Thursday, March 27, 2014

Ukraine situation - March 27 , 2014 --IMF unlocks up to $18 bn for Ukraine’s shattered economy Germany not ready to sign up for next Crusader mission ? Merkel not ready to back economic sanctions against Russia ....... Russia’s actions in Crimea ‘completely understandable’ – German Ex-Chancellor Helmut Schmidt .....And will the EU nations put Ukraine's tabs on their bill ? ........ Postcards from the Edge ( Obama teleprompter tall tales , hopium , high hat talking points ) ....... Meanwhile , russia continues to consolidate its position in Crimea and await whatever reactions come forth.......

Late Day news.....

Ukraine's 'Freedom-Seeking' Nationalists Protest Government Building, Ministers Evacuated - Live Feed

Tyler Durden's picture

Well that didn't take long.. the "nationalists" who freed the country from Yanukovych's apparent corrupt government in favor of a well-chosen US leadership, are now turning on the replacements:
Of course, this is a day after the party's leader was allegedly killed by Police, and following lawmakers demands that citizens return any illegally held guns. It seems reveolution is addictive...

Of course, bear in mind that the lawmakers are still discussing whether to vote for and approve the IMF aid package and this suggests things are on hold for a while...

Hundreds of the Right Sector members flood the square in front of Verkhovna Rada in the Ukrainian capital on Thursday night. Wearing masks and brandishing bats, they were shouting "Avakov, get out!"


( Here comes the pain for Ukraine... )

And Now The Real Economic Pain Begins As IMF Unleashes $27BN Bailout In "Near Bankrupt" Ukraine

Tyler Durden's picture

Gazprom must really be demanding payment on overdue Ukraine invoices which is the only way we can explain the unprecedented speed with which the IMF has managed to cobble together a makeshift bailout package of up to $27 billion - the bulk of which will naturally go to Russia - which has just made Ukraine its latest vassal state.
As Bloomberg reports, Kiev reached a staff-level agreement with the Washington-based lender for a two-year loan of $14 billion to $18 billion. The IMF’s board must still sign off on the package, Ukraine’s third since 2008, and the government needs to complete “prior actions” to receive the first installment.  Approval is “expected in April, following the authorities’ adoption of a strong and comprehensive package of prior actions aiming to stabilize the economy and create conditions for sustained growth,” IMF mission chief Nikolay Gueorguiev said in the statement. Disbursement may start next month, he said at a news conference in Kiev.
There are of course, conditions: "Approval is “expected in April, following the authorities’ adoption of a strong and comprehensive package of prior actions aiming to stabilize the economy and create conditions for sustained growth,” IMF mission chief Nikolay Gueorguiev said in the statement. Disbursement may start next month, he said at a news conference in Kiev."
Just like Troika disbursement for Greek aid may come any minute now... as long as Greece allows to extend the definition of fresh milk so European milk exporters can put Greek milk producers out of business. Yup: we know how the IMF works. That, and of course the requirement to hike gas prices by 40% or so.
And then comes the hyperinflation: "Monetary policy will target domestic price stability while maintaining a flexible exchange rate. This will help eliminate external imbalances, improve competitiveness, support exports and growth, and facilitate the gradual rebuilding of international reserves. The NBU plans to introduce an inflation targeting framework over the next twelve months to firmly anchor inflation expectations."
Very high inflation targeting.
The IMF agreement will clear the way for 1.6 billion euros ($2.2 billion) in emergency aid from the European Union, European Commission President Jose Barroso said March 5. The EU offered an 11 billion-euro aid package. Ukraine is also waiting for $1 billion in loan guarantees and $150 million in direct assistance from the U.S. “This represents a powerful sign of support from the international community for the Ukrainian government, as we help them stabilize and grow their economy, and move their democracy forward,” the White House said in an e-mailed statement.
Because there is nothing quite like insolvent Europe bailing out insolvent Ukraine.
As part of the IMF agreement, the Ukrainian government agreed to cut
the budget deficit to 2.5 percent of gross domestic product by 2016 and
to raise retail energy tariffs toward their full cost, according to the
Washington-based lender
. The central bank will shift toward a flexible
exchange rate and the country will tackle bad debts in the banking
industry, it said.
As we said: welcome to IMF vassal state status. Enjoy your hyperinflation dear Ukrainians - at least you will have your "freedom"... just like Greeks have the Euro, if no economy to speak of.
Then again, with or without the IMF, Ukraine is likely a lost cause - earlier today, acting PM announced that the country is on the verge of bankruptcy, a statement which has no hyperbole in it whatsoever.
To wit: Ukrainian economy to shrink 3% this year, inflation to be 12%-14%, Prime Minister Arseniy Yatsenyuk tells parliament in Kiev. He added the GDP forecast based on passage of “unpopular reforms. If those laws aren’t adopted, we see default and 10% economic  decline. This package of laws is very unpopular, very difficult, very tough reforms, which we should have done in the last 20 years."
Flashback to Hank Paulson waving a blank 3 page term sheet before Congress demanding unlimited power or else the global economy gets it.
Other disclosures:
  • Russian trade restrictions to reduce GDP by 1ppt; Russia will also raise energy prices
  • “This is the payment for Ukraine’s independence”
  • Ukrainian state debt is 53%/GDP
  • Ukraine to pay $480/kcm for Russia gas starting on April 1
  • Ukraine didn’t use reserves to back hryvnia in March
  • Govt seeks to introduce more progressive income tax system
  • Govt to keep minimum wage unchanged this year
  • Govt to index pensions, public wages to inflation
  • Ukraine needs “urgent” constitutional reform
An International Monetary Fund (IMF) mission worked in Kyiv during March 4-25, to assess the current economic situation and discuss the authorities’ economic reform program that could be supported by the IMF. At the conclusion of the visit, Nikolay Gueorguiev, Mission Chief for Ukraine, issued the following statement today in Kyiv:

“The mission has reached a staff-level agreement with the authorities of Ukraine on an economic reform program that can be supported by a two-year Stand-By Arrangement (SBA) with the IMF. The financial support from the broader international community that the program will unlock amounts to US$27 billion over the next two years. Of this, assistance from the IMF will range between US$14-18 billion, with the precise amount to be determined once all bilateral and multilateral support is accounted for.

“The agreement reached with the authorities is subject to approval by IMF Management and the Executive Board. Consideration by the Executive Board is expected in April, following the authorities’ adoption of a strong and comprehensive package of prior actions aiming to stabilize the economy and create conditions for sustained growth.

“Ukraine’s macroeconomic imbalances became unsustainable over the past year. The (until recently) pegged and overvalued exchange rate drove the current account deficit to over 9 percent of GDP, and a lack of competitiveness led to the stagnation of exports and GDP. With significant external payments and limited access to international debt markets, international reserves fell to a critically low level of two months of import in early 2014. The 2013 fiscal deficit was 4½ percent of GDP, and the government accumulated sizeable expenditure arrears. The 2013 deficit of the state-owned gas company Naftogaz reached nearly 2 percent of GDP, driven by the sharp increase in sales at below-cost prices. Without policy action, the combined budget/Naftogaz deficit would widen to over 10 percent of GDP in 2014.

“Following the intense economic and political turbulence of recent months, Ukraine has achieved some stability, but faces difficult challenges. To safeguard reserves and address currency overvaluation, the National Bank of Ukraine (NBU) floated the exchange rate in February. Measures implemented in February and March helped stabilize financial markets and ensured that critical budget payments have been met. Nonetheless, the economic outlook remains difficult, with the economy falling back into recession. With no market access at present, large foreign debt repayments loom in 2014-15.

“The goal of the authorities’ economic reform program is to restore macroeconomic stability and put the country on the path of sound governance and sustainable economic growth while protecting the vulnerable in the society. The program will focus on reforms in the following key areas: monetary and exchange rate policies; the financial sector; fiscal policies; the energy sector; and governance, transparency, and the business climate.

“Monetary policy will target domestic price stability while maintaining a flexible exchange rate. This will help eliminate external imbalances, improve competitiveness, support exports and growth, and facilitate the gradual rebuilding of international reserves. The NBU plans to introduce an inflation targeting framework over the next twelve months to firmly anchor inflation expectations.

“Financial sector reforms will focus on: (i) ensuring that banks are sound, liquid, and well-capitalized; (ii) upgrading the regulatory and supervisory framework of the NBU, including complying with international best practice and supervision on a consolidated basis, and (iii) facilitating resolution of non-performing loans in the banking sector.

”Fiscal policy will secure priority spending during the coming months and implement deeper fiscal adjustment over the medium-term. The initial stabilization in 2014 will be achieved through a mix of revenue and expenditure measures. For 2015-16, the program envisions a gradual expenditure-led fiscal adjustment—proceeding at a pace commensurate with the speed of economic recovery and protecting the vulnerable—aiming to reduce the fiscal deficit to around 2½ percent of GDP by 2016.

“Energy sector reforms will focus on reducing this sector’s fiscal drag, while attracting new investment and enhancing efficiency. A key step is the commitment to step by step energy reform to move retail gas and heating tariffs to full cost recovery, along with early action towards that goal. Importantly, this will be accompanied by scaled up social protection to mitigate the impact on the most vulnerable. Over time, the program will focus also on improving the transparency of Naftogaz’s accounts and restructuring of the company to reduce its costs and raise efficiency.

“Reforms to strengthen governance, enhance transparency, and improve the business climate will be central elements of the program. Policy measures in these areas will include adoption of a new procurement law to close loopholes allowing evasion of a competitive procedure; measures to facilitate VAT refunds to businesses; and an independent quarterly audit of the Naftogaz accounts. The above, and other measures, will be fully developed with the assistance of the World Bank, EBRD, and other international financial organizations and will help increase transparency of government operations, address long-standing governance issues, and remove barriers to growth. Moreover, the IMF will prepare a comprehensive diagnostic study that will cover the anti-corruption and governance framework, the design and implementation of laws and regulations, the effectiveness of the judiciary, and tax administration.

“The authorities' economic reform program is rightly focused on addressing the key economic challenges faced by Ukraine. Its success in achieving these important objectives will be steadfast implementation, which will enable these efforts to be supported by the international community.”
Finally, if everything goes according to plan, Ukraine has a sterling role model to look forward to. Quoting German FinMin Wolfi Schauble from yesterday - "If ever we were to reach a situation in which we had to stabilize Ukraine, we would have many experiences from the Greek case to draw on." In other words, Greece is now an example of "successful" economic reforms. Goodbye Ukraine, it was nice knowing you.

( Ukraine obligations this year appear to include --  Ukraine owes Russia 3 billion in loans , another 2 billion in back payments to Gazprom for natural gas .... Ukraine also owes China 3 billion in loans , add another 6 billion for foreign debt due this summer ...... that adds up to the lower bound of  14 billion euros  from the IMF  right there - assuming ukraine agrees to IMF conditionality! Ukraine about to move to Troikaville ? ) 

IMF unlocks up to $18 bn for Ukraine’s shattered economy

Published time: March 27, 2014 08:05
Edited time: March 27, 2014 08:38

The International Monetary Fund has agreed to grant Ukraine between $14 billion and $18 billion to help the country avoid a default. The package is vital for securing further help from other international lenders like the World Bank and the EU.
The IMF promised to grant Kiev the lifeline over the next two years, after finishing its mission in Ukraine on Wednesday. Overall support from the broader international community will stand at $27 billion over the period, the IMF statement said.
“The agreement reached with the authorities is subject to approval by IMF Management and the Executive Board. Consideration by the Executive Board is expected in April, following the authorities’ adoption of a strong and comprehensive package of prior actions aiming to stabilize the economy and create conditions for sustained growth," the document specified.
The money will also help to compensate for the damage incurred by four months of unrest across the country.
The European Commission proposed a 11 billion euro ($15 billion) package for Ukraine three weeks ago, saying it’ll unlock the funds once Ukraine signs a deal with the IMF.
“The International Monetary Fund has a central role leading the international effort to support Ukrainian reform, lessening Ukraine's economic vulnerabilities, and better integrating the country as a market economy in the multilateral system,” said a G7 communiqué issued after a meeting of world leaders in The Hague.
“IMF support will be critical in unlocking additional assistance from the World Bank, other international financial institutions, the EU, and bilateral sources,” the document said.
However, IMF conditions could turn out tough for Ukraine, and “the government needs to pay special attention to compensation mechanisms,” as Bloomberg quotes Olena Bilan, an economist at Dragon Capital. “A sharp drop in purchasing power may fuel the ongoing instability in eastern Ukrainian regions.”
On Wednesday Ukraine's coup-appointed leaders agreed to the IMF unpopular condition to increase domestic gas prices 50 percent from May 1. The IMF had long been asking Kiev to cut its energy subsidies, that, they say, eroded about 7.5 percent of Ukraine's GDP in 2012.
The IMF has 188 countries as members, and promotes international economic cooperation. It collects contributions from each country, known as quotas, that are used for loans to nations facing difficulties. As the global financial crisis began to grow in 2010, the IMF proposed doubling quotas, which would provide a pot of $720 billion. The size of a quota equates to a country’s voting power in IMF decision making, as well as its borrowing capabilities.
So far, the US, the IMF biggest and most powerful member, is blocking reform.
On Tuesday Senate Democrats dropped IMF reforms from the Ukraine aid package, which is now expected to be passed on Thursday. The aid package includes sanctions against Russia, as well as $1 billion to Ukraine in loan guarantees and another $150 million in direct assistance.
The IMF reform would have enlarged the loan package for Ukraine, but the US politicians insisted they needed to react quickly in a current dispute over Crimea.

Money and Ukraine

Japan’s Prime Minister Shinzo Abe said Monday the country would give about $1.5 billion to Ukraine in a form of loans and grants. Japan specified the money will help economic reform, as well improve housing and sanitary conditions in Kiev.
So far, Russia has been the only country that has effectively provided money to Ukraine. In the end of last year Moscow bought Ukrainian bonds worth $3 billion, which was part of a broader $15 billion deal signed in December.
Ukraine’s economy is expected to slide 3 percent in 2014, according to the country’s Finance Minister Oleksandr Shlapak. The hryvnia has lost 24.7 percent against the dollar this year, which has made it the worst performing currency among more than 170 surveyed by Bloomberg.
Ukraine’s public debt stands at 40.5 percent of GDP. This summer a debt repayment of $6 billion, or the equivalent to about a third of the economy, is due, the Central Bank says.
In February estimates by Ukraine’s Finance Minister showed the country would need $35 billion in foreign assistance over the next two years.


Merkel not ready to back economic sanctions against Russia

Published time: March 27, 2014 02:44
German Chancellor Angela Merkel (AFP Photo / Thierry Charlier)
German Chancellor Angela Merkel (AFP Photo / Thierry Charlier)
The West has not yet reached a stage where it will be ready to impose economic sanctions on Russia, German Chancellor Angela Merkel said, stressing that she hopes for a political solution to the stalemate over Ukraine crisis.
The chancellor said she is “not interested in escalation” of tensions with Russia, speaking after Wednesday meeting with the South Korean president in Berlin.
“On the contrary, I am working on de-escalation of the situation,” she added, as cited by Itar-Tass.
Merkel believes that the West “has not reached a stage that implies the imposition of economic sanctions” against Russia, advocated by US President Barack Obama. “And I hope we will be able to avoid it,” she said.
Berlin is very much dependent on economic ties with Russia with bilateral trade volume equaling to some 76 billion euros in 2013. Further around 6,000 German firms and over 300,000 jobs are dependent on Russian partners with the overall investment volume of 20 billion euros.
Germany is currently the European Union’s biggest exporter to Russia. German car manufacturing companies are likely to suffer first if sanctions against Russia become more substantial, as about half of German exports to Russia are vehicles and machinery.
Volkswagen, BMW, and lorry maker MAN all have Russian operations, with VW willing to inject another €1.8 billion in its Eastern European segment by 2018, the Local reports. Opel, a German car maker which sold over 80,000 cars in Russia in 2013, last week said that the company was“already feeling the stresses and strains from the changing course of the ruble,” Karl-Thomas Neumann, boss of car makers Opel, told Automobilwoche magazine.
A Russian man and woman work on the assembly line of a Volkswagen plant in Kaluga (AFP Photo / Natalia Kolesnikova)
A Russian man and woman work on the assembly line of a Volkswagen plant in Kaluga (AFP Photo / Natalia Kolesnikova)

On the retail side, German Metro stores wanted to take its Russian subsidiary public this year, but the plan is now imperiled, Der Spiegel reported.
Earlier this month Germany's KfW development bank canceled a contract with Russia's VEB bank worth €900 million in investment initiatives for mid-sized companies. Under the deal Germans were to have invested €200 million in Russia.
In addition, Germany is heavily dependent on Russian energy with around 35 percent of its natural gas imports coming from Russia.
Russian Finance Minister Anton Siluanov commented on Russia's economic situation on Wednesday.
“At present, the investors’ worries are connected with the consequences of sanctions. We see ratings agencies lower the outlook on Russia’s ratings. It certainly puts us on alert. There are no basic grounds for changing the general stability of Russia’s economy,” Siluanov told Russia-24 TV channel.
Standard & Poor’s (S&P) global credit rating agency changed the outlooks for Russia’s large energy companies on Wednesday. Gazprom, Rosneft, Transneft and Lukoil ratings were reduced from stable to negative outlook for having “very strong links” with the Kremlin. Last week S&P and Fitch Ratings lowered Russia's overall creditworthiness. Both companies affirmed Russia at BBB.
Yet Siluanov defended Russia's economy and trustworthiness saying that foreign investors hope that the any sanctions against Moscow are temporary.
“The measures that were taken regarding certain persons and companies have their effect. The general mood around Russia has become nervous. But we have good conditions for business,” he said, adding that “neither Western companies nor Russia need the sanctions.”

Russia’s actions in Crimea ‘completely understandable’ – German ex-chancellor

Published time: March 26, 2014 17:57

Former German Chancellor Helmut Schmidt (AFP Photo / Pool / Michael Sohn)
Former German Chancellor Helmut Schmidt (AFP Photo / Pool / Michael Sohn)
Moscow’s actions in the Crimea are comprehensible, former German chancellor, Helmut Schmidt said, criticizing the Western reaction to the peninsula’s reunification with Russia.
President Vladimir Putin’s approach to the Crimean issue is “completely understandable,” Schmidt wrote in Die Zeit newspaper where he’s employed as an editor.

While the sanctions, which target individual Russian politicians and businessmen, employed by the EU and the US against Russia are “a stupid idea,” he added.

The current restrictive measures are of symbolic nature, but if more serious economic sanctions are introduced “they’ll hit the West as hard as Russia,” Schmidt warned.

He also believes that the refusal of the Western countries to cooperate with Russia in the framework of the G8 is a wrong decision.

“It would’ve been ideal to get together now. It would certainly do a lot more to promotion of peace than the threats of sanctions,” the ex-chancellor explained.

But the G8 itself isn’t that as important as the G20, in which Russia remains a member, he added.

According to Schmidt, the situation in Ukraine is “dangerous because the West is terribly upset”and it’s “agitation” leads to “corresponding agitation among Russian public opinion and political circles.

The ex-chancellor refused to speculate of the possibility of Russian troop deployment to eastern parts of Ukraine, but added that the West “shouldn’t fuel Russia’s appetites.”

Schmidt executed the duties of chancellor of West Germany in 1974-82, also working as the country’s finance, economy and defense minister.

Crimea and the city of Sevastopol were officially accepted into the Russian Federation on March 21, with president Putin signing a relevant decree.
The peninsula’s withdrawal from Ukraine was triggered by an armed ultra-nationalist coup in Kiev, which saw country’s president Viktor Yanukovich ousted.

After the law allowing regions to give Russian and other minority languages the status of a second official language was revoked by the new parliament, Crimea – home to an ethnic Russian majority – has held a referendum on its future as part of Ukraine. On March 16, over 96 percent of Crimean voters decided to cut ties with Kiev and rejoin Russia.

The US and its EU allies were outraged by the move and replied with individual sanctions against Russia’s top politicians and businessmen. The blacklisted Russian citizens are banned from travelling to US and EU, with their American and European assets frozen.

And from Anti-War......

Postcards From The Edge ? 

Obama Paints Crimea Secession as Worse than Iraq War

Insists US 'Sought to Work Within the System'

by Jason Ditz, March 26, 2014
With fully one Ukrainian soldier confirmed dead and several others wounded in myriad clashes, world leaders seem agreed that the Russian annexation of Crimea is the worst thing to happen within their collective memories. Then someone, likely just to bum everyone out, brought up Iraq.
Speaking in Brussels today, President Obama went on a lengthy diatribe about how the decade-long US occupation of Iraq, which left roughly a million people dead and the entire region awash in al-Qaeda factions, was nowhere near as bad a thing as Crimea.
“America sought to work within the international system. We did not claim or annex Iraq’s territory,” Obama insisted, going on to praise Iraq as a “fully sovereign state” that “could make decisions about its own future.”
Which is to say the US forced a puppet government into power before it left, despite Prime Minister Maliki losing the last election, and put in place an election system so crooked that even the Maliki-appointed election commission resigned en masseyesterday rather than take part in April’s planned vote.
The US left Iraq, but the war did not, and even today the US is throwing military aid at the nation in ever-increasing numbers to fight off al-Qaeda, which has seized significant chunks of the country.
Obama went on to praise the “vigorous debate” which surrounded the US invasion of Iraq, which mostly centered on the Bush Administration lying about the “threat” until they invaded.
The Russian annexation of Crimea is indeed apples and oranges to the US occupation of Iraq, in that Russia acquired a small peninsula populated mostly by ethnic Russians with few casualties involved, and the US obliterated the nation of Iraq in the bloodiest war of the current century, killing enormous numbers of people and accomplishing virtually nothing before meandering off in search of new dragons to slay.

US Presses EU Nations to Hike Military Spending to ‘Confront Russia’

Obama: Everybody's Got to Chip In

by Jason Ditz, March 26, 2014
Economic struggles and budget shortfalls have had many European member nations of NATO cutting back military spending, something US officials have been railed about for years. Russia has given them an excuse for another pushback on those cuts.
European Union nations spend an average of 1.7% of their GDPs annually on military, and in the Obama Administration’s mind, that’s not nearly enough money being thrown into the sinkhole of militarism.
“Everybody’s got to chip in,” insisted President Obama, going on to insist that “freedom isn’t free” and the loss of Crimea necessitates a much larger military buildup across Europe to “confront Russia.”
As a practical matter, NATO as a whole spent over 10 times what Russia does on its military, $990 billion versus $90 billion. The US accounts for over two-thirds of that.
The reality is that many NATO member nations, particularly those in the Mediterranean, simply can’t afford the dramatic increases President Obama wants, and have credit ratings that don’t allow them to deficit finance runaway military spending.
And while the US couches this as a “counter” to Russia, there is similarly no reason to think a 10 to 1 or 11 to 1 ratio of NATO to Russia spending isn’t sufficient for “defensive” purposes. The unspoken assumption here is that the US, by far the world’s largest exporter of weapons systems, would see considerable benefit from increased spending by nations like Spain and the Netherlands.

Obama Wants More NATO Troops in Eastern Europe

Insists Moves Would Reassure Poland, Baltic States

by Jason Ditz, March 26, 2014
Officially, everyone seems to be settled on the idea that the Russian annexation of Crimea is not some redux of the WW2 blitzkrieg or of Russia reforming the entire Warsaw Pact in a weekend. Still, that doesn’t mean officials aren’t using it as an excuse for a laundry list of military policy goals.
President Obama, who made a big point of mocking Russia and downplaying the Crimea situation as a sign of Putin’s weakness, is now pushing NATO to commit to a military build-up in Eastern Europe.
Not that there’s a war coming, mind you. President Obama has ruled out attacking Crimea several times, but says a build-up would be a great way to “reassure” Poland and the Baltic states that, as NATO members, the alliance is willing to defend them from a Russian invasion that no one thinks is coming anyhow.
It also fits in neatly with Obama’s other major goal: to parlay the Russia situation into a dramatic increase in military spending across Europe, and by extension an increase in US military exports to the continent.


Trade deal would ease U.S. gas exports to Europe: Obama

BRUSSELS Wed Mar 26, 2014 10:13am EDT


(Reuters) - A new transatlantic trade deal currently under negotiation would make it easier for the United States to export gas to Europe and help it reduce its dependency on Russian energy, U.S. President Barack Obama said on Wednesday.

"Once we have a trade agreement in place, export licences for projects for liquefied natural gas destined to Europe would be much easier, something that is obviously relevant in today's geopolitical environment," Obama told a news conference after meeting EU leaders, adding that it could not happen overnight.
EU negotiators are pressing U.S. counterparts to agree to allow exports of LNG to the European Union in part to lessen its reliance on Russia, which provides about one-third of Europe's oil and gas supplies, 40 percent of it through Ukraine.

How much pain will the EU take on though ? 

Ukraine to Cut Gas Subsidy, Raising Prices 50 Percent

With Russia Out of the Subsidizing Game, Will EU Match?

by Jason Ditz, March 26, 2014
The price of natural gas in the Ukraine is going up by about 50 percent for retail customers as of May 1, and will likely continue to rise through 2018 as the nation slashes its subsidies under demands from the IMF.
It is likely to be a hugely unpopular move by the state-owned Naftogaz company, but an inevitable one, as the ouster of the Yanukovych government has harmed Russo-Ukrainian relations and Russian companyGazprom is no longer being pressured to give them the friend’s price.
In practice this means a rise from $268 per 1,000 cubic meters to $368, the same price Gazprom charges other European nations like Germany. Interim PM Arseniy Yatseniuk is playing up the idea that the EU might provide them with some more subsidized natural gas, but whether that materializes remains to be seen, as they don’t have the surplus Russia does.
The price of natural gas in Europe is considerably higher than in North America, where both the US and Canada are paying south of $200. More expensive still is Asia, where prices continue to surge on short supply.
Ukraine has long struggled with its lack of domestic energy, and is hugely dependent on Russia’s Gazprom, the world’s largest producer by far. With Gazprom not having been paid in quite some time, the era of subsidies is over, and even if Europe ponies up a round of cheap gas to reward the new government in Ukraine, they won’t be able to sustain it over the long term.

From Stars & Stripes......


Ukraine crisis to test West’s threshold for economic pain

Russia's annexation of Crimea, made official on March 21, 2014, has not ended agitation for closer ties to Russia in other parts of Ukraine. On Saturday, March 22, 2014, about 5,000 people staged a rally in Donetsk, a major city in east Ukraine, to advocate closer ties for the region with Russia, and not the European Union.
STUTTGART, Germany — The seizure of Crimea could become the first in a series of power plays by an emboldened Vladimir Putin to redraw post-Cold War lines, unless the United States and its allies impose severe economic penalties against Russia and bolster their defenses in the east.
That’s the view of some analysts, who say Europe is unlikely to stomach the costs of necessary sanctions and military options that would deter Russia from future land grabs.
“The U.S. has made a reasonable start here, but just how far is this going to go and do we have the appetite to inflict a higher level of pain? Damaging the Russian economy is going to hurt us as well,” said John Lough, a Russia expert at the Chatham House in London. “The Russian appetite for pain could be higher than ours.”
The U.S. and the European Union will phase in sanctions, which include immediate suspension of talks on closer economic cooperation between Europe and Russia, and a freeze on assets and travel for a small number of Russian figures. Those measures will expand if Putin signs a treaty to annex Crimea, EU leaders said.
But expanding economic sanctions to include Russia’s vast petrochemical industry could threaten an energy-dependent Europe, which is only beginning to emerge from years of economic stagnation.
Germany, Europe’s economic powerhouse, would be especially affected because of its close business ties to Russia, which involve the auto industry and energy interests. As a result, business leaders have been lobbying against tough measures.
“Germany will be harder hit than almost all other countries” by sanctions, especially if Putin retaliates by halting gas shipments, Holger Schmieding, chief economist at Berenberg Bank in London, told Bloomberg News. “A stop of Russian energy imports throughout next winter — that would stall the European and the German economic recovery.”
In response to more extensive economic sanctions, Russia could look east to China as an alternative market, leaving Europe in the lurch.
A week after Russia’s annexation of Crimea, there is no sign that limited Western sanctions, and threats of more to come, have caused Moscow to reconsider its intervention in Ukraine. But there are signs that Putin could already be looking beyond the peninsula.
Russia has been building up forces along its eastern border with Ukraine, prompting worries that its troops could soon march across the heart of that country to seize Trans-Dniester, a breakaway enclave in neighboring Moldova that is home to a Russian-speaking population.
“There is a danger that if Russia’s leaders continue to think that Western countries are less-than-committed to supporting Ukraine, they will think they can get away with doing more,” Lough said.
Even if Russia moved to claim Trans-Dniester, a Western military intervention against any Russian offensive would be virtually inconceivable given the fact that Moldova is not a NATO member.
Still, the crisis in Ukraine has galvanized NATO in recent weeks as the alliance ratcheted up operations near Russia’s border. These include an air policing mission in the Baltics and the deployment of surveillance aircraft along Ukraine’s western border. NATO also is examining the need to reposition forces in other parts of eastern Europe.
Since the mid-1990s, NATO has been expanding eastward, taking in Moscow's former Warsaw-pact allies, as well as the Baltic counties of Lithuania, Latvia and Estonia, which like Ukraine had been integral parts of the Soviet Union.
NATO Secretary-General Anders Fogh Rasmussen, speaking in Brussels on Friday, described Russia’s actions in Ukraine as a game-changing event and a “wake-up call” for Europe as a whole.
“Our vision of a Europe whole, free and at peace has been put into question because this is not an isolated incident,” Rasmussen said.
The redeployment of forces is an important step in trying to deter more Russian aggression and will reassure wary NATO members, such as Poland, experts say. What isn’t clear is how such NATO posturing could dissuade Russia from conducting interventions in other regions that don’t enjoy the NATO security guarantee, known as Article 5, which ensures that an attack on one member would trigger a collective response.
“Article 5 is iron-clad, but when it goes beyond that, it gets much more complicated politically. There will be differences in the alliance about how forward-leaning it wants to be,” said Ian Lesser, an expert with the German Marshall Fund of the United States.
Beyond the debate over sanctions, if the crisis in Ukraine persists, it will force a re-examination of how U.S. military forces in Europe are positioned as well as spark a debate over nuclear and arms control strategies, Lesser said.
If economic sanctions must be the primary tool to deter Russia, experts say, NATO’s efforts to reassure alliance members in the east are also a key aspect in countering Russia.
“I think there are things NATO can and will do to deter Russia,” Lesser said. “This is opening up a whole set of conversations that go from crisis management to grand strategy. None of this will be settled anytime soon.”
NATO’s Article 5 security pact all but rules out a Russian incursion into the former Warsaw Pact members and Baltic republics. Russian military intervention in those countries would be tantamount to launching a large-scale war. However, other non-NATO states such as Georgia, which fought a brief war with Russia in 2008, and Moldova could be viewed as fair game by Putin if he sought to reassert himself in areas that once fell under the Soviet Union.
Those ambitions could only grow if the West failed to take concrete measures such as harsh economic sanctions, analysts say. In addition, the U.S. should bolster military aid to countries at risk of Russian intimidation, according to the global security firm STRATFOR.
“A failure to engage at this point would cause countries around Russia’s periphery, from Estonia to Azerbaijan, to conclude that with the United States withdrawn and Europe fragmented, they must reach an accommodation with Russia,” wrote George Friedman, chairman of STRATFOR, in a Tuesday analysis. “This will expand Russian power and open the door to Russian influence spreading on the European Peninsula itself.”
Attack helicopters, communications systems and anti-missile technology should be sent to countries to counter a growing Russian threat, Friedman said.
“The United States has an interest in acting early because early action is cheaper than acting in the last extremity,” he said.
Lough says that Russia’s commodity-based economy would be vulnerable to sustained economic pressure from the West, but that Europe must be willing to pay the short-term costs of such action. So far, there are few signs Europe has the appetite for such a confrontation.
“We’re still in the early stages of this crisis,” Lough said. “What’s at stake is the independence of a country (Ukraine) that is pivotal to European security. It’s a mistake to think we can ignore what the Russians are doing.”

Russian consolidation continues in Crimea - From Reuters and ABC News....

Russia seizes Ukraine's last Crimean ship

SEVASTOPOL, Crimea Wed Mar 26, 2014 11:03am EDT


(Reuters) - Russian forces have taken over the Ukrainian minesweeper Cherkasy, the last military ship controlled byUkraine in Crimea, in an operation in which they used stun grenades and fired in the air, Ukrainian naval sources said on Wednesday.

During the operation there was an explosion on board the ship, which was in an inlet called Donuslav Lake, which apparently damaged its engines.
"The Cherkasy has been taken over and as the engine was damaged during the raid it had to be towed away by a tug boat to the anchorage," Ukrainian navy spokesman Vladislav Seleznyov said.
There were no injuries and the crew remained on board until the morning when they went ashore.
During the take-over, which began on Tuesday evening, the minesweeper used water cannon in an effort to repel the Russian forces who had approached the Cherkasy in speedboats. "Russians threw stun grenades and fired small arms, apparently in the air," a navy source said.
Russian forces have used similar tactics to seize ships and military bases from the last remaining Ukrainian troops in Crimea in recent days as part of Russia's largely bloodless annexation of the region.
Kiev, which calls Russia's annexation of Crimea illegal, ordered its remaining forces to withdraw for their own safety on Monday, but not all troops have yet left the Black Sea peninsula and some ships have been prevented from leaving.
On Monday Cherkasy attempted without success to break to the open sea through a blockade at the entrance to the inlet. The Russian navy blocked the route earlier this month by scuttling three hulks in the channel.

6 Ukrainian Officers Freed by Russia; 5 Captive

Six Ukrainian military officers detained by Russian troops in Crimea have been released and were being evacuated Wednesday from the Black Sea peninsula, but five still remained in custody.
Russian forces over the last few weeks have stormed one Ukrainian military base after another in Crimea, which was annexed by Russia after residents voted in a contentious referendum March 16 to secede from Ukraine.
A Defense Ministry spokesman said the released officers included Col. Yuliy Mamchur, a commander who has earned wide acclaim for defying the pro-Russian forces who besieged his base for almost three weeks.
President Oleksandr Turchinov said he hopes to see the freed officers Thursday in the capital, Kiev.
"Those officers that so bravely conducted themselves will indubitably be awarded and promoted for their courage," he said.
Five more serviceman including a colonel were still being detained, Defense Ministry spokesman Vladislav Seleznyov said. He spoke to the colonel Wednesday and said the officer was coming under sustained pressure to switch over and work for the Russians.
In addition to storming Ukraine's military bases in Crimea, Russian troops have also seized numerous warships there, leaving Ukraine's navy almost entirely depleted.
Polish Foreign Minister Radoslaw Sikorski, who met Wednesday with his Ukrainian counterpart Andriy Deshchytsia, called the confiscations "piracy."
Sikorski also voiced concerns that Russian President Vladimir Putin had drawn up "an ambitious plan that could possibly go far beyond Crimea."
Deshchytsia said Ukraine's army and civilians would organize to resist any Russian incursions into eastern Ukraine, which is heavily populated by Russian speakers.
"As far as eastern Ukraine regions are concerned, I must say that we will defend them," he said.
Talking later to The Associated Press, Sikorski supported an idea to decentralize some power in Ukraine but said Russia's pressing for a federation system "must not mean a plan for a creeping partitioning" of Ukraine.
The country of 46 million is politically divided, with many residents in the west favoring ties with the 28-nation European Union while residents in the east back having closer ties with Russia.
In Brussels, President Barack Obama said Russia must not be allowed to "run roughshod" over its neighbors as it has done in Ukraine. He said no amount of propaganda coming out of the Russian government can make right something the world knows is wrong.
In another sign of the seething tensions between Moscow and Kiev, Russia accused Ukrainian officials Wednesday of barring Russian commercial airline crews from going outside their planes in Ukrainian airports. Russian authorities have previously complained that Ukrainian border guards have blocked some Russian men from crossing, fearing they may be activists coming to stir up trouble.
Oleg Slobodian, spokesman for the Ukrainian border service, denied any policy to keep Aeroflot crews on their planes. He said the only time a crew member was prevented from entry was on March 24, when a passport check revealed that the man had a travel ban. In solidarity, the rest of the airplane's crew remained on board with him, he said.
In addition to Ukraine's tenuous security situation, the country also has a teetering economy and mounting debts. Russia is hiking natural gas prices for Ukraine and the International Monetary Fund is negotiating with government officials about financial reforms before agreeing to a bailout loan that could be up to $20 billion.
Polish minister Sikorski said he felt Ukraine was very close to getting the bailout because of the new government's "determination" to carry out financial reforms.
Household gas prices in Ukraine will rise 50 percent beginning May 1, Yuriy Kolbushkin of the state energy company Naftogaz said Wednesday. He said it was part of efforts to make utility costs economically viable for the state by 2018.
In London, British Prime Minister David Cameron promised to "stand up very strongly" for the Ukrainian people as he met a delegation of the country's politicians, including former heavyweight boxer Vitali Klitschko.
"We expect support from Great Britain," Klitschko said after the meeting.
The U.S. and the EU have slapped sanctions on Russia for its actions in Crimea, but so far Russia has shrugged them off as unimportant.

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