Merkel backs US on the sanctioning of Russia

“If Russia continues on its course of the past weeks, that will not only be a great catastrophe for Ukraine. It will cause massive damage to Russia, both economically and politically,” [Chancellor Merkel] said. “None of us wants it to come to this, but we are determined to act. Let me be absolutely clear; the territorial integrity of Ukraine is not up for discussion.”

...Russia cannot suspend oil and gas exports without cutting off its own source of foreign revenue. Any such move would destroy its credibility as a supplier of energy, accelerating Europe’s long-term switch to other sources.

Russian companies have $653bn (£392bn) of foreign dollar debt, and must roll over roughly $150bn this year. Yields on five-year bonds have already spiked 200 basis points, even for blue-chip firms. The rouble has fallen 11pc this year after dropping 8pc last year, making dollar debts harder to repay. “It is going to be very difficult to roll over these bonds, and it will be at much higher cost,” said Mr Ash.

Capital flight reached $63bn last year. Former finance minister Alexei Kudrin said this could reach $50bn a quarter as the crisis deepens. The central bank has already raised interest rates sharply to stem outflows, pushing the economy into recession.

...“Russia could cut off 2.5m barrels a day of refined products such as diesel that are hard for Europe to replace since it has run down its refineries,” he said.

Germany is in an awkward position since it exports $50bn of cars, machinery and industrial goods to Russia each year. There are 6,200 German companies in the country with vast sunk costs. Last year alone they invested $105bn. Germany’s trade group BDA said a tit-for-tat sanctions war would be “painful” for Germany but “life-threatening” for Russia.

Igor Rudensky, head of the Duma’s Economics Committee, said sanctions will boomerang. “They are a double-edged sword, and Western states should be very careful,” he said.

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Beyond the tinkering the US and NATO have committed in Ukraine, there is the larger issue of encroachment. Yes US and NATO have made a move to bring Ukraine toward the west, with Russia's sharp retort being the stealth occupation of the Crimea to protect the integrity of their only warm water naval base at Sevastopol.  As far as I know, Putin still denies the troops in Crimea are Russian, as he did in this press conference:

"QUESTION: Mr President, a clarification if I may. The people who were blocking the Ukrainian Army units in Crimea were wearing uniforms that strongly resembled the Russian Army uniform. Were those Russian soldiers, Russian military?

VLADIMIR PUTIN: Why don’t you take a look at the post-Soviet states. There are many uniforms there that are similar. You can go to a store and buy any kind of uniform.

QUESTION: But were they Russian soldiers or not?

VLADIMIR PUTIN: Those were local self-defence units.

QUESTION: How well trained are they? If we compare them to the self-defence units in Kiev…

VLADIMIR PUTIN: My dear colleague, look how well trained the people who operated in Kiev were. As we all know they were trained at special bases in neighbouring states: in Lithuania, Poland and in Ukraine itself too. They were trained by instructors for extended periods. They were divided into dozens and hundreds, their actions were coordinated, they had good communication systems. It was all like clockwork.  Did you see them in action? They looked very professional, like special forces. Why do you think those in Crimea should be any worse?

QUESTION: In that case, can I specify: did we take part in training Crimean self-defence forces?

VLADIMIR PUTIN: No, we did not."


Does this necessarily mean Russia has cause to annex Crimea, if Crimea itself votes to become part of Russia? Ukraine is a buffer country for Russia, so naturally it is one for Europe.