Reuters blog archive
If it’s true to its word, the European Union will impose sweeping new sanctions on Russia this week, targeting state-owned Russian banks and their ability to finance Moscow's faltering economy.
EU ambassadors will continue discussions on the detail of new measures, most significant of which would be banning European investors from buying new debt or shares of banks owned 50 percent or more by the state.
An embargo on arms sales to Moscow and restrictions on the supply of energy and dual-use technologies is also on the table but it looks like restrictions to supplying technology to Russia will include oil but exclude the gas sector.
European Council President Herman Van Rompuy wrote to EU leaders asking them to authorise their ambassadors to complete an agreement by Tuesday. That would avoid the need for leaders to hold a special summit to approve the sanctions.
The EU is slowly tightening the screw on Russia, with senior officials proposing yesterday to target state-owned Russian banks in its most serious sanctions so far. Ambassadorial talks on how precisely that is to be done continue today and the measures are likely to be enacted next week.
One key proposal is that European investors would be banned from buying new debt or shares of banks owned 50 percent or more by the state. These banks raised almost half of their 15.8 billion euro capital needs in EU markets last year. That is a big deal and there are increasing signs of investors turning their back on Russia lock, stock and barrel. However, with its giant FX reserves, the central bank can provide dollars to fund external debt for a considerable period of time.
Interesting intervention from former Russian finance minister Alexei Kudrin late yesterday who warned that Russia risked isolation and having its efforts to modernize derailed.
That sort of internal criticism is rare but Kudrin has done so before without censure which suggests Vladimir Putin is – or has been - willing to hear it. Kudrin added that Moscow should not intervene militarily in eastern Ukraine.
EU foreign ministers meet to decide how precisely to deploy sanctions agreed 10 days ago to hit Russian companies that help destabilise Ukraine and to block new loans to Russia through two multilateral lenders.
The EU foreign ministers are tasked with preparing a first list of people and entities from Russia that would be targeted. The number of individuals and companies to be penalized is up for grabs so there is scope to adopt a tougher posture.
EU leaders said over the weekend they would be prepared to impose tougher sanctions on Russia, giving Vladimir Putin one more chance to douse the violence in eastern Ukraine and help investigators do their work at the site of the crashed Malaysian airliner or face the consequences.
A statement from the British government said Germany’s Angela Merkel, Britain’s David Cameron and France’s Francois Hollande agreed on a telephone call that their ministers should be ready to announce a fresh round of sanctions at a meeting of the European Union's Foreign Affairs Council on Tuesday.
EU leaders meet for a summit at which they were supposed to decide who gets which European Commissioner posts – one for each member state – in what will be a huge carve-up, so huge in fact that it may well be that only a very few jobs are decided tonight.
Current best guesses – though they are just guesses – are that despite a willingness among some to play nice with the Brits, Prime Minister David Cameron may lose out again having voted against Juncker at a June summit. He is seeking one of the big economic portfolios; internal market, trade or competition but putting forward a low-profile politician as his point person in Brussels has not that made that any more likely.
The new EU aristocracy will be put in place this week with the European Parliament to confirm Jean-Claude Juncker as the next European Commission President today and then EU leaders gathering for a summit on Wednesday at which they will work out who gets the other top jobs in Brussels.
Although Juncker, who will make a statement to the parliament today which may shed some light on his policy priorities, is supposed to decide the 27 commissioner posts – one for each country – in reality this will be an almighty horse-trading operation.
After the European Central Bank kept alive the prospect of printing money and the U.S. economy enjoyed a bumper month of jobs hiring prompting some to bring forward their expectations for a first U.S. interest rate rise, the Bank of England holds a monthly policy meeting.
There is no chance of a rate rise this time but the UK looks increasingly nailed on to be the first major economy to tighten policy, with the ECB heading in the opposite direction and the U.S. Federal Reserve still unlikely to shift until well into next year. Minutes of the Fed’s last meeting, released yesterday, showed general agreement that its QE programme would end in October but gave little sign that rates will rise before the middle of 2015.
European Central Bank President Mario Draghi will deliver an evening keynote speech in London – the scene for his game-changing “whatever it takes” declaration in 2012.
He is unlikely to come up with anything so dramatic this time but is clearly trying to convince that the ECB could yet start printing money if required to avert deflation.
Bank of England rate setters meeting this week should be in cordial agreement that Britain's economy is growing at a decent pace, and that price pressures look mostly in check at the moment.
But when it comes to gauging how quickly slack in the labour market is disappearing – a key question deciding when they should raise interest rates – the surveys look a lot less joined-up.