Moment of truth in Ukraine

August 12, 2014

A Ukrainian serviceman guards a checkpoint near Donetsk

Financial markets perked up on Monday after Russia called off military exercises near the Ukraine border but was the confidence well founded?

NATO’s chief told Reuters there was a “high probability” Russia could launch an invasion of Ukraine where the government said it was in the “final stages” of recapturing Donetsk, the main city held by pro-Russian rebels, a battle that could be a decisive turning point in the biggest confrontation between Russia and the West since the Cold War.

Vladimir Putin must now decide whether to leave the rebels to their fate or step up his support. Thousands of Russian troops are still massed near the border and a Russian convoy of 280 trucks carrying humanitarian aid for Ukraine set off on Tuesday amid Western warnings against using help as a pretext for an invasion.

Thousands of people in eastern Ukraine are believed to be short of water, electricity and medical aid due to the fighting.

On the economic side of the ledger, stronger than expected retaliatory measures against western sanctions by Moscow – banning most food imports – will hurt a number of European countries and 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. Whether that leads to a siege mentality and the population rallying around Vladimir Putin, or starts to erode his sky-high popularity ratings remains to be seen.

Russian second quarter GDP figures are due and are likely to show its economy heading towards recession and that before the really serious EU and U.S. sectoral sanctions took effect.

The latest snapshot of whether the turmoil to Europe’s east and in the Middle East is choking off a barely discernible euro zone economic recovery comes from Germany’s ZEW sentiment index.

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

Britain has no such problems having reported two consecutive quarters of 0.8 percent growth in the first six months of the year. Only the near absence of wage increases is alleviating pressure on the Bank of England to raise interest rates. The British Retail Consortium’s latest survey, released overnight, showed retail sales growth rose in July, driven by an upturn in furniture spending and other non-food purchases.

Iraq’s president named a new prime minister to end Nuri al-Maliki’s eight-year rule but the veteran leader refused to go after deploying militias and special forces on the streets – creating a dangerous new flashpoint and more political sclerosis that Islamic State militants could exploit. Maliki said the president’s decision was a “dangerous violation” of the constitution and vowed “we will fix the mistake”.

The United States and Iran appear to have come to the view that Maliki is too divisive to hold the country together. President Barack Obama said the naming of a new prime minister was an important stride for Iraq towards rebuffing the Sunni militants, who have overrun large swathes of northern Iraq.

Israeli and Palestinian negotiators resumed indirect talks mediated by Egypt to end a month-old Gaza war which has killed 1,938 Palestinians and 67 Israelis, after a new 72-hour truce held for a day. Israeli negotiators flew in and out of Cairo on Monday, an Egyptian official said, but no details were released on the talks.

Hamas is demanding an end to Israeli and Egyptian blockades of the Gaza Strip and opening of a seaport in the enclave, a project Israel says should be dealt with only in any future talks on a permanent peace agreement with the Palestinians.

After the World Health Organisation declared Ebola in west Africa an international health risk which was moving faster than it can be controlled, debate has sharpened about using unproven drugs which have already been administered to two U.S. charity workers who were infected in Liberia.

The Liberian presidency has just said U.S. authorities have approved a request from Liberia’s government to send sample doses of the experimental ZMapp drug to treat Liberian doctors infected with Ebola.

The presidency website said the drug would be delivered this week by a U.S. government representative but U.S. authorities said they had simply assisted in connecting the Liberian government with the drug’s manufacturer.

The WHO will hold a news conference to spell out its recommendations a day after a virtual meeting of bioethics experts was held to discuss ethical issues surrounding treatment of Ebola.

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