaign against pro-Russian rebels in the violence-torn east after President Petro Poroshenko ended a cease-fire and vowed to retake territory from the separatists.
With the European Union and the U.S. considering expanding sanctions against Russia, Poroshenko ended a truce he called on June 20, rejecting pressure from Ukraine’s bigger neighbor to extend it a second time. He said separatists violated the cease-fire more than 100 times, while the Foreign Ministry said rebels killed 27 Ukrainian soldiers and wounded 69 in its duration, according to a statement.
“This morning, the anti-terror operation has been renewed in Ukraine,” parliamentary Speaker Oleksandr Turchynov said at the assembly in Kiev. “Our military forces are engaging in active attacks against the terrorists’ bases and strongholds.”
The end of the cease-fire complicates a peace plan Poroshenko created to defuse the crisis after taking office last month. With hundreds dead in fighting, the expiration renews the government’s open conflict with fighters that Ukraine and its U.S. and European allies say are being supported by Russian President Vladimir Putin’s government.
Government forces regained control over the Dolzhansky border checkpoint on the frontier with Russia, Poroshenko said in a statement today, calling the operation Ukraine’s “first victory” since its offensive resumed. The crossing was one of several used to move fighters and weapons from Russia, according to Ukrainian officials.
Troops also took over the village of Zakotnoe near Slovyansk in the Donetsk region, Yuriy Stets, a spokesman for the National Guard, said on Facebook. Two other villages were recaptured from the rebels in the region, according to the Interfax news service.
Hours after the truce ended, four people died and five were wounded when a public bus came under fire in Kramatorsk, a city in Donetsk region that has seen some of the most serious fighting, the regional administration said in a statement on its website. Six border guards were wounded when their armored personnel carrier hit a mine, the service said on its website, while one policemen was killed and two were seriously wounded when their station was attacked, the Interior Ministry said.
Government troops used artillery and aircraft to support the ground offensive, Andriy Lysenko, the spokesman for the National Security and Defense Council, said on Channel 5.
“This will be a key test for the Ukrainian armed forces, and the first real test of the Poroshenko presidency,” Timothy Ash, an emerging-market economist at Standard Bank Plc in London, said by e-mail. “Suffice to say that this crisis is now moving to a new and still very serious, high-risk phase.”
Poroshenko spoke with Putin, German Chancellor Angela Merkel and French President Francois Hollande by phone yesterday, the second such call in as many days seeking a solution to the deepest rift in Russia’s relations with the U.S. and the EU since the Cold War.
“A unique chance for a peace plan failed because of the criminal acts of militants,” Poroshenko said in a statement on his website today. “We will attack and we will free our land.”
The Ukrainian leader reiterated an offer to amnesty rebels who lay down their weapons and said his peace plan remains in force, including a call for disarmament and the free use of the Russian language.
The ruble weakened for a third day and Russian bonds fell on growing concern the country will face tougher sanctions. The currency tumbled 0.8 percent versus the central bank’s target dual-currency basket to 39.9743 by 6 p.m. in Moscow, when the central bank ends market operations. Russian local-currency debt maturing in February 2027 dropped for a third day. Ukraine’s hryvnia weakened 0.6 percent against the dollar and its Eurobonds slumped.
EU sanctions were left untouched today after representatives of the 28 governments deemed Russia had made some progress in meeting the de-escalation targets set on June 27, three officials said. The bloc will now look into expanding a list of 61 people subject to asset freezes and travel bans, the officials said in Brussels.
The 28-nation bloc threatened Russia with deeper sanctions last week if it didn’t rein in the rebels in the mainly Russian-speaking Donetsk and Luhansk regions by yesterday.
The EU’s first opportunity to consider wider sanctions on Russian industry, investment or trade will be at a July 16 summit of leaders. Objections by countries such as Italy, Austria, Slovakia, France and Greece have frustrated moves toward broader sanctions, which require unanimity.
The U.S. is also preparing sanctions against Russia on technology aimed at exploiting and producing oil and gas products, a major part of that country’s economy, according to three people with knowledge of the matter.
U.S. Treasury Secretary Jacob J. Lew said today additional sanctions on Russia could “easily” push the country’s economy into a recession.
“We have made clear we are very prepared to take the next steps, should we need to, on sanctions,” Lew said at a panel hosted by the U.S.-China Business Council in Washington. “I don’t think the goal here is to tighten sanctions; the goal here is for Russia to change its actions.”
Russia needs to stop supporting separatists and help reach a diplomatic resolution, he said.
Penalties levied against Russia have brought its $2 trillion economy to a “standstill,” the International Monetary Fund said in a report issued today.
“A significant escalation of tensions could lead to a much deeper recession and jeopardize external sustainability,” the lender said. The fallout and concern about possible further measures “has increased the uncertainty of doing business in Russia and is having a chilling effect on investment.”
Putin condemned the Ukrainian government’s assault and said Russian people were in danger in the country. He accused the EU of policies aimed at containing Russia and said his government would “energetically” defend the rights of “Russians abroad.”
“Unfortunately, President Poroshenko decided to renew military operations,” Putin said in a speech to diplomats in Moscow. “Now he has fully taken this responsibility, not only militarily but politically too, which is much more important.”
Russia also said it may revise a free-trade regime with Ukraine by raising import duties without breaking World Trade Organization regulations, according to Deputy Foreign Minister Vasily Nebenzya. He spoke in an interview with the Izvestia newspaper posted on the Foreign Ministry website today.
Poroshenko signed a free-trade pact with the 28-member EU last week. The agreement undermines Putin’s plan to create a free-trade bloc among former Soviet states to rival the EU, and the Russian leader has said Ukraine may face consequences for signing it.