Balance tilted in Ukraine?

July 7, 2014

slaviansk.jpgUkrainian forces pushed pro-Russian rebels out of their stronghold of Slaviansk on Saturday. Its re-capture represents Kiev’s most notable military victory in three months of fighting in which more than 200 Ukrainian troops have been killed as well as hundreds of civilians and rebels.

The regions of Donetsk and Luhansk are likely to be next in the government forces’ crosshairs.

Talks between Iran and the six world powers –  the United States, Britain, France, Germany, Russia and China – over its disputed nuclear programme stretch through the week, leading up to a July 20 deadline which has been set for a definitive deal.
Most diplomats involved in the talks expect that date to lapse though we reported exclusively that Iran has reduced demands for the size of its future nuclear enrichment programme.

The shift relates to the main sticking point in the talks – the number of uranium enrichment centrifuges Iran can maintain in exchange for a gradual end of sanctions.

The Eurogroup caucus of euro zone finance ministers meets in Brussels today. On the agenda is the exchange rate at which Lithuania will switch to the euro and the programme put forward by Italy for its six-month EU presidency.

Italy’s Matteo Renzi is pressing for a focus on growth rather than austerity and has even managed to get Germany to talk the talk. At an EU summit last month, leaders accepted the need to allow member states extra time to consolidate their budgets as long as they pressed ahead with economic reforms.

Portugal may well figure too. It had to forego the final tranche of its bailout money after the constitutional court threw out a series of planned austerity measures and now its largest private bank by assets, Banco Espirito Santo, has seen sharp declines in its shares on concerns about its exposure to a troubled holding company of the Espirito Santo banking family – the bank’s largest shareholder.

The central bank says it is fully solvent but a bailout cannot be out of the question. Having said that, government market financing seems to be no problem for now. Lisbon successfully placed $4.5 billion in 10-year dollar bonds last week.

The Greek government said on Friday it was cleared to get its next 1 billion euros aid tranche from foreign lenders after pushing through reforms including improving access to health care and lowering pharmacies’ profit margins. EU/IMF inspectors are due back in Athens for an interim check on Greece’s finances and bailout programme compliance.

At the weekend gathering of great and good in Aix-en-Provence, IMF chief Christine Lagarde hinted at a small cut in the Fund’s global growth forecasts. Key European Central Bank policymaker Benoit Coeure said euro rates will stay low for a long time and now governments had to do their bit to boost growth and cut debt.

It looks like there will be a battle royal within the ECB if it appears quantitative easing might be needed in future to avert deflation.
Hours after ECB President Mario Draghi held out the prospect of printing euros last week, Bundesbank chief Jens Weidmann said the ECB should not leave policy loose for too long.

Over the weekend, his German colleague Sabine Lautenschlaeger, who speaks later today, said she saw no prospect of a sweeping government bond-buying spree “on the horizon”. Draghi and others will be at the Eurogroup.

German Chancellor Angela Merkel is in Beijing where she met Chinese premier Li Keqiang. At a joint news conference, Li said Chinese growth improved in the second quarter and that further stimulus measures were in the pipeline.

Merkel said allegations that a German man worked as a double agent for U.S. intelligence were serious and, if true, clearly contradicted what cooperation between partners should be about.

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