US & allies evict Russia from G8, plan more curbs

Ukrainian troops exit Crimea, Russia redraws official maps

James G Neuger,

Patrick Donahue & Julianna Goldman

Bloomberg

The world’s top industrial powers suspended Russia from participating in the Group of Eight and threatened further sanctions to deter President Vladimir Putin from taking over other parts of Ukraine.

Meeting for the first time since last week’s annexation of Crimea by Russia, the Group of Seven leaders on Monday night said they won’t attend a planned G8 meeting, which was to have been held in Sochi, site of the Winter Olympics, and will instead hold their own summit in Brussels in June.

Both sides in Ukraine’s crisis spent the day calculating what to do next, with Russia consolidating its control over Crimea and maintaining forces along the border with Ukraine in the most serious confrontation between Moscow and the US and its allies since the demise of the Soviet Union.

(AP adds: Lawmakers in Ukraine accepted the resignation of the defence minister on Tuesday as thousands of troops began withdrawing from the Crimea, effectively acknowledging defeat following Moscow's annexation of the Black Sea peninsula.

Russia on Monday redrew its official maps to include Crimea, even though the move has not been internationally recognised.

In address to parliament, Igor Tenyukh said he rejected criticism that he had failed to issue clear instructions to troops, but that he reserved the right to step down. Lawmakers initially refused his resignation, but later accepted it. A majority then voted to appoint Col Gen Mikhail Kovalyov as his replacement.

Ukrainian soldiers in Crimea piled onto buses and began their journey to the mainland on Tuesday, as former comrades saluted them from outside a base overrun by Russian forces. Tenyukh said he had received requests to leave Crimea from about 6,500 soldiers and family members- meaning about two-thirds of the 18,800 military personnel and relatives stationed there were so far taking their chances in the peninsula newly absorbed by Russia. )

Putin didn’t show his hand on Monday, instead using a public appearance in Moscow to tout Russia’s sporting prowess and announce that the Sochi Olympics came in under budget.

Putin sent foreign minister Sergei Lavrov to The Hague for a 53-nation summit on the security of the world’s stockpiles of nuclear fuel. Lavrov told reporters that Russia isn’t “clinging” to the G8 format, viewing the wider G20 as the best forum for discussing global issues.

Russia is interested in continuing contacts with G8 members, Dmitry Peskov, Putin’s spokesman, said on Tuesday, the Interfax news service reported.

German Chancellor Angela Merkel said there’s no “political environment” for a G8 meeting. G7 foreign ministers will also skip a Moscow meeting in April, the G7 said in the statement.

“This group came together because of shared beliefs and shared responsibilities,” the G7 said. “Russia’s actions in recent weeks are not consistent with them.”

A G7 energy ministers’ meeting will explore ways to diversify Europe’s energy supply in order to blunt the cost of imposing sanctions, the US official said.

US and European officials said sanctions are already biting. Russia’s Micex stock index has plunged 13 per cent this year, worse than the 4.8 per cent decline in the MSCI Emerging Markets Index. It was up 0.8 per cent at 2.47 pm in Moscow.

The ruble has weakened 7.9 per cent in 2014, making it the second-worst performer against the dollar among 24 developing-market currencies tracked by Bloomberg. It gained 1 per cent to 35.6785 per dollar on Tuesday.

Investors pulled $5.5 billion from Russian equities and bonds this year through March 20, already approaching the total outflow of $6.1 billion for all of 2013, according to data compiled by EPFR Global, a Cambridge, Massachusetts-based company that tracks fund flows.

The G7 remains ready to intensify actions, including coordinated sectoral sanctions that would have “an increasingly significant impact” on Russia’s economy, if Moscow escalates the situation, the group said in a statement e-mailed after a meeting in The Hague on Monday.

“We’re united in imposing a cost on Russia for its actions so far,” US President Barack Obama told reporters in Amsterdam Monday at the start of a six-day trip that includes a nuclear-security summit in The Hague and a meeting with the heads of European Union institutions in Brussels.

“While a Russian invasion of eastern Ukraine can by no means be excluded, Putin must surely calculate that it would be a poor and risky option,” Roderic Lyne, deputy chairman of Chatham House and a former UK ambassador to Moscow, said in a website comment. “He also knows that it would trigger much deeper western sanctions, which would hit his Achilles heel – Russia’s declining, unreformed economy.”

With Monday’s move, the G7 – the US, Germany, the UK, France, Italy, Canada and Japan – reverted to its Cold War-era format, suspending what became the G8 in 1998 when Russia was welcomed in. The group was all smiles around a Putin-less conference table in a photo posted on Twitter by European Commission President Jose Barroso, who attended along with EU president Herman Van Rompuy.

“It’s Russia that needs to change course,” UK prime minister David Cameron told reporters.

US and European warnings focused on potential military moves by the Kremlin into Russian-speaking areas of eastern and southern Ukraine, leaving open whether the two hope to dislodge Putin’s forces from Crimea, a Black Sea peninsula dominated by Russia since the 18th century.

“We will not accept this kind of behaviour,” European Commission President Jose Barroso said in an interview in The Hague. “There is a heavy price to pay if this kind of behaviour continues.”

The US has imposed asset freezes and visa bans on 31 Russians, Ukrainians and Crimeans, including political and business figures close to Putin. The 28-nation EU has put 51 people on its blacklist, including some on the US roster, while stopping short of punishing businesspeople.

“The current sanctions are still too little to matter, but that’s not by accident – it’s by design,” said Fredrik Erixon, director of the European Centre for International Political Economy in Brussels. “The EU and US are sitting on weapons of mass destruction when it comes to Russia’s economy. The US and EU are laying out possible step-by-step economic sanctions that will start rolling into place if Putin doesn’t behave.”

Net capital outflow from Russia is forecast at $65 billion to $75 billion in the first quarter of the year, deputy economy minister Andrey Klepach said on Monday. That would be more than the $63 billion recorded for the whole of last year.

Gross domestic product rose 0.3 per cent in February after gaining 0.1 per cent in January. The government still doesn’t expect the economy to slide into recession, he said.

A Russian incursion into other parts of Ukraine would be the most likely trigger for wider sanctions that could cover Russia’s energy, banking and finance industries, as well as weapons procurement, an Obama administration official told reporters on condition of anonymity.

European governments are debating the costs of snubbing Russia. Banking curbs would hurt Britain, an arms embargo would bar France from selling Mistral-class helicopter carriers to the Kremlin, and cutbacks in purchases of Russian gas would harm a swathe of EU countries, starting with Germany.

Russia wants Ukraine to adopt a federal constitution that guarantees political and military neutrality, grants powers to Ukrainian regions and makes Russian a second official language.

In a nod to those concerns, the G7 urged Ukraine to undertake “broad-based constitutional reform, free and fair presidential elections in May, promotion of human rights and respect of national minorities.”

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