Escalation in Crimea

February 28, 2014

Worrying escalation in Crimea. Interfax reports Russian servicemen have take over a military airport in the Russian-speaking region of Ukraine and armed men are also patrolling the airport at Crimea’s regional centre of Simferopol.
Kiev has condemned the moves as an “armed invasion”.

There has been no bloodshed and there are more constructive noises from Moscow to weigh in the balance.

Russian President Vladimir Putin has ordered his government to continue talks with Ukraine on economic and trade relations and to consult foreign partners including the IMF and the G8 on financial aid.

This is a developing theme from Moscow, military muscle flexing on the one hand while making encouraging noises about an aid package for Ukraine on the other. The interesting thing is this is the first time Putin has put his name to the call for financial help. Which impulse will prevail is the $64 million question. 

The United States has told Russia to demonstrate it was sincere about its promise not to intervene in Ukraine.

The odd image of central bankers praying for a bit of inflation returns today. Euro zone inflation for February comes at 1000 GMT, six days before the European Central Bank next meets. The ECB sees no risk of deflation but if our polls are right and the rate drops to 0.7 percent from 0.8 in January, the pressure for action will grow.

Inflation has now been in Mario Draghi’s “danger zone” below one percent for four months, Germany’s February figure has already come in under expectations at just 1.0 percent and a euro zone unemployment rate forecast to hold at 12 percent will do nothing to lighten the picture.

Our ECB poll yesterday showed a growing minority saying QE will be needed . Most of the respondents said there would not be a rate cut next week. But 26 of 78 said there would be one. That was strongest view for an easing in policy in Reuters polls since November last year when the ECB surprised markets by cutting the benchmark rate by 25 basis points.

Day two of a Bundesbank conference on financial stability and the role of central banks features ECB Executive Board member Sabine Lautenschlaeger, German Finance Minister Wolfgang Schaeuble and Bank of England Governor Mark Carney.

French President Francois Hollande’s popularity ratings make ugly reading but the centre-right in France has so far struggled to find a credible challenger.

Step forward Nicolas Sarkozy? In one of his first public speeches since losing the French presidency in 2012, Sarkozy will give an address on Franco-German relations and the future of Europe at a Konrad Adenauer Foundation event in Berlin.
Before the speech he will get a 30 minute closed-door session at the Chancellery with Angela Merkel, a meeting which has raised eyebrows in France.

Fresh doubt has been case on Cyprus’ bailout programme after lawmakers rejected privatisation plans. That could make delivering  a tranche of financial aid due in March problematic.

Ratings Friday offers a Moody’s review of Germany and Austria. S&P has already raised its outlook on Belgium’s AA credit rating to stable from negative, Fitch has affirmed Denmark at AAA and Slovakia at A+, both with stable outlooks. Ukraine remains at a lowly CCC.

Fine Gael, the dominant party in Ireland’s governing coalition, holds its annual conference. Prime Minister Enda Kenny and Finance Minister Michael Noonan will speak.

The country is back on its feet having exited an EU/IMF bailout but the long slog of cutting back what it owes is only just starting. Public services, particularly health, are still being cut back, a new property tax will be fully implemented this year and charges for water supply are being introduced.

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