EU May Expand Russia-Ukraine Sanctions List Amid Fighting

European Union governments plan to impose asset freezes and travel bans on an additional 11 people accused of fomenting unrest in Ukraine, where skirmishes have left hundreds dead.

Most of the new targets are Ukrainian separatists, one of two officials said. The sanctions will take effect if no EU government objects by midday tomorrow. The EU has already blacklisted 61 people connected with the destabilization of Ukraine and Russia’s annexation of Crimea. That list and a similar U.S. Treasury Department roster of individuals and entities have been dismissed by advocates of stronger action as symbolic gestures.

Ukrainian President Petro Poroshenko dismissed Russia’s declaration that rebels want peace talks as he pressed on with an offensive to regain territory near the frontier after three Ukrainian soldiers were killed and 27 wounded in yesterday’s clashes. Russian Foreign Minister Sergei Lavrov said earlier the militias in eastern Ukraine are ready for talks and “ultimatums and pre-conditions” must not stand in the way of peace efforts.

“Although the Ukrainian army now controls more of the Donbass territory, fighting the rebels in the densely populated cities of Donetsk and Luhansk is going to be tricky,” Tatiana Orlova, a London-based economist at Royal Bank of Scotland Group Plc, said by e-mail today. “This phase of the military operation can be very protracted in an absence of a peaceful resolution.”

Negotiating Table

Russia will “do everything” to ensure that both sides sit “at the negotiating table and agree on a cease-fire,” Lavrov said after meeting yesterday with Federica Mogherini, his Italian counterpart.

Andriy Parubiy, head of Ukraine’s national security and defense council, said yesterday that Russian President Vladimir Putin’s statements of non-involvement are “100 percent propaganda” aimed at Europeans.

Ukraine’s benchmark Eurobonds rose, sending the yield to a six-month low, as the government worked on a second bailout tranche from the International Monetary Fund.

The yield on the dollar note maturing in April 2023 fell four basis points to 8.36 percent, the lowest since Jan. 17. The IMF will extend its mission to Kiev until the weekend, the Finance Ministry said today, a day after Premier Arseniy Yatsenyuk said the country met the lender’s terms for the second part of a $17 billion rescue.

Cut Output

IMF officials may be assessing how much the conflict will cut economic output and increase debt this year, Orlova said.

Ukraine’s Poroshenko told French President Francois Hollande and German Chancellor Angela Merkel in a joint phone call yesterday that he’s ready for dialogue with pro-Russian separatists and international observers but “the other side” has shown no willingness, according to his website.

Hollande, Merkel and Russian President Vladimir Putin agreed in a phone call today they support a quick renewal of cease-fire and meetings of contact group with participants from protesting regions to end the conflict in eastern Ukraine, the Kremlin said in an e-mailed statement.

When Ukraine announced a unilateral cease-fire last month, militants attacked government troops more than 100 times, killing tens of soldiers, according to Poroshenko.

As diplomacy continued, the U.S. Treasury Department said it was pushing ahead with preparations to impose more sanctions on Russia if Putin “does not take immediate steps toward de-escalation,” Assistant Secretary Daniel Glaser told the Senate Foreign Relations Committee in Washington.

The EU’s first opportunity to consider wider penalties on Russian industry, investment or trade will be at a July 16 summit. Objections by countries such as Italy, Austria, Slovakia, France and Greece have frustrated moves toward broader sanctions, which require unanimity.

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