EU To Assess Ukraine Cease-Fire As New Russian Sanctions Weighed

BRUSSELS, Belgium -- European Union governments today will reopen discussions about the viability of a cease-fire in Ukraine as the bloc weighs whether to pull the trigger on tougher sanctions against Russia.

“The entry into force through the publication in the Official Journal will take place in the next few days,” EU President Herman Van Rompuy said in a statement late yesterday.

The scheduled talks in Brussels among diplomats from the 28 member nations follow the EU’s abrupt decision yesterday to put on hold for at least a “few days” a second package of economic penalities against Russia over its encroachment in Ukraine.

The delay offered more time to assess the effectiveness of the cease-fire without risking further trade retaliation by the Kremlin.

The planned sanctions -- originally due to be published in the Official Journal yesterday -- include barring some Russian state-owned defense and energy companies from raising capital in the EU, according to a European official who spoke on the usual condition of anonymity.

Waging Financial War 

“Now it’s up to the member states to look at this situation again and examine the implementation of the cease-fire agreement and decide how to take this forward,” Maja Kocijancic, spokeswoman for EU foreign-affairs chief Catherine Ashton, told reporters yesterday in Brussels.

The Sept. 5 cease-fire between the Ukrainian government and pro-Russian separatists has raised the prospect of a lasting truce that would be the biggest breakthrough yet to end a conflict that has killed at least 3,000 people and soured Russia’s relations with its former Cold War foes.

Eastern Ukraine 

The agreement to halt fighting came in the midst of an EU push to ratchet up penalties against Russia in coordination with the U.S. in a bid to force Russian President Vladimir Putin to end support for the rebels in eastern Ukraine.

Putin’s backing of Ukrainian separatists and his annexation of Crimea have jolted the security order in Europe.

Frontline City 

In a sign the cease-fire accord has been shaky, Ukrainian Defense Ministry spokesman Oleksiy Dmytrashkovskyi said today in a YouTube video that pro-Russian rebels overnight shelled government positions near the airport of the eastern city of Donetsk, as well as four more positions of Ukrainian troops in other areas, without causing troop casualties.

On Monday, Ukraine said the rebels targeted Mariupol, a frontline city in the east of the country, after Ukrainian President Petro Poroshenko announced a visit there. 

Road blocks near the port city on the Sea of Azov came under fire from militants yesterday, presidential spokesman Svyatoslav Tseholko said on Twitter.

“I am not optimistic at all -- I have not been optimistic from the beginning,” Didier Burkhalter, chairman of the Organization for Security and Co-operation in Europe, which helped mediate and is monitoring the cease-fire, said at a news conference in Geneva.

Even so, “we want to give it a chance.”

Sanctions Plan 

Russian Foreign Minister Sergei Lavrov said today that it appears the cease-fire is being observed on the whole.

Speaking to reporters in Moscow, he said Russia hopes the truce “will be consolidated” within days.

In an initial set of economic sanctions imposed in late July, the EU barred five state-owned Russian banks from selling shares or bonds in Europe; restricted the export of equipment to modernize the oil industry; prohibited new contracts to sell arms to Russia; and banned the export of machinery, electronics and other civilian products with military uses -- so-called dual-use goods -- to military users.

Those measures prompted Russia to ban imports of some EU farm goods, a step that has cut off about 5 billion euros ($6.5 billion) of annual trade and left the bloc scrambling to aid its producers.

In a statement on Sept. 6, the day after EU member-state diplomats drew up the latest sanctions plan, the Russian government signaled it would take further retaliatory action should the extra penalties be enacted.

Russian Businesses 

“In the case that they are introduced, a reaction from our side will undoubtedly follow,” the Foreign Ministry said in a statement in Moscow.

EU sanctions decisions require the support of all EU governments, giving any one leverage to seek concessions.

Several European leaders including Stubb and his Hungarian counterpart, Viktor Orban, have expressed concerns about the impact of penalties against Russia on the EU economy.

The delayed EU package would extend to three energy companies -- OAO Gazprom Neft, OAO Rosneft and OAO Transneft -- as well as to nine defense companies the ban on share or bond sales in the EU, according to the European official who spoke anonymously.

It would also shorten to 30 days from 90 days the threshold for the maturity of debt whose sale in the bloc by the targeted Russian businesses is banned; prohibit European banks from offering syndicated loans to sanctioned Russian companies; expand the restrictions on dual-use goods and widen the curbs on technologies for the oil industry, according to the official.

Political Sensitivities 

In a sign of the political sensitivities of applying the tougher measures, EU diplomats met on short notice on Monday evening in Brussels to discuss the package they had approved three days earlier.

An additional outcome was that the EU put on hold a parallel plan to expand a blacklist of people and companies subject to asset freezes in Europe in connection with the Ukrainian crisis.

EU leaders on Aug. 30, beyond calling for more economic penalties against Russia to be prepared, asked for proposals to blacklist people and institutions “dealing with” separatist groups in the Donbass region of eastern Ukraine.

The latest people who would be targeted include the new leadership in Donbass, the government of Crimea and “Russian decision-makers and oligarchs,” Van Rompuy said in a Sept. 5 statement after the EU diplomats had approved the new measures and sent them to the bloc’s national governments for final approval on Monday.

The new blacklist would add 24 people, including two additional Kremlin “cronies,” according to a second European official who spoke on the usual condition of anonymity.

Like the tougher economic penalties, the latest blacklist targets had been due to be disclosed today in the Official Journal.

The economic penalties would normally take effect the day after publication, while the blacklist decisions would enter into force the same day.

Source: Bloomberg