MacroScope

End game in east Ukraine?

By Mike Peacock
August 11, 2014

A Ukrainian serviceman sits on a military armoured vehicle near Donetsk

Ukrainian government forces say they are preparing for the final stage of recapturing the city of Donetsk from pro-Russian separatist rebels after shelling its outskirts and making significant gains over the weekend.

The city faces increasing shortages of food, water and electricity. Vladimir Putin must now decide whether to leave the rebels to their fate or step up his support.  Kiev said on Saturday it had headed off an attempt by Russia to send troops into Ukraine under the guise of peacekeepers accompanying a humanitarian convoy sanctioned by the Red Cross. Moscow dismissed the allegation as a “fairy tale”.

On a weekend telephone call, U.S. President Barack Obama and German Chancellor Angela Merkel agreed that any Russian intervention in Ukraine, even under purported ‘humanitarian’ auspices, without the express authorization of Kiev was unacceptable and would provoke “additional consequences.”

With Russia retaliating against western sanctions, Iraq teetering on the edge and Gaza and Libya little better, could this be the point at which all these world crises start to derail economic recovery?

The European Central Bank has clearly flagged that concern, saying the Ukraine crisis and tit-for-tat sanctions could pose a serious risk to the euro zone economy. The survey evidence is already showing a loss of confidence among business and investors which could lead to a new curb on investment.

The EU commissioner for agriculture and other senior officials will set up a set up task force and possibly convene an emergency meeting of representatives of member states after Russia announced retaliatory ban on food imports.

The stronger than expected measures from Moscow also isolate Russians from world trade to a degree unseen since Soviet times. The point at which ordinary Russians notice an impact on their daily lives could be a crucial one but whether that leads to a siege mentality and the population rallying around Putin, or starts to erode his sky-high popularity ratings remains to be seen.

The United States and Iran appear to have come to the view that Iraqi President Nuri al-Maliki is too divisive to hold the country together but he is determined to hang on. However, a bloc comprising Iraq’s biggest Shi’ite parties is close to nominating a prime minister, the deputy speaker of parliament said on Monday, directly challenging Maliki.

Serving in a caretaker capacity since an inconclusive election in April, Maliki has defied calls by Sunnis, Kurds, some fellow Shi’ites, regional power broker Iran and Iraq’s top cleric to step aside for a less polarising figure.
Washington has conducted air strikes for a third day against Islamic State militants who have capitalised on the political deadlock, making rapid gains after arriving in the north of the country in June from Syria.

The militants have killed hundreds of Iraq’s minority Yazidis, burying some alive and taking women as slaves, an Iraqi government minister said on Sunday, as U.S. warplanes again bombed the insurgents.

The U.S. military is charged with protecting Kurdish peshmerga forces as they face off against the militants near Arbil, the site of a U.S. consulate and a U.S.-Iraqi joint military operations center. The Islamists’ advance in the past week has forced tens of thousands to flee and brought them within 30 minutes drive of Arbil.

Turkey’s prime minister, Tayyip Erdogan, duly won weekend presidential elections. The question is how far he will consolidate his power base and what he intends to do with it.

After an extraordinary year in which he has quelled popular protests, purged thousands of police and judges following corruption allegations levelled at his allies and pressured the central bank over its policy, an Erdogan victory concentrates more power in the hands of a man who has divided Turkish society along secular-religious lines and worried Turkey’s western allies and investors.

Erdogan has said he wants to see the powers of the presidency boosted and expects his ruling AK Party to propose a new constitution after parliamentary polls in 2015. That raises the prospect of him picking a loyal even supine government that will bend to his will. Up to now, the presidency has been at least a notional check on the executive.

First indications will come from the line-up of the next government though we won’t know who will replace Erdogan as prime minister for some time.

Foreign Minister Ahmet Davutoglu would be a faithful loyalist and former transport minister Binali Yildirim, the man behind some of Turkey biggest infrastructure projects championed by Erdogan, is also in the running. Investors might prefer to see deputy premier Ali Babacan, whose prudent economic oversight is seen as a bulwark against Erdogan’s pressure for pro-growth policies such as low rates, but he is seen as an outside chance.

Israel and the Palestinians agreed on Sunday to an Egyptian proposal for a new 72-hour ceasefire in Gaza which is now in force.

Israeli negotiators will return to Cairo to resume indirect talks with the Palestinians if the truce holds. Hamas official said Palestinian factions had accepted Egypt’s call and that the Cairo talks, which it views as the last chance for a deal, would continue.

Before the ceasefire, Israeli air strikes and shelling on Sunday killed nine Palestinians, medics said. Prime Minister Benjamin Netanyahu said Israel would not negotiate under fire and warned of a protracted Israeli military campaign in the Gaza Strip if Hamas rocket salvoes continued.

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