U.S. and Russia Discuss Ukraine Crisis as Europe Offers Kiev $15 Billion
Comment of the Day

March 05 2014

Commentary by David Fuller

U.S. and Russia Discuss Ukraine Crisis as Europe Offers Kiev $15 Billion

Here is the opening for this detailed article from The New York Times:

KIEV, Ukraine — The European Union added a significant financial underpinning to the struggling Ukraine government on Wednesday in the midst of the East-West crisis with Russia over Ukraine’s future, offering aid worth as much as $15 billion over the next two years.

The offer comes on top of the $1 billion in American loan guarantees to ease Ukraine’s economic transition, announced here on Tuesday by Secretary of State John Kerry during a visit aimed at reassuring the interim Ukraine authorities and challenging Russia, which escalated the crisis last weekend by seizing control of Ukraine’s Crimean Peninsula.

Mr. Kerry met on Wednesday in Paris with his Russian counterpart, Sergey V. Lavrov, as part of an attempt to arrange the first face-to-face talks between representatives of the Russian and interim Ukraine governments since the crisis boiled over. The Russians have refused to recognize the interim Ukraine government’s legitimacy.

Later Mr. Lavrov, Mr. Kerry and the acting Ukraining foreign minister, Andrii Deshchytsia, who flew to Paris with Mr. Kerry on Tuesday, went to the French Foreign Ministry. But it was not immediately clear whether there was any direct encounter between the Russian and Ukrainian ministers.

Mr. Lavrov insisted earlier Wednesday in Madrid that Russia had no control over “self-defense forces” in Crimea, which Russian troops have effectively occupied, surrounding and neutralizing the thin Ukrainian military presence there.

The standoff in Crimea, and the larger struggle over Ukraine, the former Soviet republic that is deeply intertwined with Russia economically, are at the heart of these diplomatic and financial maneuvers.

The Russians have defended their actions in Crimea as a response to a request for aid from local citizens and from the ousted president, Viktor F. Yanukovych. The Russians say that Mr.

Yanukovych, for all his faults, remains the legitimate president of Ukraine, while the Americans say that Mr. Yanukovych, by fleeing to Russia, lost his legitimacy and opened the way to a new interim government ratified by Parliament.

David Fuller's view

Here is the NYT article.

Many investors would understandably like to think that this previously deteriorating situation is now a back page item that will be resolved diplomatically.  That would be nice but it is probably a premature conclusion. 

I have often said that a crisis has to be perceived as worsening, for it to continue having a negative short-term impact on markets.  If it is no longer worsening, the market crowd will conclude that negative factors have been discounted, at least for a while, and the situation might even be improving. 

I hope so, and while Vladimir Putin had cause to pause following the sharp exit of funds from Russia on Monday, he wants to reclaim more of Ukraine for his fledgling Eurasian Customs Union. Meanwhile, Russia has certainly taken back Crimea with its military presence and is making demands of Ukraine that are not going to be willingly conceded by the new government in Kiev.  This impass is obviously not resolved and could easily flare up once again.  

See also: Moldova Sees Contagion in Russian Intervention in Crimea.


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