Putin welcomes Crimea in

March 18, 2014

Vladimir Putin has told Russia’s Duma that he has approved a draft treaty to bring Ukraine’s Crimea region into Russia and in doing so continues to turn a deaf ear to the West’s sanctions-backed plea to come to the negotiating table.

Overnight, Japan added its weight to the sanctions drive, suspending talks with Moscow on an investment pact and relaxation of visa requirements. EU and U.S. measures have targeted a relatively small number of Russians and Ukrainians but presumably there is scope to go considerably further, particularly if Putin decided to move into eastern Ukraine too.

EU foreign ministers yesterday began discussing how to reduce energy reliance on Russia. That’s a long-term project but one that could deal a hammer blow to the Russian economy if it succeeds.

No short-term action is likely on gas as the EU can’t really do without Russia’s supplies and Moscow cannot afford to turn it off. World markets – and even Russian markets – have shrugged off Crimea’s vote to secede … so far.

In an attempt to show it is engaging, Moscow responded to Western pressure for an international “contact group” to mediate in the crisis by proposing a “support group” of states that would push for recognition of the Crimean referendum and urge a new constitution for rump Ukraine that would require it to uphold political and military neutrality.

Turkey’s central bank holds a policy meeting with domestic politics doing nothing to reassure investors. The Turkish central bank whacked up interest rates dramatically in January to defend the lira and has consistently been selling dollars since. It is expected to leave policy on hold this time.

Last week, a Twitter account behind a string of leaks in a Turkish corruption scandal posted what it presented as police files detailing graft allegations against four former ministers, dealing a further blow to Prime Minister Tayyip Erdogan weeks before elections. Nonetheless, he remains hugely popular outside the main cities and has cast the graft scandal as a plot to smear him by Islamic cleric Fethullah Gulen, a U.S.-based former ally with influence in Turkey’s police and judiciary.

Erdogan is on the campaign trail ahead of March 30 elections and President Abdullah Gul is in Denmark and will hold a news conference. In his first major interview in Turkish media since the graft scandal burst into the open in December, Gulen described a crackdown on his followers by Erdogan as “ten times worse” than anything the army meted out after coups in the past.

Germany’s constitutional court will rule on whether the European Stability Mechanism is in line with German law. The court has already ruled on the ECB’s bond-buying programme, essentially bumping it to the European court, in a move that prolonged uncertainty.
It is expected to confirm that it views the euro zone’s rescue fund as legal as long as the Bundestag has sufficient oversight, in line with its initial ruling in 2012.

Bank of England Governor Mark Carney gives a speech at City University’s Cass Business School,  setting out the conclusions of the first big review of the BoE’s operations since he became governor in July.

A major internal overhaul is expected and in parallel, the government is expected to announce who will replace Charlie Bean as deputy governor for monetary policy. The Bank – and it is not alone in this regard – looks desperately short of women policymakers.

Carney has already said he will create a new position of deputy governor for markets and banking services. Other changes may include a stand-alone research department at the bank and steps to remove overlap in what economists do, as well as better integration of the financial regulators who joined when the BoE took over from the Financial Services Authority in April as Britain’s main financial regulator.
One of his deputies, John Cunliffe, said yesterday that banks are still too big to fail.

Germany’s ZEW sentiment survey is the big figure of the day. The Reuters poll suggests economic sentiment will dip to 53 from 55.7 but the current conditions index will rise to 52 from 50, taking it back to levels last seen in late 2011.

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