A turning point?

July 18, 2014

Emergencies Ministry members work at the site of a Malaysia Airlines Boeing 777 plane crash in the settlement of Grabovo in the Donetsk region

Could the shooting down of a Malaysia Airlines plane over Ukraine be a fundamental turning point in the crisis that has pitted Russia against the West? And if so which way – towards rapprochement or a further escalation?

Kiev accused militants fighting to unite eastern Ukraine with Russia of shooting down the Boeing 777 carrying nearly 300 people from Amsterdam to Kuala Lumpur with a Soviet-era ground-to-air missile. Leaders of rebels in the Donetsk People’s Republic denied any involvement, although around the same time their military commander said his forces had downed a smaller Ukrainian transport plane.

A Ukrainian Interior Ministry official took to Facebook shortly after the plane came down, saying that rebels had used a Buk anti-aircraft system given to them by Russia, and appealed to the West to act. That doesn’t make the situation much clearer since Russia, Ukraine and the separatists all probably have the missile in their arsenals.

Later, Ukraine’s state security chief accused two Russian military intelligence officers of involvement in the downing of the plane. Moscow has denied its forces are involved in any way.

To shoot down a plane flying at 10,000 metres would require sophisticated missile technology. Military experts say a Buk launcher would fit the bill. The further sanctions imposed by the United States and EU this week reflected growing concern that Moscow had started supplying the rebels more actively.

As the news broke, Vladimir Putin and Barack Obama were on the phone discussing the new round of economic sanctions imposed on Wednesday to try to force Putin to do more to curb the revolt against the Western-backed government in Kiev.

International pressure will certainly grow with about 300 killed, many of them Dutch and other Europeans flying to Asia – including experts en route to an AIDS conference in Australia. The U.N. Security Council is expected to hold an emergency meeting on Ukraine later today and Germany’s Angela Merkel holds her annual summer news conference.

Germany has been reluctant to impose sweeping trade sanctions on Russia given their close business and energy ties. With Merkel having retained workable relations with Putin, Berlin’s reaction will be important.

Markets worldwide took a hit last night and this morning and Russian shares have dropped about two percent in early trade having already taken a hit on Thursday on the back of fresh western sanctions.

Israel launched a ground offensive in Gaza late on Thursday after 10 days of air strikes. Hamas said Israel’s incursion would have “dreadful consequences”.

The Israeli army said it would hit Palestinian militant targets across the territory but was not seeking to topple Hamas. Explosions lit up the sky in the early hours of Friday and residents in several areas of the densely populated strip said they saw small numbers of Israeli tanks that had crossed the border from Israel.

Iran nuclear talks are nearing a self-imposed July 20 deadline which may well be extended. With talks between world powers and Iran over a broad accord at an impasse, Western governments are considering offering a significant easing of sanctions early on in the process to try to wring concessions from Tehran, diplomats say.

Spain’s parliament is poised to vote through the government’s fiscal reform bill which will cut income tax and reduce corporate tax to 25 percent for large companies by 2016, aiming to speed up a nascent economic recovery. The cuts are part of a proposed bill that is Prime Minister Mariano Rajoy’s main structural reform this year and also included reducing tax breaks to lift the country’s tax revenue, currently one of the lowest in Europe.

Ratings agency Moody’s has already said the bill is “credit negative” because it falls short of expectations for wide-ranging tax reform as recommended by the government’s own commission.

IMF chief Christine Lagarde and German Finance Minister Wolfgang Schaeuble discuss the future of the euro  zone at a Paris conference and Portugal’s central bank chief is in parliament on the troubles of the country’s largest listed bank, BES.

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