U.S. Secretary of State John Kerry will meet his Russian counterpart Sergei Lavrov today in a bid to resolve the crisis in Ukraine, as a Kremlin demand for Ukrainian neutrality may quash its European Union ambitions.
Russia wants Ukraine to grant greater powers to its regions, have a non-aligned status outside NATO and make Russian a second official language, Lavrov said in a statement on his ministry’s website yesterday. He’s meeting Kerry this evening in Paris after the Russian and U.S. presidents Vladimir Putin and Barack Obama spoke by phone yesterday.
Putin may be changing tack a week after signing laws to annex Crimea from Ukraine in Europe’s worst political crisis since the Cold War. Fearing that pro-Kremlin troops massing on Ukraine’s borders may invade the ex-Soviet state, the U.S. and EU have threatened to intensify sanctions on Russia’s military, energy and financial industries if Putin doesn’t back down. Russia’s proposal may be a hard sell for Ukraine’s political leaders, who are facing off for a May 25 presidential election.
“Russia’s compromise deal involves political and security neutrality for Ukraine and a federal structure for the country,” Tim Ash, chief economist for Standard Bank Group Ltd. in London, wrote in a note to clients yesterday. “If political neutrality means no EU perspective, I think that is a non-starter for any government in Kiev.”
Crisis Calls
With emerging-market stocks rallying amid confidence in the global economy, Russia’s benchmark Micex Index (OPNMICX) shrugged off concern that an extended confrontation over Ukraine will weigh on the economy. It rose 0.9 percent to 1,344.12 by the close in Moscow on March 28, a 2.8 percent increase in five days. The Ukrainian crisis has pushed the benchmark Micex Index down 11 percent this year.
In Ukraine, the UDAR party threw its support behind billionaire ex-Economy Minister Petro Poroshenko to represent democratic forces in the election, said party leader Vitali Klitschko, a former world boxing champion. He declared his own intention to run for Kiev mayor instead.
Poroshenko has the highest rating among potential candidates, ahead of Batkivshchyna Party leader Yulia Tymoshenko, the former prime minister who was freed from prison last month. Ukraine’s government is grappling with dwindling reserves, a weakening currency, and an economy threatening to slide into a third recession in six years.
Written Response
Russia, the U.S. and EU nations are moving toward a joint initiative that may be submitted to Ukraine, Lavrov said yesterday in comments published on his ministry’s website.
Kerry diverted a planned flight home from Saudi Arabia after speaking with Lavrov yesterday. Obama has asked for a written response from Putin to a plan that Kerry presented to Lavrov in The Hague last week, according to a White House statement.
Backed by coverage from Russian state-run news channels that depict Ukraine as spiraling into chaos, Putin’s government argues the annexation of Crimea saved the region from being overrun by fascists who are in control in Kiev and are oppressing the country’s Russian-speaking minority.
Ukraine’s acting president Oleksandr Turchynov has vetoed a law that would have eliminated Russian as a second official language, with the government denying that the rights of Russian speakers are under threat.
Crossing Borders
Obama told Putin that a diplomatic solution “remains possible only if Russia pulls back its troops and does not take any steps to further violate Ukraine’s territorial integrity and sovereignty,” the White House said yesterday.
“We have absolutely no intentions or interest in crossing the borders of Ukraine,” Lavrov said. “We only really insist on working collectively and on putting an end to the outrages that western countries are sweeping under the rug.”
Russia’s Baa1 government bond rating may be cut by Moody’s Investors Service, the ratings company said yesterday in a statement after the close of U.S. markets. The move was triggered by a weakening of Russia’s economy and uncertainty created by the Ukraine conflict, Moody’s said in a statement.
Yesterday’s talk between Putin and Obama marked their fifth conversation since the Ukrainian crisis deepened with last month’s ouster of Moscow-backed President Viktor Yanukovych.
Russian Demands
For his part, Putin highlighted a “rampage of extremists” intimidating officials and residents “in various regions,” according to a statement from his office. The Russian president’s statement indicated he’s willing to examine “steps the global community can take” to stabilize Ukraine.
The White House didn’t detail what plan Kerry and Lavrov discussed. In previous meetings, Kerry called for talks between Russia and Ukraine’s government with international participation, and sending monitors into Ukraine, including Crimea. Russia would be able to keep its bases on the Black Sea peninsula as long as Ukraine’s sovereignty was respected.
Russia has insisted on constitutional reform in Ukraine, demanded the rights of the Russian-speaking population be observed and called for the North Atlantic Treaty Organization to halt its eastward expansion.
Putin also brought up the issue of Transnistria, according to the Kremlin. Transnistria is a self-proclaimed republic between Moldova and Ukraine with a Russian military presence. Unrecognized by most United Nations member states, it followed Crimea’s annexation by asking to join Russia.
Invasion Fears
While U.S. intelligence officials continue to monitor what they say is a significant buildup of Russian troops near eastern Ukraine, some expressed concern that Putin’s sudden mention of Transnistria may be a prelude to a different move.
Speaking on the condition of anonymity to discuss intelligence assessments, two officials said visible military movements in the east may be an effort to divert attention from preparations to move into Transnistria through the Ukrainian Black Sea port of Odessa. Russian forces held what was called an anti-terrorism drill in the region this week.
Another possibility is a Russian move all the way from Ukraine’s eastern border past Crimea to Odessa and Transnistria -- a move that would leave Ukraine landlocked, U.S. Air Force General Philip Breedlove, NATO’s supreme commander in Europe, said March 23 in Brussels.
To contact Bloomberg News staff for this story: Terry Atlas in Washington at tatlas@bloomberg.net; Henry Meyer in Moscow at hmeyer4@bloomberg.net
To contact the editors responsible for this story: James M. Gomez at jagomez@bloomberg.net Michael Winfrey, Alastair Reed
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