Obama Shows Europe How to Make Putin Pay

For the first time since Russian President Vladimir Putin began his adventure in Crimea, the West has given him something to think about: The U.S. has put strong sanctions on some of his closest aides, friends and business partners. Would that the same could be said of the European Union.

The EU has more power to threaten Russia’s economy and the wealth of its leaders, but today failed to follow the U.S. lead. EU-wide sanctions require unanimity among 28 countries. The lowest common denominator at the bloc’s summit in Brussels was inadequate to the gravity of Putin’s action: the first annexation of territory in Europe since 1945.

Standoff in Ukraine

The additions that President Barack Obama made to the U.S. sanctions list yesterday won’t push Putin to hand back Crimea -- nothing short of brute force could achieve that now. But by sanctioning Putin’s business allies and Bank Rossiya, which many Russians see as a savings bank for the president and his friends, Obama is extracting a price that Russia can't easily shrug off. The move lends credibility, as well, to his threat that if Putin goes further, the U.S. is willing to hit Russia’s economy harder.

The new list isn’t just about threatening the wealth of Kremlin allies, such as Gennady Timchenko, the 45 percent owner of the world’s fourth largest oil trading group, Gunvor Group Ltd. The Treasury document also implicates Putin in corruption, alleging that he "has investments in Gunvor and may have access to Gunvor funds." The warning that the U.S. can release more damaging information on Putin’s finances is clear.

EU leaders added a further 12 names to their sanctions list, but these don't include the Kremlin’s bankers and business fronts. The summit also promised to reduce energy dependency on Russia -- a good idea-- but the plan it announced is too vague to make a difference.

Europe's threat of further and more punitive sanctions still lacks credibility. This matters because Putin's recent assurances that he has no designs on the rest of Ukraine so long as Russian speakers are left in peace should be discounted. Russian forces continue to conduct exercises on Ukraine’s eastern border; pro-Russian self-defense forces are blocking Ukraine’s military from taking up defensive positions on the other side; and activists in Donetsk and other cities have kept their tents on the central squares, waiting for what comes next.

Willing European governments should act in concert with others, without striving for unanimity. France should cancel its $1.9 billion contract to sell two helicopter ships to Russia. (Allies in the North Atlantic Treaty Organization should buy them instead.) Ukraine has asked for defense and communications equipment; Europe should supply it. And Europe should kill Russia’s proposed South Stream natural gas pipeline project, whose purpose was to bypass Ukraine and increase EU dependence on Russian gas.

The U.K. has a particular responsibility. Its financial regulators should look closely at Russian assets in London. Much of the Russian money flowing through the City is legitimate, but some of it is money laundering. Sanctions aren’t required, just zeal to enforce existing law.

The point is to make Putin understand that his seizure of Crimea has wrecked Russia's relationship with its most important trading partners -- not just to his country's cost, but also to his own and that of his cronies. And the corollary must be made equally clear: If he goes further, so will the West.

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02:28 | 0 comments

How Europe Can Ease Its Way to Inflation Goals

Inflation in the euro area fell to 0.7 percent in February, down a notch from January's 0.8 percent. The news, announced this week, should have attracted more attention. The European Central Bank is persistently failing to meet its goal of keeping inflation "below, but close to, 2 percent." It has the means to do something about this, but has decided not to act.

The situation demands further monetary easing -- but with interest rates already very low, that presents a problem.

Europe's QE Quandary

The ECB can't easily adoptquantitative easing, which the U.S. Federal Reserve and the Bank of Japan have used to good effect, because its legal power to do so is disputed. Germany's Constitutional Court referred the legality of Outright Monetary Transactions -- a bond-buying program announced by the ECB but never deployed -- to the European Court of Justice earlier this year, saying it believed the program to be illegal and wanted clarification from the higher court.

OMT is concerned with financial stability not monetary stimulus. But if OMT is illegal, then Fed-style QE would be too. Do these concerns over legality make sense?

Paul de Grauwe of the London School of Economics disputes it. He says the German court made two main arguments, both flawed.

First, according to the court, OMT overrides investors' judgments about the right prices for distressed government bonds, and that's not "monetary policy," which the ECB is confined to, under the terms of its mandate. Second, OMT (like QE) exposes the central bank to the risk of losses that would ultimately be borne by taxpayers. This makes OMT a kind of fiscal policy -- so again the ECB would be exceeding its powers.

De Grauwe says the first point is mistaken because the court is assuming that investors, left to themselves, would price bonds correctly. In fact, they don't, and the central bank is acting properly if it intervenes to fix errors. On the second point, he acknowledges the risk of defaults that could deplete the central bank's equity. But this isn't a problem, he says, because central banks, unlike governments, can't ever default. They can print money, so they don't actually need any equity.

Europe needs OMT to be available, so it would be good if the European Court of Justice accepted De Grauwe's arguments. Trouble is, his arguments aren't that convincing.

The fact that the central bank might have good reasons to buy distressed bonds doesn't bring such transactions within the realm of orthodox monetary policy: If that's the test the law imposes, De Grauwe's first argument isn't much help. And his second argument -- that central banks needn't worry about sustaining losses -- is too far-reaching. That view would justify plain vanilla direct financing of governments, where the central bank covers the government's budget deficit and simply forgives the loans it makes in the process. Forbidding that practice was the whole point of the law defining the ECB's powers.

The best way to legalize OMT and QE would be to give the ECB a new mandate -- one that explicitly allows unorthodox monetary policy in emergencies. But that won't happen, because the EU finds it harder to fix broken treaties than to adopt them in the first place. The European court, with luck, will fudge the issue, employing lawyerly ingenuity to justify ignoring the bad law as it stands. If that doesn't happen either, there's one more way to go.

Harvard's Jeffrey Frankel tells Mario Draghi, the ECB's president, you can do QE legally by buying U.S. bonds rather than the debts of EU governments. This doesn't rescue OMT, because that program has to buy EU debt. But ECB purchases of U.S. debt would be a way to undertake QE within the bounds of the mandate. And right now, the EU may need QE more than it needs OMT, because the threat of deflation looms larger than the danger of government defaults.

QE done this way usually goes by another name: unsterilized foreign-exchange intervention. It's certainly within the ECB's remit. It would ease monetary conditions in Europe both by expanding the money supply and by driving down the value of the euro. As Frankel says:

The strength of the euro has held up remarkably during the four years of crisis. Indeed the currency appreciated further when the ECB declined to undertake any monetary stimulus at its March 6 meeting. The euro could afford to weaken substantially. Even Germans might warm up to easy money if it meant more exports rather than less. ...
As the Fed tapers back on its purchases of US treasury securities, it is a perfect time for the ECB to step in and buy some itself.

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02:28 | 0 comments

Obama Shows Europe How to Make Putin Pay

For the first time since Russian President Vladimir Putin began his adventure in Crimea, the West has given him something to think about: The U.S. has put strong sanctions on some of his closest aides, friends and business partners. Would that the same could be said of the European Union.

The EU has more power to threaten Russia’s economy and the wealth of its leaders, but today failed to follow the U.S. lead. EU-wide sanctions require unanimity among 28 countries. The lowest common denominator at the bloc’s summit in Brussels was inadequate to the gravity of Putin’s action: the first annexation of territory in Europe since 1945.

Standoff in Ukraine

The additions that President Barack Obama made to the U.S. sanctions list yesterday won’t push Putin to hand back Crimea -- nothing short of brute force could achieve that now. But by sanctioning Putin’s business allies and Bank Rossiya, which many Russians see as a savings bank for the president and his friends, Obama is extracting a price that Russia can't easily shrug off. The move lends credibility, as well, to his threat that if Putin goes further, the U.S. is willing to hit Russia’s economy harder.

The new list isn’t just about threatening the wealth of Kremlin allies, such as Gennady Timchenko, the 45 percent owner of the world’s fourth largest oil trading group, Gunvor Group Ltd. The Treasury document also implicates Putin in corruption, alleging that he "has investments in Gunvor and may have access to Gunvor funds." The warning that the U.S. can release more damaging information on Putin’s finances is clear.

EU leaders added a further 12 names to their sanctions list, but these don't include the Kremlin’s bankers and business fronts. The summit also promised to reduce energy dependency on Russia -- a good idea-- but the plan it announced is too vague to make a difference.

Europe's threat of further and more punitive sanctions still lacks credibility. This matters because Putin's recent assurances that he has no designs on the rest of Ukraine so long as Russian speakers are left in peace should be discounted. Russian forces continue to conduct exercises on Ukraine’s eastern border; pro-Russian self-defense forces are blocking Ukraine’s military from taking up defensive positions on the other side; and activists in Donetsk and other cities have kept their tents on the central squares, waiting for what comes next.

Willing European governments should act in concert with others, without striving for unanimity. France should cancel its $1.9 billion contract to sell two helicopter ships to Russia. (Allies in the North Atlantic Treaty Organization should buy them instead.) Ukraine has asked for defense and communications equipment; Europe should supply it. And Europe should kill Russia’s proposed South Stream natural gas pipeline project, whose purpose was to bypass Ukraine and increase EU dependence on Russian gas.

The U.K. has a particular responsibility. Its financial regulators should look closely at Russian assets in London. Much of the Russian money flowing through the City is legitimate, but some of it is money laundering. Sanctions aren’t required, just zeal to enforce existing law.

The point is to make Putin understand that his seizure of Crimea has wrecked Russia's relationship with its most important trading partners -- not just to his country's cost, but also to his own and that of his cronies. And the corollary must be made equally clear: If he goes further, so will the West.

Read More

02:28 | 0 comments

How Europe Can Ease Its Way to Inflation Goals

Inflation in the euro area fell to 0.7 percent in February, down a notch from January's 0.8 percent. The news, announced this week, should have attracted more attention. The European Central Bank is persistently failing to meet its goal of keeping inflation "below, but close to, 2 percent." It has the means to do something about this, but has decided not to act.

The situation demands further monetary easing -- but with interest rates already very low, that presents a problem.

Europe's QE Quandary

The ECB can't easily adoptquantitative easing, which the U.S. Federal Reserve and the Bank of Japan have used to good effect, because its legal power to do so is disputed. Germany's Constitutional Court referred the legality of Outright Monetary Transactions -- a bond-buying program announced by the ECB but never deployed -- to the European Court of Justice earlier this year, saying it believed the program to be illegal and wanted clarification from the higher court.

OMT is concerned with financial stability not monetary stimulus. But if OMT is illegal, then Fed-style QE would be too. Do these concerns over legality make sense?

Paul de Grauwe of the London School of Economics disputes it. He says the German court made two main arguments, both flawed.

First, according to the court, OMT overrides investors' judgments about the right prices for distressed government bonds, and that's not "monetary policy," which the ECB is confined to, under the terms of its mandate. Second, OMT (like QE) exposes the central bank to the risk of losses that would ultimately be borne by taxpayers. This makes OMT a kind of fiscal policy -- so again the ECB would be exceeding its powers.

De Grauwe says the first point is mistaken because the court is assuming that investors, left to themselves, would price bonds correctly. In fact, they don't, and the central bank is acting properly if it intervenes to fix errors. On the second point, he acknowledges the risk of defaults that could deplete the central bank's equity. But this isn't a problem, he says, because central banks, unlike governments, can't ever default. They can print money, so they don't actually need any equity.

Europe needs OMT to be available, so it would be good if the European Court of Justice accepted De Grauwe's arguments. Trouble is, his arguments aren't that convincing.

The fact that the central bank might have good reasons to buy distressed bonds doesn't bring such transactions within the realm of orthodox monetary policy: If that's the test the law imposes, De Grauwe's first argument isn't much help. And his second argument -- that central banks needn't worry about sustaining losses -- is too far-reaching. That view would justify plain vanilla direct financing of governments, where the central bank covers the government's budget deficit and simply forgives the loans it makes in the process. Forbidding that practice was the whole point of the law defining the ECB's powers.

The best way to legalize OMT and QE would be to give the ECB a new mandate -- one that explicitly allows unorthodox monetary policy in emergencies. But that won't happen, because the EU finds it harder to fix broken treaties than to adopt them in the first place. The European court, with luck, will fudge the issue, employing lawyerly ingenuity to justify ignoring the bad law as it stands. If that doesn't happen either, there's one more way to go.

Harvard's Jeffrey Frankel tells Mario Draghi, the ECB's president, you can do QE legally by buying U.S. bonds rather than the debts of EU governments. This doesn't rescue OMT, because that program has to buy EU debt. But ECB purchases of U.S. debt would be a way to undertake QE within the bounds of the mandate. And right now, the EU may need QE more than it needs OMT, because the threat of deflation looms larger than the danger of government defaults.

QE done this way usually goes by another name: unsterilized foreign-exchange intervention. It's certainly within the ECB's remit. It would ease monetary conditions in Europe both by expanding the money supply and by driving down the value of the euro. As Frankel says:

The strength of the euro has held up remarkably during the four years of crisis. Indeed the currency appreciated further when the ECB declined to undertake any monetary stimulus at its March 6 meeting. The euro could afford to weaken substantially. Even Germans might warm up to easy money if it meant more exports rather than less. ...
As the Fed tapers back on its purchases of US treasury securities, it is a perfect time for the ECB to step in and buy some itself.

Read More

02:28 | 0 comments

Obama’s Europe Trip Shifts to Mobilizing Ukraine Response

U.S. President Barack Obama is turning a European trip originally focused on nuclear security and trade into a mission to mobilize international opposition to Russia’s annexation of Crimea.

White House National Security AdviserSusan Rice said yesterday that Russian President Vladimir Putin’s moves to claim Crimea from Ukraine have prompted the U.S. and Europe to reevaluate their post-Cold War relationship with Russia.

“What will be clear for the entire world to see is that Russia is increasingly isolated,” Rice said at a White House briefing on week-long trip, which begins March 24 in the Netherlands. The U.S. is leading the charge to impose costs on Russia “for its aggression against Ukraine.”

Russia’s incursion into Ukraine has become the central issue for Obama as he enters into a series of discussions with leaders gathering for a nuclear security summit and the annual U.S.-European Union meeting. While there, Obama also will meet with other leaders of the Group of Seven nations, Chinese President Xi Jinping and U.S. allies in Asia.

It will be the first broad gathering of world leaders since Russia moved into the Crimean region. Russia completed its annexation of Crimea yesterday with Putin signing legislation in Moscow to absorb the Black Sea peninsula and its port, Sevastopol, from Ukraine.

Other Stops

The situation also is overshadowing other stops on Obama’s itinerary: his first meeting with Pope Francis at the Vatican and a visit to Saudi Arabia to discuss Syria, Iran and Mideast peace talks.

Russia is unlikely to retreat from its annexation of Crimea so the primary goal of Obama’s meetings in Europe is to reassure allies on the periphery of Russia such as Poland and the Baltic states and send Putin “a clear deterrent message,” said Robert Litwak, director of International Security Studies at the Wilson Center in Washington.

The U.S. and EU have slapped financial sanctions on Russian officials and Putin allies to pressure Russia. Obama and European leaders have signaled that Russia may face further repercussions if it doesn’t stop what they see as destabilizing actions in Ukraine.

“We’re already quite closely coordinated with our European partners,” Rice said.

Possible Sanctions

Obama signed a new executive order on March 20 authorizing though not implementing economic sanctions affecting parts of the Russian economy. They would target financial services, energy, metals and mining, defense and engineering. Those measures carry the risk of squeezing the economies of the U.S. and EU because they would hit multinational companies that do business in Russia.

The turmoil already has had an impact in Russia. Yesterday, the country’s benchmark Micex Index (INDEXCF) of stocks fell 1 percent, the most among emerging markets, to 1,307.34 by the close, and yield on government bonds due February 2027 jumped 12 basis points, the most in a week, to 9.42 percent. The ruble has tumbled 9.3 percent against the dollar this year, the worst among 24 emerging markets tracked by Bloomberg after Argentina’s peso.

Strobe Talbott, president of the Brookings Institution in Washington who was deputy secretary of state in President Bill Clinton’s administration, said Putin’s “appetite is unsated” by seizing Crimea and it’s too soon to say whether the sanctions will be enough to stop him from going further.

Russian Behavior

“It certainly hasn’t changed Russian behavior and it’s not going to change Putin’s own predilections,” Talbot said on Bloomberg Television’s “Political Capital with Al Hunt” airing this weekend.

The massing of Russian troops near Ukraine’s borders have raised concerns that Putin may push further into the second most populous former Soviet republic.

Rice said the U.S. views with “skepticism” Russia’s assertion that movements of its military on the borders of Ukraine were simply training exercises.

Since the breakup of the Soviet Union, the U.S. and EU have supported Russia’s integration into the global economy, such as backing its entry into the World Trade Organization.

“But that was predicated on an expectation that Russia would play by the rules of the road, the economic and security rules of the road, international law,” Rice said. “What we have seen in Ukraine is obviously a very egregious departure from that.”

G-8 Debate

Rice alluded to discussions about suspending Russia from the Group of Eight, saying members will “consider the optimum disposition of the G-8/G-7 mechanism going forward in light of recent developments.”

Russia still will take part in the nuclear security conference in The Hague. The summit -- the first was held in Washington in 2010 -- is aimed at working to prevent the spread of nuclear material and the spread of weapons.

While Obama and other heads of state will be attending, Putin is staying home. Russia will be represented by Foreign Minister Sergei Lavrov. Rice said that decision was made before the confrontation over Ukraine.

“We have every interest in continuing to cooperate with Russia and other countries, even where we have differences with them on other issues, on the issue of nuclear security,” Rice said.

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02:10 | 0 comments

Obama’s Europe Trip Shifts to Mobilizing Ukraine Response

U.S. President Barack Obama is turning a European trip originally focused on nuclear security and trade into a mission to mobilize international opposition to Russia’s annexation of Crimea.

White House National Security AdviserSusan Rice said yesterday that Russian President Vladimir Putin’s moves to claim Crimea from Ukraine have prompted the U.S. and Europe to reevaluate their post-Cold War relationship with Russia.

“What will be clear for the entire world to see is that Russia is increasingly isolated,” Rice said at a White House briefing on week-long trip, which begins March 24 in the Netherlands. The U.S. is leading the charge to impose costs on Russia “for its aggression against Ukraine.”

Russia’s incursion into Ukraine has become the central issue for Obama as he enters into a series of discussions with leaders gathering for a nuclear security summit and the annual U.S.-European Union meeting. While there, Obama also will meet with other leaders of the Group of Seven nations, Chinese President Xi Jinping and U.S. allies in Asia.

It will be the first broad gathering of world leaders since Russia moved into the Crimean region. Russia completed its annexation of Crimea yesterday with Putin signing legislation in Moscow to absorb the Black Sea peninsula and its port, Sevastopol, from Ukraine.

Other Stops

The situation also is overshadowing other stops on Obama’s itinerary: his first meeting with Pope Francis at the Vatican and a visit to Saudi Arabia to discuss Syria, Iran and Mideast peace talks.

Russia is unlikely to retreat from its annexation of Crimea so the primary goal of Obama’s meetings in Europe is to reassure allies on the periphery of Russia such as Poland and the Baltic states and send Putin “a clear deterrent message,” said Robert Litwak, director of International Security Studies at the Wilson Center in Washington.

The U.S. and EU have slapped financial sanctions on Russian officials and Putin allies to pressure Russia. Obama and European leaders have signaled that Russia may face further repercussions if it doesn’t stop what they see as destabilizing actions in Ukraine.

“We’re already quite closely coordinated with our European partners,” Rice said.

Possible Sanctions

Obama signed a new executive order on March 20 authorizing though not implementing economic sanctions affecting parts of the Russian economy. They would target financial services, energy, metals and mining, defense and engineering. Those measures carry the risk of squeezing the economies of the U.S. and EU because they would hit multinational companies that do business in Russia.

The turmoil already has had an impact in Russia. Yesterday, the country’s benchmark Micex Index (INDEXCF) of stocks fell 1 percent, the most among emerging markets, to 1,307.34 by the close, and yield on government bonds due February 2027 jumped 12 basis points, the most in a week, to 9.42 percent. The ruble has tumbled 9.3 percent against the dollar this year, the worst among 24 emerging markets tracked by Bloomberg after Argentina’s peso.

Strobe Talbott, president of the Brookings Institution in Washington who was deputy secretary of state in President Bill Clinton’s administration, said Putin’s “appetite is unsated” by seizing Crimea and it’s too soon to say whether the sanctions will be enough to stop him from going further.

Russian Behavior

“It certainly hasn’t changed Russian behavior and it’s not going to change Putin’s own predilections,” Talbot said on Bloomberg Television’s “Political Capital with Al Hunt” airing this weekend.

The massing of Russian troops near Ukraine’s borders have raised concerns that Putin may push further into the second most populous former Soviet republic.

Rice said the U.S. views with “skepticism” Russia’s assertion that movements of its military on the borders of Ukraine were simply training exercises.

Since the breakup of the Soviet Union, the U.S. and EU have supported Russia’s integration into the global economy, such as backing its entry into the World Trade Organization.

“But that was predicated on an expectation that Russia would play by the rules of the road, the economic and security rules of the road, international law,” Rice said. “What we have seen in Ukraine is obviously a very egregious departure from that.”

G-8 Debate

Rice alluded to discussions about suspending Russia from the Group of Eight, saying members will “consider the optimum disposition of the G-8/G-7 mechanism going forward in light of recent developments.”

Russia still will take part in the nuclear security conference in The Hague. The summit -- the first was held in Washington in 2010 -- is aimed at working to prevent the spread of nuclear material and the spread of weapons.

While Obama and other heads of state will be attending, Putin is staying home. Russia will be represented by Foreign Minister Sergei Lavrov. Rice said that decision was made before the confrontation over Ukraine.

“We have every interest in continuing to cooperate with Russia and other countries, even where we have differences with them on other issues, on the issue of nuclear security,” Rice said.

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02:10 | 0 comments

Russia Accepts Ukraine Monitors as West Warns on Troops

Russia agreed to international monitors arriving in Ukraine amid more turmoil in the region and as Western nations expressed growing concern over the Kremlin massing troops on the border with its neighbor.

While talks about the monitors with Russia were “difficult,” their presence may help avoid escalation of the conflict, German Foreign Minister Frank-Walter Steinmeier told reporters in Kiev yesterday. Pro-Kremlin forces seized a military airport in Crimea and ousted Ukrainian leader Viktor Yanukovych’s supporters protested in the country’s east.

The six-month monitoring mission is meant to cool tensions in the worst standoff between Russia and the West since the end of the Cold War. As Russian President Vladimir Putin completed the annexation of Crimea, the two sides exchanged sanctions, raising concern about escalation. U.S. President Barack Obama will meet allies during a European visit starting tomorrow.

MAP: The Russian Troops Along the Border

“It is important that we in the free world not accept the occupation of Crimea, that we continue to resist, and that we do not return to business as usual with the Putin regime until such time as the occupation of Crimea ends,” Canadian Prime Minister Stephen Harper said in Kiev yesterday at a news conference with Ukrainian Premier Arseniy Yatsenyuk. “The consequences of these actions will be felt far beyond the borders of Ukraine.”

East Ukraine

With Putin’s annexation of Crimea completed, attention shifted to whether Russia would seek to claim other parts of Ukraine. White House National Security Adviser Susan Rice said the U.S. was watching events on Russia’s frontier with Ukraine.

“The Russians have stated that they are intending military exercises,” Rice said at a March 21 briefing in Washington. “Obviously, given their past practice and the gap between what they have said and what they have done, we are watching it with skepticism.”

U.S. intelligence and military officials said there are now Russian troops on virtually all of the country’s border with Ukraine. Some units have moved within 31 miles of the border, said the officials, who requested anonymity to discuss classified intelligence reports.

Russian troops in some sectors, including near corridors from Russia to major Ukrainian cities, have been reinforced with armor, attack airplanes and helicopters, the officials said. There are also signs that the troops are receiving substantial logistical support, which could signal preparations for sustained operations, they said.

‘Far-Reaching Consequences’

The number of Russian troops along the border is about double what it was when the defense ministry in Moscow announced that its armed forces would hold exercises near eastern Ukraine, according to the officials. Even so, the officials said it’s hard to assess whether the Russians are preparing for an invasion or are trying to intimidate the pro-Western government in Kiev.

If Russian troops enter east Ukraine, it “would trigger far-reaching consequences in a broad range of economic areas,” U.K. Prime Minister David Cameron told reporters March 21 after a summit in Brussels. “That must include the key areas like finance, like the military, like energy.”

About 40 kilometers (25 miles) from the Russian border, Yanukovych supporters rallied in the city of Donetsk yesterday, urging the Kremlin-backed leader’s return and a referendum to give Ukraine’s regions wider power. More than 2,000 people gathered in the city of more than 1 million, according to the Interfax-Ukraine news service.

Federal Ukraine

“I’m for an integrated Ukraine, but with a federal form of governance,” said Mykola, 58, a retired mining engineer at the rally who declined to give his last name for fear of reprisal. “The east and west of Ukraine for sure should have a common defense, common science, common culture, but most of the region’s revenues should be kept within this region.”

The comments echo those from Russia, which has urged its neighbor to adopt a federal constitution that guarantees political and military neutrality, grants powers to Ukrainian regions, and makes Russian a second official language. There’s no indication that would be acceptable to the Ukrainian government or to its Western supporters.

Russia welcomes the decision by the Organization for Security and Cooperation in Europe to send monitors, the Foreign Ministry in Moscow said in a website statement yesterday. Their mandate doesn’t extend to Crimea, which reflects “the new political and legal realities.”

Airport Seized

In the Black Sea peninsula, pro-Russia forces yesterday seized Belbek airport and arrested its Ukrainian commander, Yuliy Mamchur, he said by text message. There were no injuries, he said. About 100 Ukrainian troops were forced from their Novofyodorovka base in Crimea earlier, Vladyslav Seleznyov, a spokesman for Ukraine’s Defense Ministry, said by phone.

Belbek is the main airport for the city of Sevastopol, where Russia’s Black Sea fleet is based. The main civilian airport in Crimea is in Simferopol.

Fewer than 2,000 of the more than 18,000 Ukrainian troops in Crimea have said they want to leave, Russian state-run news service RIA Novosti reported, citing the Russian Defense Ministry. Russian flags have been raised over 54 of 67 Ukrainian ships and Defense Minister Sergei Shoigu ordered his forces to allow the orderly exit of Ukrainian troops, RIA said.

Ukraine’s government, which on March 21 signed the political chapters of an association accord with the EU, discussed military cooperation with European partners, Yatsenyuk said in Kiev yesterday.

Leaders’ Meeting

Leaders of the U.S., the EU, China, Japan and other nations meet in The Hague starting tomorrow, and Obama plans to use the gathering to mobilize opposition to Russia’s incursion into Crimea.

While ruling out military action, Obama has joined European leaders in warning of further consequences if Russia fails to yield. The U.S. is focusing on diplomatic and economic tools to defuse the crisis, Rice told reporters.

The Obama administration continues debating what military aid to send Ukraine in addition to ready-to-eat meals and other non-lethal assistance, one administration official said, speaking on condition of anonymity to discuss the policy deliberations.

The EU, moving more slowly than the U.S. on sanctions, on March 21 expanded to 51 individuals its list of Russians and Ukrainians punished with asset freezes and travel bans.

Sanctions List

The U.S. the previous day widened its list of people targeted to 27 Russian officials and four Ukrainians. In addition, Obama that day authorized potential future penalties on Russian industries, including financial services, energy, metals and mining, defense and engineering.

Russia’s benchmark Micex Index of stocks fell 1 percent on March 21, the most among emerging markets, to 1,307.34 by the close, and the yield on government bonds due February 2027 jumped 12 basis points, the most in a week, to 9.42 percent.

Russia reserves the right to impose sanctions following the EU’s decision to expand its list, Russia’s Foreign Ministry said in a statement yesterday.

The ministry is proposing retaliatory steps, as “unanswered sanctions may whet appetites to impose new measures,” Deputy Foreign Minister Grigory Karasin told lawmakers.

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01:57 | 0 comments