Ukraine/Russia - Sanctions on Russia increased The Crimea crisis continues to develop at an alarming pace. Unphased by the initial sanctions imposed by the US and EU the Russia Duma formally accepted Crimea into the Russian Federation yesterday. The Ukrainian government of course says that the referendum and annexation of Crimea are illegal by international law and according to the Ukrainian Constitution. In response to the Russian move the US and EU have moved to a second stage of sanctions designed to hit those in Putins immediate circle in government and finance. This much tougher stance (and the threat of further steps) led to Russia being downgraded by two rating agencies last night. While Russia is swiftly completing its occupation of Crimea the costs of it doing so are rising quickly. It seems financial markets have under-estimated the determination of the EU and US to defend the existing European security system. Meanwhile, the IMF continues its Mission in Kiev. Its program will form the basis of a Western economic package for Ukraine. The interim Ukrainian administration has now also signed the political part of the EUs Association Agreement. Russia itself has imposed some sanctions on the US but these were hardly noticed by the US markets. The US economy is, after all, ten times the size of the Russian one. If Putin stirs up trouble in Eastern Ukraine, Moldova, Latvia etc where there also many ethnic Russians (which is still a risk) US sanctions could extend more broadly to the Russian energy and financial sectors. This would cause a massive devaluation of the Russian currency and perhaps default on some private sector external obligations.
Posted on: Fri, 21 Mar 2014 09:51:05 +0000
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