Jaw jaw and war war

September 2, 2014

An Ukrainian serviceman is seen next to a sight for a gun near the eastern Ukrainian town of Luhansk

Pro-Russia separatists at talks with representatives from Moscow and the OSCE in Minsk said they would be prepared to stay part of Ukraine if they were granted “special status”, which is unlikely to be acceptable to Kiev.

The talks will continue later in the week and come as the Ukrainian military faced a run of reverses on the battlefield which Kiev says have been engineered by the intervention of at least 1,600 Russian combat troops.

In the latest in a string of setbacks, Ukraine’s military said it had pulled back from defending a vital airport near the city of Luhansk, where troops had been battling a Russian tank battalion. Ukrainian President Petro Poroshenko accused Russia of “direct and undisguised aggression” which he said had radically changed the battlefield balance. Moscow denies it is involved.

All that means the United States and EU must surely toughen their sanctions on Russia although several EU countries heavily dependent on Russian gas, including the Czech Republic, Slovakia and Austria, are opposed to new measures, which require unanimous agreement.

We got a nice break from our Brussels sources yesterday, revealing that talks about a new round of sanctions include the option of banning Europeans from buying new Russian government bonds.

That might have little impact on Russia in the near term, as it has limited borrowing needs. Rich from oil and gas revenues, it has cancelled a series of domestic bond auctions. However, there is no doubt it’s economy is hurting – the rouble has plumbed record lows as capital flees or shuns the country.

Italian Foreign Minister Federica Mogherini, newly anointed as the EU’s foreign policy chief, testifies in the European Parliament this morning. Italy is particularly reliant on Russian gas and Mogherini was viewed with suspicion by eastern members of the EU as being soft on Russia. She has gone out of her way to sound tougher in recent weeks.

NATO leaders including Barack Obama and Angela Merkel meet in Wales for a NATO summit on Thursday. That looks like a big moment. Aside from sanctions,  the leaders will respond to the Ukraine crisis by agreeing this week to create a “spearhead” rapid reaction force, potentially including several thousand troops, that could be sent to a hotspot in as little as two days.

The EU could ban gas exports and limit industrial use as part of emergency measures to protect household energy supplies this winter, a source told Reuters, as it braces for a possible retaliatory halt in Russian gas. Russia is Europe’s biggest supplier of oil, coal and natural gas, much of it via Ukraine.

Opinion polls on the Scottish independence campaign have varied wildly and so have to be taken with a pinch of salt. But the latest, released overnight by YouGov, showed a leap in support for the “Yes” camp, putting it just six points behind those who want to stay part of the UK. The same pollsters put the gap at 22 points just over a month ago. Markets have resolutely priced in no real prospect of a UK break-up with just over two weeks until polling day.

More evidence of a grim second quarter in Europe from Swiss GDP data which showed growth stalled between April and June.

An economic conference in Tel Aviv features both Israel’s finance minister and central bank governor. The Gaza conflict has hit growth, the budget deficit now off target and interest rates are at a record low, leaving little downward scope.

The Lebanese parliament meets to try to elect a new president. Lebanon has been without a president since May because politicians have been unable to agree on a candidate that would satisfy the country’s two main political blocs, the Sunni-led March 14 alliance and Hezbollah’s March 8 coalition.

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