Russia invites new sanctions

January 28, 2015

Ukrainian servicemen stand guard on a street near the burning building after a shelling by pro-Russian rebels of a residential sector in Mariupol, eastern Ukraine

Ukrainian separatists said they had pushed government troops out of two districts on the outskirts of their main stronghold Donetsk and their aim was to expand control to the entire eastern region.

Ukraine’s parliament approved a statement defining Russia as an “aggressor state” and called for more international aid and stronger sanctions against Russia.

EU foreign ministers have called an extraordinary meeting for Thursday and their leaders have asked them to consider possible new sanctions. A final decision to impose them is likely to be left to a summit next month. Barack Obama has said Washington is considering all options short of military action to isolate Russia.

EU finance ministers agreed to loan Ukraine 1.8 billion euros to help save it from bankruptcy, leaving open the option of increasing aid at a later stage.

But an interesting crack in the façade came from the Alexis Tsipras’ new Greek government which complained that it had not been consulted about a rare joint statement from EU leaders which voiced concern about a rebel advance launched that has reignited a war that has killed more than 5,000 people, and condemned the killing of civilians in the “indiscriminate shelling” of the port of Mariupol.

The Russian standoff hit euro zone business and consumer confidence hard last year but with the European Central Bank poised to print a glut of euros and the price of oil having plunged, there are signs that is wearing off, at least in Germany whose voice will be decisive in imposing any further sanctions.

German consumer sentiment surged to its highest level in more than 13 years heading into February, a GfK survey showed, as cheaper oil meant shoppers in Europe’s largest economy had more spare cash.

The German government’s annual economic report is due to be approved by the cabinet and published today. Two senior sources told us yesterday that Berlin expects the economy to expand by 1.5 percent this year and by 1.6 percent in 2016, raising a 2015 growth forecast of 1.3 percent made back in October.

Tsipras chairs his first cabinet meeting after naming a team of anti-austerity veterans and halting privatisation of Greece’s biggest port, agreed under its international bailout deal – another signal that he intends to stick to election pledges to scrap the bailout, abandon austerity and renegotiate Greece’s debt pile.

Polish Deputy premier Janusz Piechocinski will present his ministry’s plan to help Poles heavily in debt in Swiss francs. As the head of the junior coalition partner he will need buy-in from the top of the government. Prime Minister Ewa Kopacz has already said she wants the banks rather than the state to bear the bulk of the cost.

More than half a million homeowners are affected by the leap in the Swiss franc in Poland. The stock of loans denominated in Swiss francs was worth $36 billion in November, or 8 percent of national output.

For the markets, all eyes are on the Federal Reserve’s policy meeting with investors alert to any signs that the odds on a mid-year U.S. interest rate rise are lengthening. Divergent monetary policies are nothing new but could be about to get unusually wide. Having said that, if the ECB succeeds in revving up the euro zone economy, the overseas drag on U.S. recovery will diminish.

Fed officials have argued that the drop in oil prices is a transitory factor that benefits U.S. consumers. With unemployment dropping and growth on track, they have until now indicated they will move forward with an initial rate hike in the middle or latter half of the year even if other closely watched measures such as wages remain weak.

The run of impromptu, unexpected central bank moves continues. Singapore’s central bank eased monetary policy ahead of its scheduled review in April in response to a “significant shift” lower in inflation.

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