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Latvian President Andris Berzins

EU Renews Push for Russian Sanctions; Putin Blames Ukraine

By James G. Neuger, Kateryna Choursina and David Whitehouse for BLOOMBERG –

Latvian President Andris Berzins
Latvian President Andris Berzins

European Union leaders threatened to tighten sanctions on Russia as soon as Thursday over its support for pro-Kremlin rebels in eastern Ukraine, who are engaged in the worst clashes with government troops since a September truce.

The leaders condemned the killing of dozens of civilians in “indiscriminate shelling” of the Ukrainian port city of Mariupol and said EU foreign ministers meeting on Jan. 29 will “consider any appropriate action, in particular on further restrictive measures,” EU President Donald Tusk said in an e-mailed statement in Brussels.

“We note evidence of continued and growing support given to the separatists by Russia, which underlines Russia’s responsibility,” said the statement Tuesday, which was agreed with all 28 EU leaders.

Financial War

The EU is drawing closer to taking action after Saturday’s rocket attack in the strategic city of Mariupol in which at least 30 people died and more than 100 were injured, according to Ukraine’s Defense Ministry. Fighting between pro-Russian separatists and government troops has intensified along the front that stretches across Ukraine’s easternmost regions of Luhansk and Donetsk to the Sea of Azov in a crisis that Russian President Vladimir Putin has blamed on the government in Kiev.

The Mariupol attack was launched from rebel-held territory, the U.S., the North Atlantic Treaty Organization, and the OSCE said, while the separatists blamed government forces. A decision on new sanctions depends on a unanimous agreement among the EU’s members, which have voiced conflicting opinions on whether to take stricter steps against Russia.

Border Access

Rebel forces are blocking access to the Ukrainian-Russian border for monitors from the Organization for Security and Cooperation in Europe, OSCE Secretary General Lamberto Zannier said in an interview with Germany’s Die Welt newspaper Tuesday. While Ukraine allowed OSCE officials to move about freely, he said, “the separatists don’t allow us sufficient freedom of movement outside of the cities of Donetsk and Luhansk, above all not in the direction of the Russian border.”

Ukraine, the U.S. and the EU accuse Russia of sending troops and weapons into the conflict zone to support the separatists. The Kremlin denies military involvement, while Putin told German Chancellor Angela Merkel and French President Francois Hollande in separate phone calls Monday that only political dialogue between the rebels and the government in Kiev can end the bloodshed.

Talks, Threats

The sides could hold talks within days in a Ukraine contact group meeting in Minsk, Belarus, the Interfax news service reported Tuesday, citing Vladyslav Deinego, chief negotiator for the separatist self-proclaimed Luhansk People’s Republic. The contact group brings together Ukraine, Russia, the OSCE and separatist leaders. Deinego said the issue of prisoner exchanges is also being discussed, according to Interfax.

Putin told Merkel and Hollande that he holds Ukraine accountable for the escalation in violence, according to a Kremlin statement. Russia is being blackmailed and threats to increase economic pressure are destructive, Interfax cited Putin’s spokesman, Dmitry Peskov, as saying on Monday.

Thursday’s EU meeting will widen a list of people facing visa bans and asset freezes over Russia’s involvement in the conflict, Latvian President Andris Berzins, whose country holds the bloc’s rotating presidency, said in an interview Monday.

IMF Program

The U.S. has also warned Russia that it risks further economic pressure if the situation doesn’t improve.

Russia’s foreign-currency credit rating was cut to junk by Standard & Poor’s on Monday, putting it below investment grade for the first time in a decade. S&P said sanctions against Russia helped shake its financial system by limiting access to international capital markets.

Ukraine must have stability at its borders to be able to achieve economic recovery, International Monetary Fund Managing Director Christine Lagarde told French newspaper Le Monde in an interview published Monday. She said “no IMF partner would consider participating in a support program if there’s a question mark over 20 percent of Ukraine’s GDP.”

“The link between the economic situation and the military one is blatant,” Lagarde said, according to Le Monde. The IMF is working on a four-year package of support for Ukraine, with “financing no doubt a little higher than what was anticipated. But that supposes the situation stabilizes — that’s a priority,” she said.

Government Overhaul

Lagarde said in Davos last week that she’s prepared to support the signing of a so-called extended fund facility that would replace the $17 billion standby arrangement the IMF granted in April as the conflict and a deepening economic contraction push Ukraine to the brink of default. The assumptions used since April are now “null and void,” Lagarde told Le Monde, and “we’re working on new hypotheses.”

In Ukraine, “we have for the first time partners who seem determined to carry out reforms and who have the courage to do so,” she said, according to Le Monde.

Ukraine is committed to overhauling government administration, halving the number of state bodies and agencies from 56 to 28, tackling corruption, and meeting NATO defense standards, Danylo Lubkivsky, adviser to Ukrainian Prime Minister Arseniy Yatsenyuk, said Tuesday in Kiev. It will never surrender to Putin, he said.

Mariupol, Donetsk

The EU must continue to support Ukraine on condition the country continues its reforms, Dutch Finance Minister Jeroen Dijsselbloem told reporters in Brussels Tuesday ahead of a meeting of EU finance ministers. It’s “inevitable” Ukraine needs more aid, he said, “the question is how much and who is going to finance it.”

The EU, which last imposed penalties over the conflict almost two months ago, has previously warned that territorial gains by separatists — including the takeover of Mariupol or the Donetsk airport — risked an escalation of European sanctions. Rebels took control of the main terminal at Donetsk airport from Ukrainian troops in heavy fighting last week.

Nine government troops were killed and 29 wounded in clashes in the past 24 hours, Ukrainian military spokesman Leonid Matyukhin said in Kiev. Rebels attacked Ukrainian troops 120 times in that period, he said.

The death toll in the conflict is now more than 5,000, with Jan. 13-21 becoming “the most deadly period” since the Sept. 5 truce was signed in Minsk, Belarus, according to the United Nations.

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