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EU Renews Push for Russian Sanctions; Putin Blames Ukraine

The EU will add more individuals this week to a list of those facing visa bans and asset freezes over Russia’s involvement in the conflict, Latvian President Andris Berzins, whose country holds the 28-nation bloc’s rotating presidency, said in an interview Monday. Putin told German Chancellor Angela Merkel and French President Francois Hollande that he holds Ukraine accountable for the escalation, according to a Kremlin statement.

The EU is drawing closer to taking action after a rocket attack killed dozens in the port city of Mariupol on Saturday and fighting intensified along the front that stretches across Ukraine’s easternmost regions of Luhansk and Donetsk to the Sea of Azov. A decision on new sanctions depends on a unanimous agreement among the EU’s members, which have voiced conflicting opinions on whether to take stricter steps against Russia.

“Much depends on what happens in the next three days,” German Foreign Minister Frank-Walter Steinmeier told reporters in Berlin ahead of an emergency meeting of EU foreign ministers on Thursday. “But an attack or an offensive would be a qualitative change in the situation to which we would have to react.”

‘Major Shock’

The U.S. has also warned Russia that it risks further economic pressure if the situation doesn’t improve.

“It is too early to say if the new tensions will prompt new sanctions on Russia, but the balance of risk is indeed skewed that way,” Benoit Anne, head of emerging-markets strategy at Societe Generale SA in London, said by e-mail. “If that happens, it will be another major shock to the Russian economy. The worst-case scenario would be a severe escalation of the geopolitical crisis, but this is still a low-probability tail risk.”

Russia’s foreign-currency credit rating was cut to junk by Standard & Poor’s on Monday, putting it below investment grade for the first time in a decade. S&P said sanctions against Russia helped shake its financial system by limiting access to international capital markets.

Threats, Dialogue

Russia is being blackmailed and threats to increase economic pressure are destructive, the Interfax news service cited Putin’s spokesman, Dmitry Peskov, as saying on Monday. The Kremlin denies military involvement.

Only political dialogue between rebels and the authorities in Kiev can end the bloodshed, Putin told Merkel and Hollande in separate conversations.

The sides could hold talks within days in a Ukraine contact group meeting in Minsk, Belarus, Interfax reported Tuesday, citing Vladyslav Deinego, chief negotiator for the separatist self-proclaimed Luhansk People’s Republic. The contact group brings together Ukraine, Russia, the Organization for Security and Cooperation in Europe and separatist leaders. Deinego said the issue of prisoner exchanges is also being discussed, according to Interfax.

Strategic Port

Nine government troops were killed and 29 wounded in clashes in the past 24 hours, Ukrainian military spokesman Leonid Matyukhin said in Kiev. Rebels attacked Ukrainian troops 120 times in that period, he said.

The EU, which last imposed penalties over the conflict almost two months ago, has previously warned that territorial gains by separatists — including the takeover of Mariupol or the Donetsk airport — risked an escalation of European sanctions. Rebels took control of the main terminal at Donetsk airport from Ukrainian troops in heavy fighting last week.

The strategic port city of Mariupol suffered the deadliest attack yet as at least 30 civilians died and more than 100 were injured in the shelling Saturday, the Defense Ministry in Kiev said. The attack was launched from rebel-held territory, the U.S., NATO, and the OSCE said. The separatists blamed government forces.

Ukrainian Security Service head Valentyn Nalyvaychenko said Monday that an artillery unit that struck Mariupol was led by Russian officers with assistance from Ukrainian spotters.

‘Most Deadly’

The death toll in the conflict rose to more than 5,000, with Jan. 13-21 becoming “the most deadly period” since the Sept. 5 truce was signed in Minsk, Belarus, according to the United Nations.

“The humanitarian situation is very difficult in places that are under constant shelling,” Ukrainian President Petro Poroshenko said Monday in Kiev during a meeting with officials including Prime Minister Arseniy Yatsenyuk. Poroshenko said Ukraine must reinforce safeguards around key infrastructure across the country’s southeast, including the regions of Kharkiv, Odessa, Kherson and others.

Ukraine must have stability at its borders to be able to achieve economic recovery, International Monetary Fund Managing Director Christine Lagarde told Le Monde in an interview published Monday, saying “no IMF partner would consider participating in a support program if there’s a question mark over 20% of Ukraine’s GDP.”

Fierce fighting took place Monday near Debaltseve, a transportation hub that connects the regions of Luhansk and Donetsk, Ukraine’s military said. The rebels were shelling government positions in the Luhansk region as well as around the Donetsk airport, the Defense Ministry in Kiev said. It reported “relative calm” in Mariupol.

“The rebels’ target seems to be Debaltseve rather than Mariupol,” Balazs Jarabik, a visiting scholar at the Carnegie Endowment for International Peace, and Andras Racz said in a report. “They probably could take and hold Mariupol, but only with more Russian support and heavy casualties. By seizing Debaltseve, the rebels would inflict heavy losses on the encircled Ukrainian troops.”

Debaltseve is the last remaining Ukrainian-held “pocket” inside territory controlled by separatists, according to the report.

bloomberg.com

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