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from MacroScope:

Nearer the brink

A man walks past cutting boards, that have been painted with images of Russia's President Vladimir Putin, at a street store in the center of St. Petersburg

Ukraine is nearer the brink with Russian forces now pretty clearly operating over the border. The past week has seen Ukrainian forces flee in the path of a new rebel advance which Kiev and its western allies says has been directly aided by Moscow's forces.

Russian President Vladimir Putin called on Sunday for immediate talks on "statehood" for southern and eastern Ukraine, though his spokesman tried to temper those remarks, that following an aggressive public showing in which Putin compared the Kiev government to Nazis and warned the West not to "mess with us".

The deputy leader of the breakaway east Ukrainian region said he would take part in talks with representatives of Moscow and Kiev in Minsk today but did not expect a breakthrough. Russian foreign minister Lavrov is out saying the Minsk talks will aim for an immediate ceasefire without conditions although he also said Ukrainian troops must vacate positions from which they can hit civilian targets. Meanwhile, eight Ukrainian seamen have been rescued, two are still missing, after a patrol boat was sunk by artillery.

Despite some vacillation at an EU summit on Saturday, there seems no way that Europe and the United States can avoid tougher sanctions to halt what they say is direct Russian military involvement in Ukraine.

from John Lloyd:

Germany’s renewed hegemony isn’t something Europe needs to fear

German Chancellor Merkel attends news conference in Berlin

She can’t help it. Angela Merkel, chancellor of Germany, is the most important leader in Europe. She tries to duck it by exhibiting a modest demeanor, presenting no charisma, no grand pronouncements, no apparent ambition to stamp her views on history. She just carries on.

Yet European leaders vie for her Mona Lisa smile (or is it a smile?). Are we comfortable with Merkel’s influence and power?

from MacroScope:

End game in east Ukraine?

A Ukrainian serviceman sits on a military armoured vehicle near Donetsk

Ukrainian government forces say they are preparing for the final stage of recapturing the city of Donetsk from pro-Russian separatist rebels after shelling its outskirts and making significant gains over the weekend.

The city faces increasing shortages of food, water and electricity. Vladimir Putin must now decide whether to leave the rebels to their fate or step up his support.  Kiev said on Saturday it had headed off an attempt by Russia to send troops into Ukraine under the guise of peacekeepers accompanying a humanitarian convoy sanctioned by the Red Cross. Moscow dismissed the allegation as a "fairy tale".

from MacroScope:

Q3 rebound but at cost of price cutting?

A woman walks past a shop in Madrid

Manufacturing PMI surveys across the euro zone and for Britain are due. The emerging pattern is of an improving third quarter after a generally poor second three months of the year.

The UK economy continues to romp ahead – growing by 0.8 percent in the second quarter – but on the continent there are signs of a new slowdown. The Bundesbank now forecasts no Q2 growth at all in Germany and though the euro zone flash PMI, released a week ago, showed the currency area rebounding in July, that largely came at the cost of companies cutting prices further, thereby pushing inflation lower still.

from MacroScope:

EU cuts off Russian banks, puts ball in Moscow’s court

Russia's President Vladimir Putin talks to reporters during a meeting in Brasilia

True to its word, the EU agreed sweeping sanctions on Russia yesterday, targeting trade in equipment for the defence and oil sectors and, most crucially, barring Russia’s state-run banks from accessing European capital markets. The measures will be imposed this week and will last for a year initially with three monthly reviews allowing them to be toughened if necessary.

There was no rowing back from the blueprint produced last week – having already agreed to exempt the gas sector – and the United States quickly followed suit, targeting Russian banks VTB, Bank of Moscow, and Russian Agriculture Bank, as well as United Shipbuilding Corp.

from MacroScope:

Moment of truth for EU sanctions

The logo of Russia's top crude producer Rosneft is seen in Moscow

President Barack Obama and the leaders of Germany, Britain, France and Italy agreed on a conference call last night to impose wider sanctions on Russia’s financial, defence and energy sectors.

EU ambassadors are meeting today and are expected to target state-owned Russian banks and their ability to finance Moscow's faltering economy.

from MacroScope:

The long and winding road to sanctions

Russia's President Vladimir Putin talks to reporters during a meeting in Brasilia

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.

from MacroScope:

EU slowly tightens screw

A coffin of one of the victims of Malaysia Airlines MH17 downed over rebel-held territory in eastern Ukraine, is carried from an aircraft during a national reception ceremony at Eindhoven airport

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.

from MacroScope:

A dissenting voice

A train carrying the remains of the victims of Malaysia Airlines MH17 arrives in Kharkiv

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.

from MacroScope:

EU on Russia sanctions: slowly, slowly

Ukraine's President Poroshenko and Dutch ambassador to Ukraine Klompenhouwer commemorate victims of Malaysia Airlines Flight MH17 outside the Dutch embassy in Kiev

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.

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