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from MacroScope:

Jaw jaw and war war

An Ukrainian serviceman is seen next to a sight for a gun near the eastern Ukrainian town of Luhansk

Pro-Russia separatists at talks with representatives from Moscow and the OSCE in Minsk said they would be prepared to stay part of Ukraine if they were granted "special status", which is unlikely to be acceptable to Kiev.

The talks will continue later in the week and come as the Ukrainian military faced a run of reverses on the battlefield which Kiev says have been engineered by the intervention of at least 1,600 Russian combat troops.

In the latest in a string of setbacks, Ukraine's military said it had pulled back from defending a vital airport near the city of Luhansk, where troops had been battling a Russian tank battalion. Ukrainian President Petro Poroshenko accused Russia of "direct and undisguised aggression" which he said had radically changed the battlefield balance. Moscow denies it is involved.

All that means the United States and EU must surely toughen their sanctions on Russia although several EU countries heavily dependent on Russian gas, including the Czech Republic, Slovakia and Austria, are opposed to new measures, which require unanimous agreement.

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".

from John Lloyd:

Russian ‘realism’ is winning now, but will fail in the end

Russian President Putin speaks to the media after talks with Ukrainian President Poroshenko in Minsk, Belarus

The world is no longer divided by communism vs. capitalism. But it’s still divided by ideologies that have their clearest expression in the policies of Russia and the United States. That division contrasts liberal and realist views of the world.

Russian President Vladimir Putin’s realist stance has won ground. No country will help Ukraine get Crimea back, which Russia annexed in March. There’s no invitation pending for Ukraine to join the European Union – the more so since the new president of the European Commission, Jean Claude Juncker, has ruled out any applications for membership for at least five years. And NATO will not rush to admit a nation that it would be pledged to defend from armed incursion.

from MacroScope:

Moment of truth in Ukraine

A Ukrainian serviceman guards a checkpoint near Donetsk

Financial markets perked up on Monday after Russia called off military exercises near the Ukraine border but was the confidence well founded?

NATO’s chief told Reuters there was a "high probability" Russia could launch an invasion of Ukraine where the government said it was in the "final stages" of recapturing Donetsk, the main city held by pro-Russian rebels, a battle that could be a decisive turning point in the biggest confrontation between Russia and the West since the Cold War.

from MacroScope:

A reminder that all is not well in the euro zone

Bank of Portugal Governor Costa arrives to read a statement in Lisbon

A reminder that while the euro zone crisis may be in abeyance, it still has the ability to bite.

Portugal will blow 4.4 billion euros of the 6.4 billion euros left from Lisbon’s recently exited international bailout programme shoring up troubled lender Banco Espirito Santo which will be split into "bad" and "good" banks. Junior bondholders and shareholders will be heavily hit.

from Anatole Kaletsky:

World War One: First war was impossible, then inevitable

British troops advance during the battle of the Somme in this 1916 handout picture

Why does the assassination of Archduke Franz Ferdinand -- the event that lit the fuse of World War One 100 years ago Saturday -- still resonate so powerfully? Virtually nobody believes World War Three will be triggered by recent the military conflicts in Ukraine, Iraq or the China seas, yet many factors today mirror those that led to the catastrophe in Sarajevo on June 28, 1914.

The pace of globalization was almost as dramatic and confusing in 1914 as it is today. Fear of random terrorism was also widespread -- the black-hatted anarchist clutching a fizzing bomb was a cartoon cliché then just as the Islamic jihadist is today. Yet the crucial parallel may be the complacent certainty that economic interdependence and prosperity had made war inconceivable -- at least in Europe.

from The Great Debate:

No matter what Putin says — Russian people have no appetite for war

People attend a rally called "We are together" to support the annexation of Ukraine's Crimea to Russia in Red Square in central Moscow

Russia and the West are again at odds, eying each other with suspicion over Moscow's annexation of Crimea and support of armed separatists in Eastern Ukraine. Basic rules of the game for security, stability and prosperity in Europe and beyond are at stake. Some commentators are calling this a "new Cold War."

But the crucial fact is that the public on each side does not have any appetite for a sustained conflict.

from MacroScope:

The Mark and George show

The Mansion House dinner in the City of London is one of Britain’s big set-pieces of the year featuring speeches by Bank of England Governor Mark Carney and finance minister George Osborne.

Carney will be speaking a week before the Bank’s Financial Policy Committee meets and is expected to road test its new tools to calm the housing market. Among other measures, the BoE could recommend caps on the size of home loans granted in relation to a property’s value or a borrower’s salary.

from MacroScope:

Euro zone inflation data to set seal on ECB action

Euro zone inflation – due at 0900 GMT - is forecast to hold at a paltry 0.7 percent in May, in what European Central Bank President Mario Draghi has labelled the danger zone below 1.0 percent for the eighth successive month.

After German inflation fell to just 0.6 percent on the EU measure on Monday, well below forecasts, the bloc-wide figure could also undercut. We already know the Spanish and Italian inflation rates were just 0.2 and 0.4 percent respectively last month. If that comes to pass, any doubts about ECB action on Thursday, which are thin on the ground anyway, must surely be banished.

from The Great Debate:

U.S. v Russia: Searching for Kennan

No matter how counterintuitive it may seem, Washington needs to stop lecturing Russian President Vladimir Putin if it wants to resolve problems with him.

In George Kennan’s celebrated 1946 “long telegram,” the diplomat and scholar explained why Russia’s conduct was so often duplicitous. Kennan might well have been writing about Putin when he laid out the West’s problems with the Kremlin leaders’ behavior. Being annoyed with them wouldn’t help, Kennan advised, since their conduct was based on a fierce Russian nationalism complicated by a serious streak of insecurity about Moscow’s position in the world, evident whenever Joseph Stalin felt the Soviet Union was not receiving the respect he believed it was due.

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