Bloomberg News

Ukraine Army Advances as EU Plans Tougher Putin Sanctions

July 26, 2014

Russian artillery

Russian Msta-S self-propelled howitzers fire during military exercises in the Volgograd region in southern Russia on April 2, 2014. Photographer: Andrey Kronberg/AFP/Getty Images

Ukraine’s army advanced on a last main separatist stronghold as the U.S. said Russian President Vladimir Putin is poised to give the rebels heavy weapons and European Union leaders considered their toughest sanctions yet on Russia.

Ukrainian troops are battling insurgents in the town of Horlivka, about 20 kilometers (12 miles) northeast of the regional capital Donetsk, a city of 1 million people where rebels retreated after abandoning other positions earlier this month. Taking Horlivka would open the way to attack one of their last redoubts, Ukrainian Defense Ministry spokesman Andriy Lysenko said yesterday in Kiev.

“Fighting to take over Horlivka is going on,” he told journalists. “Donetsk will be next.” CNN reported that long lines of cars jammed roads leading south from the city yesterday as residents tried to flee.

The military gains come as German Chancellor Angela Merkel is pushing EU leaders to sign off on new sanctions aimed at Russia after the shooting down of Malaysian Airlines Flight MH17. The jet’s downing over eastern Ukraine on July 17 is isolating Putin in the international community. While he denies arming pro-Russian rebels, the U.S. says its intelligence shows that the missile that destroyed the plane and killed all 298 passengers and crew was supplied by Russia.

Rebel Plea

Ukraine’s State Security Service, or SBU, posted what it said was an intercepted plea for help made by Alexander Borodai, head of the self-proclaimed Donetsk People’s Republic, to a Russian it identified as Alexei Chesnokov.

“If nothing changes in terms of military activity, the situation will not be held for more than two weeks,” a voice that the SBU said is Borodai’s says in the intercepted call it posted yesterday on its YouTube page.

Merkel, who had been cautious about cracking down on Russia, now wants “quick decisions” on tougher measures, a German spokesman said July 25. The Italian government, which chairs the EU Council, expects a deal on sanctions this week, an EU official said.

“The shooting down of the airliner was a tipping point that’s changed the EU constellation,” Joerg Forbrig, senior program officer for central and eastern Europe at the Berlin bureau of the German Marshall Fund of the U.S., said in a phone interview. “Putin has crossed a line and misread the mood in European capitals to close ranks on new sanctions.”

Unsecured Site

European outrage has been fueled by the MH17’s crash site remaining unsecured 10 days after the disaster. The Netherlands, which lost 194 of its nationals on the flight, and Australia, which also had passengers on it, have sent forensics experts to Ukraine and are considering deploying police at the site. Australia says some of its police will be armed.

A team of forensic workers was unable to reach the crash site yesterday because the combat situation was too unstable, the Dutch government said in a statement on its website. The situation will be assessed again today, it said.

The first positive identification of a crash victim was made yesterday, the government also said. The person was a Dutch national, it said.

The Dutch Safety Board may have a technical report with the first factual findings about the crash ready by Aug. 1, Sara Vernooij, spokeswoman of the board, said by phone.

“Like giving a handgun to a child, Moscow permitted the transfer of a highly sophisticated surface-to-air missile system to terrorists,” Ukrainian President Petro Poroshenko said in an op-ed piece published today in the Washington Post.

‘Slander Campaign’

Russia’s Foreign Ministry said yesterday the U.S. has supplied no evidence backing up its MH17 accusations and that the Obama administration continues a “relentless slander campaign” against Russia.

The Foreign Ministry said American foreign policy relies on “an outright lie” and the U.S. bears all responsibility for the Ukraine conflict.

Meanwhile, the number of Russian troops on the border has risen to 12,000 from about 10,000 amid signs that Russia is planning to supply heavier weapons to the rebels, the U.S. Pentagon said.

“We have indications the Russians intend to move large-caliber weapons to the separatists,” U.S. Defense Department spokesman Steve Warren told reporters at the Pentagon on July 25. Deliveries of arms such as multiple-launch rocket systems are “imminent” as part of a “continuing flow” of weapons to the pro-Russian rebels, he said.

Seizing Weapons

Ukraine’s Defense Ministry said yesterday that Russian forces shelled Ukrainian government positions and that Russia continues sending troops and military vehicles across the border to aid the rebels. Ukrainian troops “liquidated” several sniper positions and have seized a large number of small arms, mortars, grenades and advanced Russian-made sniper rifles, the Defense Ministry said.

Power was cut to most of the Luhansk region due to the shelling of a power substation, the region’s acting Governor Iryna Verygina said yesterday by phone.

Nine coal mines in the area stopped work due to the power situation, Interfax reported, citing the press office for DTEK, which is Ukraine’s largest private energy company.

Rebel groups are increasingly in discord, especially the Vostok Battalion and a group calling itself the Russian Orthodox Army, the Ukrainian Defense Ministry said.

The mayor of Kremenchuk, in central Ukraine, was shot dead by unknown assailants yesterday, the Interior Ministry said. Unknown attackers fired a grenade at the mayor’s house in the western city of Lviv yesterday, according to the city council’s website. There were no casualties.

Borrowing Costs

Amid the threat of broader EU sanctions, Russia’s central bank unexpectedly increased borrowing costs on July 25 for a third time this year. The bank raised its one-week auction rate to 8 percent from 7.5 percent.

Merkel is pushing EU leaders to sign off on measures against Russia by the end of this week and is prepared to accept curbs on her country’s technology exports to win support, according to two German government officials who asked not to be named because the discussions are private.

The European Commission, the 28-nation EU’s regulatory arm, drew up detailed proposals on July 25 for broader sanctions after getting the go-ahead from national governments. The sanctions may be phased in, and their full weight may not hit at once.

In a statement, Commission President Jose Barroso spoke of “an effective, well-targeted and balanced package providing the flexibility to adjust our reaction to changes on the ground.”

Russia’s Response

Russia’s Foreign Ministry said yesterday the EU’s move shows Europe wants to end cooperation with Russia on anti-terrorism, weapons of mass destruction and organized crime. “We are convinced that these decisions would be welcomed by the international terrorist community,” the ministry said on its website.

EU governments have already agreed to go beyond existing travel bans and asset freezes on individuals and companies deemed responsible for the unrest in Ukraine. The next wave may stop state-owned banks from financing themselves in Europe and prevent Russian companies buying high-tech equipment to develop energy resources, according to a document seen by Bloomberg News.

Ukraine’s parliament will hold a special session of parliament on July 31 after the collapse of the ruling coalition and the resignation of Prime Minister Arseniy Yatsenyuk.

The emergency session, announced on July 25 President Poroshenko’s website, came after Poroshenko, Yatsenyuk, the speaker of parliament, Oleksandr Turchynov and leaders of the parties in the legislature met to discuss how to carry on until a new coalition is formed.

Lawmakers plan to vote on two government-proposed bills, including one on funding the military and cutting social spending required under Ukraine’s $17 billion International Monetary Fund aid deal that failed to gain approval before they went into a recess.

To contact the reporters on this story: Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net; Tony Capaccio in Washington at acapaccio@bloomberg.net; Volodymyr Verbyany in Kiev at vverbyany1@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net Leon Mangasarian, Don Frederick


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