EU to Weigh Ukraine Sanctions, Russia Spurns Diplomacy

European Union leaders will consider repercussions for Russia at an emergency meeting today on the Ukraine crisis, after Russia’s foreign minister fended off a U.S. effort to ease tensions in the Crimean peninsula.

German Chancellor Angela Merkel and U.K. Prime Minister David Cameron will participate in today’s meeting in Brussels, a day after the 28-nation bloc offered 1.6 billion euros ($2.2 billion) in emergency aid to help the new Ukrainian government avert a default. The government is prepared to immediately sign the EU association agreement that ousted President Viktor Yanukovych rejected, precipitating the crisis, premier Arseniy Yatsenyuk said in an interview with newspaper Rzeczpospolita.

Western nations including the U.S. are threatening Russia with sanctions over its military intervention in Crimea while pursuing diplomacy in an effort to defuse the crisis. Russia has accused the West of supporting a coup against Yanukovych and rejected EU proposals to broker a settlement.

Sovereignty ‘Violated’

“We cannot and will not allow the integrity of the sovereignty of the country of Ukraine to be violated and for those violations to go unanswered,” U.S. Secretary of State John Kerry said yesterday after meetings in Paris with his counterparts from Russia, the U.K. and Ukraine.

Russia’s Foreign Minister Sergei Lavrov refused to attend a meeting yesterday with his Ukrainian counterpart in Paris that was urged by Kerry. Lavrov and Kerry met in the French capital in their first face-to-face encounter since Yanukovych fled his country during a popular uprising last month.

“We are all concerned at what is happening there,” Lavrov told reporters after a meeting last night at the French Foreign Ministry with Kerry and European counterparts. “The discussions will continue, and that’s it.”

Rebuffing Kerry’s efforts to persuade him to speak with acting Ukrainian Foreign Minister Andrii Deshchytsia, Lavrov said to reporters, “Who is it? I didn’t see anyone.”

While Kerry later said that he had “zero expectation” that Lavrov and Deshchytsia would meet yesterday, the Ukrainian envoy stayed in Paris longer than planned in hopes of such a meeting.

Pressure on Russia

Without elaborating, Kerry said his talks with Lavrov had yielded “something concrete to take back” and discuss with President Barack Obama. The top U.S. diplomat travels to Rome today, as does Lavrov, for meetings on Libya.

The U.S. State Department increased its rhetorical pressure on Russia, issuing a statement yesterday accusing Russian President Vladimir Putin of “spinning a false narrative to justify its illegal actions in Ukraine.” The European Union froze the assets of 18 Ukrainians linked to the former regime including Yanukovych, his two sons, and ex prime minister and interior minister, according to the EU’s official journal.

Putin said this week that while he sees no immediate need to use force in southeastern Ukraine, he’s reserving the right for military action to protect ethnic Russians in the region from extremists. Ukraine’s acting President Oleksandr Turchynov has said Russians aren’t at risk, while warning that a military invasion would be an act of war.

Pro-Kremlin Protesters

Russia has 16,000 troops in Crimea, according to Russian ambassador to the UN, Vitaly Churkin. The Crimean port of Sevastopol is the home base of Russia’s Black Sea fleet.

In Ukraine yesterday, pro-Kremlin protesters stormed a government building in the eastern city of Donetsk. 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.

A total of 35 unarmed military personnel from 18 countries were sent 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 North Atlantic Treaty Organization yesterday kicked Russia out of a naval mission to escort a U.S. warship that will defuse Syria’s chemical weapons and halted day-to-day civilian and military contacts to protest the Kremlin’s military moves in Ukraine.

NATO’s Role

“Some pressure on our Russian partners will pave the way for political and diplomatic solutions, that’s what I hope,” NATO Secretary General Anders Fogh Rasmussen told reporters. He said contacts at the political and ambassadorial level would continue.

U.S. Defense Secretary Chuck Hagel said that the U.S. will increase its role in NATO’s air policing mission on the Baltic peninsula and increase joint training with the Polish Air Force in Poland. The Pentagon will send six additional F-15 fighters and a KC-135 refueling tanker to patrol the Baltic airspace, the Defense Department said in a statement.

Ukrainian premier Yatsenyuk, who will attend the EU summit, is scheduled to meet with Fogh Rasmussen afterward.

In Crimea, United Nations envoy Robert Serry “cut short” a fact-finding mission after unidentified armed men ordered him to leave Crimea immediately, the UN said in an e-mailed statement. About 10 to 15 men, some of them lightly armed and wearing military fatigues, stopped Serry as he was leaving naval headquarters in Crimea, UN Deputy Secretary-General Jan Eliasson told reporters yesterday in a teleconference from Kiev.

Stocks Decline

The UN later said the Dutch diplomat took a late flight out of Simferopol, the capital of Crimea and will “shortly return to Kiev to continue his mission.”

The Ukrainian hryvnia weakened 0.5 percent to 9.4 per dollar at 11:14 a.m. in Kiev, extending yesterday’s 2.7 percent decline, data compiled by Bloomberg show.

The UX Index of Ukrainian equities fell 0.6 percent today taking this week’s slide to 3.2 percent. Ukraine’s dollar-denominated notes due in June dropped to 93.36 cents on the dollar from 93.70 yesterday, lifting the yield to 38.48 percent.

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.

IMF Loans

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 pledge of $1 billion in loan guarantees in Kiev a day earlier. 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.

Speaking in Paris yesterday, Kerry reiterated the U.S. call for Russia to negotiate directly with the Ukrainian government and to pull its troops back to their bases.

“Russia can now choose to deescalate this situation,” Kerry said. “The United States is ready to work with all parties to make that happen and to make it happen as soon as possible.”

Before it's here, it's on the Bloomberg Terminal.