Mogherini seeks “new de­bate” with Rus­sia

Financial Mirror (Cyprus) - - FRONT PAGE -

Fed­er­ica Mogherini, the EU’s for­eign pol­icy chief, has said the bloc should launch a new “de­bate” with Rus­sia aimed at end­ing the “con­fronta­tion” over Ukraine.

She told Italy’s La Repub­blica over the week­end that “the cur­rent sit­u­a­tion is very dif­fi­cult for Rus­sia. It would be in its in­ter­est to con­trib­ute to end­ing the con­flict. At the same time, we all know that Rus­sia plays an im­por­tant role not only in Ukraine, but also in Syria, Iran, the Mid­dle East, Libya”.

“We have to open a di­rect de­bate with Moscow on our mu­tual re­la­tions and the role that Rus­sia can play in other crises”. She noted that Ukraine and the US also want a way out. “Even in Kiev the ques­tion that ev­ery­one is ask­ing is: How can the con­flict be brought to an end?”, she said.

“I of­ten speak with [US sec­re­tary of state John] Kerry and there is com­plete iden­tity of views on the cri­sis … ev­ery­one wants to get out of the logic of con­fronta­tion, of wall against wall”.

Mogherini will, on Jan­uary 19, chair the first EU for­eign min­is­ters’ “strate­gic” dis­cus­sion in Brussels on Rus­sia, with mem­ber states to de­cide whether to ex­tend sanc­tions for another year, ac­cord­ing to the EUOb­server.

EU lead­ers al­ready held strate­gic Rus­sia De­cem­ber.

Fol­low­ing the sum­mit, Ger­man chan­cel­lor An­gela Merkel said sanc­tions can only be lifted if Rus­sia gives up con­quered ter­ri­to­ries in Ukraine.

But France and Italy took a softer line, while Merkel’s for­eign min­is­ter - Frank-Wal­ter Stein­meier from the cen­tre-left SPD party in the grand coali­tion - later warned that a Rus­sian eco­nomic col­lapse would be dan­ger­ous for Europe.

The Rus­sia-friendly camp in­cludes Aus­tria, the Czech Repub­lic, Hun­gary, and Slo­vakia, with Aus­trian pres­i­dent Heinz Fis­cher on Sun­day echo­ing Stein­meier in an in­ter­view with the Wirtschafts­blatt news­pa­per.

“The Rus­sian econ­omy has a cer­tain de­gree of ro­bust­ness, but the sanc­tions pose con­sid­er­able prob­lems … a se­ri­ous cri­sis in Rus­sia and an eco­nomic col­lapse would only cre­ate more



in prob­lems. The doors be­tween Europe and Rus­sia must re­main open,” he said.

He added that par­ti­tion­ing Ukraine is one way to ad­dress Rus­sia’s con­cerns.

“Se­ri­ous talk of re­forms in the area of de­cen­tral­i­sa­tion or fed­er­al­i­sa­tion would have to be done, which would cre­ate a sit­u­a­tion in east­ern Ukraine that both sides could live with”.

Rus­sia, Rus­sia-con­trolled rebels, and Ukraine agreed to a pris­oner ex­change dur­ing talks in Minsk last week. But the meet­ing failed to reach a more com­pre­hen­sive agree­ment.

Mean­while, the rou­ble cri­sis con­tin­ued to gather pace over the hol­i­day sea­son.

Rus­sia said it will have to triple the size of its bailout for the Na­tional Trust Bank to $1.9 bln and to spend a fur­ther $5.9 bln to prop up the VTB and Gazprom­bank lenders.

It also called on Rus­sian firms to start sell­ing dol­lars for rou­bles in the com­ing months in what an­a­lysts de­scribe as a form of cap­i­tal con­trol.

The sit­u­a­tion is acute in Crimea, which Rus­sia an­nexed in March, and which it can only sup­ply by sea.

Ukraine last Fri­day cut elec­tric­ity and train ser­vices to the re­gion, while new EU and US sanc­tions saw credit card company Visa block ser­vices for card hold­ers in the penin­sula.

The Rus­sian cur­rency cri­sis arises, for the most part, from a slump in oil prices.

But EU and US sanc­tions are mak­ing mat­ters worse be­cause black­listed Rus­sian banks, en­ergy, and arms firms can­not roll over their dol­lar- and euro-de­nom­i­nated debt on in­ter­na­tional mar­kets.

For her part, Cather­ine Mann, the chief economist at the Paris-based OECD warned things will get worse in the new year.

She told the Sun­day Tele­graph that oil prices could stay as low as $50 per bar­rel and that Rus­sia’s ef­forts to be­come self­suf­fi­cient from global mar­kets will cause hard­ship: “The end game is au­tarky, and for an econ­omy to re­turn to be­ing dis­con­nected from the global econ­omy, to be farm­ing its own land for food, for the en­ergy to be only used within its own econ­omy, to not im­port cloth­ing and ma­chin­ery – this re­quires painful re­struc­tur­ing”.

US economist and Nobel prize lau­re­ate Paul Krug­man noted in his col­umn in the New York Times that “what’s mak­ing the Rus­sian ex­pe­ri­ence so dire is the link­age oil-rou­ble-bal­ance sheets, be­cause of all the dol­lar- and euro-de­nom­i­nated debt”.

Rus­sia’s own fi­nance min­is­ter, An­ton Silu­anov, on Satur­day also told the press in Moscow that if things don’t change Rus­sia will en­ter re­ces­sion in 2015 and use up its $399 bln rainy day fund by 2017.

“We’ll burn through all the re­serves in 2016-2017”, he said, Bloomberg re­ports.

“At one third of all bud­get spend­ing, de­fence has too large a share. We need to reshuf­fle and re­struc­ture spend­ing for in­fra­struc­ture, ed­u­ca­tion, and so on”.

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