EU Considers Restricting Russia Capital Access Over MH17

The European Union will consider restricting Russia’s access to capital markets and sensitive technologies unless President Vladimir Putin expedites the investigation of the downing of Malaysian Air flight MH17 over eastern Ukraine, three officials said.

As a train carrying victims’ remains from the jet shot down over rebel territory in Ukraine arrived in the government-held city Kharkiv, EU foreign ministers in Brussels were debating how to deliver on the bloc’s commitment to expand a 72-person blacklist that targets Russia.

The U.S. is pushing Europe to toughen its stance on Putin after the downing of the Malaysian jet last week by a missile that the Obama administration says was probably supplied by the Russian military. Any European move on capital markets would follow on from a U.S. measure last week that prevents some Russian companies from accessing U.S. equity or debt markets for new financing with a maturity beyond 90 days.

“This terrible incident happened in the first place because of Russia’s support for the separatists,” U.K. Foreign Secretary Philip Hammond said today in Brussels. “We have to send a clear signal from our meeting today that we recognize that and we are going to go further as a consequence.”

Arms Embargo

Hammond said an arms embargo may be considered against Russia, which Ukraine said had massed as many as 41,000 troops on its border.

Already penalized for his decision to annex Crimea in March, Putin is trying to refute accusations from Ukraine and its U.S. and EU allies that rebels shot down the aircraft and that it supplied the insurgents with the surface-to-air missile that they used.

The U.S. last week imposed targeted sanctions on selected Russian banks, military, and energy companies including OAO Rosneft, the country’s largest oil company.

EU governments would move toward stiffer sanctions if Putin refuses to abide by a United Nations resolution calling for an international probe into the disaster and unimpeded access to the crash site, according to proposals being weighed by the bloc’s foreign ministers at a meeting in Brussels today.

Decision Today

The officials, who asked not to be identified because the discussion is in progress, didn’t spell out the precise trigger or timetable for the stepped-up sanctions or what they would entail. The proposal requires approval by all 28 EU foreign ministers and may be modified before a decision is released later today.

EU leaders from the Atlantic to the Black Sea have lambasted the government in Moscow for not forcing rebels to allow unfettered access to the the site of the crash at Grabovo, less than 60 miles (97 kilometers) from Russia, and swift repatriation of the victims’ remains. Russia has blamed Ukraine for the downing of the plane and has said it played no role, an assertion EU and U.S. officials dismiss.

Auction Canceled

Russia canceled its first ruble bond auction in three months after borrowing costs surged to the highest level in more than two months yesterday. The price to protect Russian bonds against default, already the highest among the world’s four largest emerging markets, has surged since the July 17 tragedy in eastern Ukraine.

The Micex Stock Index shrugged off the latest criticism, rising 1.5 percent to 1,404.73 at 6:40 p.m. in Moscow, rebounding from the steepest drop in four months.

EU foreign ministers said today’s priority is to prod Russia to remove obstacles to the investigation into how the flight came down over rebel-held territory and the repatriation of the bodies of the 298 passengers and crew.

The EU needs a twin-track policy of pursuing diplomacy and “to accompany this readiness with higher pressure, which means taking tougher measures,” German Foreign Minister Frank-Walter Steinmeier told reporters before the ministers met in Brussels.

Foreign Minister Frans Timmermans of the Netherlands, which lost 193 citizens on the flight, opened the meeting by reporting on progress in recovering victims from the crash site.

Tougher Stance

Lithuanian Foreign Minister Linas Linkevicius, who has called for a tougher stance throughout the crisis, said the EU should focus on penalizing close allies of Putin because the bloc isn’t ready to pursue “stage three” curbs against whole industries.

“Now, after this tragedy, we all understand that we deal clearly with Russian-backed terrorists,” Ukrainian Foreign Minister Pavlo Klimkin told a European Parliament committee.

French President Francois Hollande said last night that he’s prepared to cancel the sale of the second of two helicopter carrier ships to Russia. The first ship has been paid for and set for delivery in October, he said.

In Ukraine, the victims’ bodies arrived in refrigerated train cars in Kharkiv. From there they will be flown to the Netherlands, with a first plane departing tomorrow, Dutch Prime Minister Mark Rutte said at a news conference in The Hague today.

Malaysian Team

While a Malaysian team took custody of the plane’s black boxes from the rebels and they appear in good condition, a third condition agreed with the separatists for full access to the crash site had yet to be met, Malaysian Prime Minister Najib Razak said in a statement.

At the crash site, inspectors from the Organization for Security and Cooperation in Europe said parts of the plane’s wreckage had been tampered with since they last saw it, BBC reported, citing spokesman Michael Bociurkiw.

“Large pieces of the plane have been cut into,” Bociurkiw told BBC World Update.

The separatists, who deny firing the missile said to have downed the plane, declared a unilateral cease-fire around the site. The move follows international criticism that rebels moved bodies and evidence.

“For over four days we witnessed appalling sights from the crash scene,” International Air Transport Association Director General Tony Tyler said in a statement. It’s “an outrage to human decency,” he said.

Russia’s accusers say they have images showing rebels in possession of the Buk missile system, also known as the SA-11 Gadfly, and they detected the missile launch that took down the flight in rebel territory.

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