Debt Rattle Feb 28 2014: Divide And Rule The Black Sea

Source: The Automatic Earth

Dorothea Lange Technocracy, Josephine County, Oregon August 1939
Well, at least these times are not dull. Normally, we would be looking with wary eyes at record unemployment in Italy, deflation in Spain and plummeting French consumer spending. Or at big, smart, institutional money leaving the US housing market. None of these are small matters by themselves, but they are dwarfed by the groups of as yet mysterious militia, mercenaries, whatever they may be, I used the term guerrillas yesterday, that would do, who have taken hold of, first, yesterday, government buildings in the Crimea and then, today, airports.

Yanukovych is due to do a press op today, and I doubt he will address why he ordered his elite troops to shoot and kill dozens of his own people last week, or why and how he was living in the kind of luxury that was found in his not so humble abodes. Which is too bad, because those are precisely the two issues that are giving Putin a headache about siding with him. Yanukovych and his PR crew seem to live in some old forgotten century (pick one), and Putin is not.

And while there can’t be much doubt that the heavily armed mystery men are at least where they are with Putin’s consent (Moskou denies they’re Russian, calls them local defencemen and claims they’ve already left), for him they simply represent the ‘possession is 9/10 of the law’ principle, useful while he decides what to do with Yanukovych. Who perhaps more than anything has become a nuisance, but may still serve a purpose. Putin doesn’t seem likely to answer favorably to Ukraine’s extradition request for Yanukovych – for now he denies even knowing where he is – , though it would be a great publicity coup for him in the eyes of the west.

Thing is, Putin is worried more about how he looks in his own part of the world, comprised of large amounts of tribes, peoples, regions, nations. Divide and rule is by far the best way to go for him. Maybe he’s busy finding or setting up a replacement for Yanukovych, and will then drop him. The one major point for Putin is the pipelines that flow through Ukraine (well, that and his Black Sea fleet in Sebastopol). He will never accept any interference with the rights to the pipelines, nor the revenue Russia derives from them. And of course he can’t be seen leaving Russians alone who live in Ukraine or other countries. Still, one look at the map of the Black Sea and Crimea region says it all, and Putin knows it: nobody will get sole control.

A lot of Europe, including EU members, a lot of Russia and former Soviet republics, and Asia at the doorstep of the door that is secular Turkey. With the Bosporus as the only passage from the Black Sea to the Mediterranean and from there the world. So many parties with so many different interests, it’ll always be a delicate balance, but one for now that works for all. Shift or even poke the balance and who knows what you get?

Yanukovych just did his press op, only 5 minutes or so, with an hour of Q&A. “I intend to continue the fight for Ukraine”, “I’m the legit president”, all the others are thugs, I did not flee, I was never impeached, Putin should come and help me, and why hasn’t he? He wants to return to his elected post. Looks like a man out of his time and zone trying to appear in control. Anyway, he’s brought his country to the brink of default, and blaming, among others, the US for that (which he does) serves little purpose other than domestic ones.

There are a lot of people in Kiev who want to put him on trial for ordering the deaths of dozens of protesters, and who want to know where the billions came from that built his palaces. He won’t be able to just sweep those things aside. Switzerland and Austria have started up proceedings to invest his money trails in their countries, including accusations of money laundering, he’ll have to answer to those things too (denies having any possessions outside of Ukraine). Blaming the US and other western countries for the violence in Kiev is not going to help his case either.

Putin for now is closer to for instance Merkel than to this guy. Civil war in Ukraine means disruption of oil and gas delivery. So no civil war unless he has no other way out. For whatever he gives on Ukraine to the west, he wants something back. Ukraine can maybe apply for EU membership, but they can’t get it for many years into the future. And if the negotiated conditions are good enough for him, Putin will then set up a Ukraine bailout together with the west.

At the present time, Yanukovych, somewhat surprisingly, after accusing the west of instigating his ouster, seems to be chiding Putin for leaving him alone, not sending support, and refusing to meet with him. That makes him a lonely man indeed. And frightened.

Austria to freeze assets of 18 Ukrainians (Reuters)

Austria will freeze the bank accounts of 18 Ukrainians following a request from Ukraine’s foreign ministry and pending possible European Union sanctions, the foreign ministry said on Friday. “Austria has decided to freeze possible bank accounts and assets of 18 Ukrainian citizens in Austria. This has been done on the basis of an official request by the Ukrainian foreign ministry,” the ministry said. It called the move “a temporary precautionary measure until EU restrictive measures enter into force”.

After Ukraine suffered its bloodiest day since the Soviet era last week, the 28-nation EU agreed in principle to impose sanctions such as visa bans and asset freezes on unnamed senior Ukrainian officials. Austria said it would freeze accounts via a central bank decree under its foreign currency law. It did not identify the people affected or say how much wealth was seized. “The decree from the National Bank provides the appropriate legal basis to be able to determine which assets are actually in Austria and to prevent potential abuse,” Foreign Minister Sebastian Kurz told the Austria Press Agency. The EU cannot unilaterally tell banks to freeze assets without a legal decision agreed among all member states.

Ukraine’s acting prosecutor general said on Wednesday the country will ask international organisations to help trace bank accounts and assets controlled by ousted President Viktor Yanukovich and his allies. Austria’s FMA markets watchdog has already warned banks to be vigilant about dealing with customers from Ukraine.

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Swiss Police Raid Yanukovich Firm In Laundering Probe

Swiss police have raided the premises of a Geneva firm owned by ousted Ukrainian President Viktor Yanukovich and his son Oleksander in an investigation into “aggravated money laundering.” The Geneva cantonal ministry in charge of justice and police said the raid took place on Thursday morning and documents were taken away. The action was directed “against the Yanukovych clan,” it said in a statement on Friday. The ministry did not name the firm whose offices were searched or give further details.

The raid was led by Geneva’s General Prosecutor, Yves Bertossa, who has headed investigations into many other money-laundering cases. There was no immediate indication if anyone had been arrested. “A criminal investigation for severe money laundering is currently being conducted in Geneva against Viktor Yanukovich and his son Oleksander,” the statement said. The Swiss governnment said on Thursday it would order banks to freeze any funds in Swiss banks found to be linked any Yanukovich funds. The followed similar action by Austria.

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Ukraine To Seek Yanukovich Extradition (Reuters)

Ukraine will ask Russia to extradite ousted President Viktor Yanukovich if it is confirmed that he is in Russia, the general prosecutor’s office said on Friday. “Ukraine’s Prosecutor-General intends to raise the issue of the extradition of the internationally wanted citizen of Ukraine Viktor Yanukovich in case it is officially confirmed that he is in the Russian Federation,” it said in a statement.

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‘Treasury empty’, Ukraine’s economy in free fall (RT)

Ukraine’s new Prime Minister, opposition leader Arseny Yatsenyuk, has promised the government would do its best to avoid a default, a difficult task as the country’s treasury is empty and the economy is in disarray.
Yatsenyuk says he expects an EU/IMF economic stabilization package soon, but didn’t give any specifics on timing. Strengthening ties with the European Union and the International Monetary Fund will remain a priority as Ukraine rebuilds, Yatsenyuk said on Thursday in Kiev, Itar-Itass reported.

Yatsenyuk said negotiations with Russia would continue, and he considers the neighboring country “a partner”. The IMF failed to come through with a loan of $10-15 billion last August, and it remains to be seen what offer they will come up with for the new government. But in December Ukraine signed a $15 billion loan deal with Russia. The first $3 billion was paid to Ukraine in December, but the second installment of $2 billion, is postponed until Moscow deems Ukraine has formed a legitimate government.

Yatsenyuk believes the economic trouble ahead will likely make him the most unpopular PM in Ukraine’s history.

Ukraine has a massive debt, both domestically and abroad. Propping up its overvalued currency with interventions has drained much of the country’s foreign exchange reserves, which are now close to $15 billion. As a%age of GDP, Ukraine’s public debt stands at 40.5%. In summer 2014, a debt payment of $60 billion, or about one third of the economy is due, according to Central Bank data.

The EU was disillusioned with the Yanukovich government when he didn’t sign the European Trade Association Agreement in November. On the brink of collapse, a move towards the EU could spell the end of Ukraine’s economy, which the S&P ratings agency already has said is likely to default. Fitch ratings agency says the risk of a sovereign debt default is high and has also downgraded credit to junk status.

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Russia Fosters Ukraine Discord (WSJ)

Ukraine’s new pro-Western leadership faced a double challenge Thursday that raised fears of a separatist conflict that could draw in Russia. Armed men took over a regional legislature and a pro-Russian leader was installed, while the ousted president broke a days-long silence to declare himself still in charge.

Russian forces began exercises on Thursday, as armed pro-Russia activists took over the Crimean parliament building and fugitive former Ukraine president Viktor Yanukovych released a defiant statement. Via The Foreign Burea, WSJ’s global news update.

As the events unfolded in the autonomous region of Crimea, which has emerged as the epicenter of resistance to the new leadership in Kiev, former President Viktor Yanukovych issued a public statement for the first time since he was deposed on Saturday. Mr. Yanukovych said he remains the lawful president of Ukraine and asked Russia for protection, a request Moscow, speaking through unnamed officials to state news agencies, promptly granted.

The rapid-fire developments raised the prospect that Crimea, which until 1954 was part of Russia and still hosts Moscow’s Black Sea Fleet, might seek greater autonomy or even secede from Ukraine. The Crimean legislature called a referendum on the region’s status for May 25. Late Thursday, Russian President Vladimir Putin ordered his government to arrange “humanitarian aid” for Crimea, where ethnic Russians make up the bulk of the population.

A separatist Crimea could wind up like other Moscow-backed breakaway regions across the former Soviet Union, such as Transnistria, Abkhazia and South Ossetia. All are contested territories that Russia’s neighbors accuse the Kremlin of using as levers to pressure them.

U.S. Secretary of State John Kerry said any Russian involvement in developments in Crimea would conflict with its public statements about respecting Ukraine’s borders. “I think [Russians] understand that to keep faith with their affirmation about protecting territorial integrity, you can’t be encouraging the separatist movement or some other effort,” Mr. Kerry said in Washington.

He said he warned Russian Foreign Minister Sergei Lavrov in a telephone call Thursday that Washington would be watching. Mr. Kerry said Mr. Lavrov reaffirmed an earlier commitment by Mr. Putin to respect the territorial integrity of Ukraine and assured the U.S. that the Russian military exercises announced this week aren’t related to recent events in the former Soviet republic. Mr. Kerry also expressed concern about possible missteps by the new government in Kiev, which was swept to power after months of street protests against Mr. Yanukovych turned violent last week, killing dozens.

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What is so dangerous about Crimea? (BBC)


In the aftermath of the revolution in Ukraine – in which pro-Western and nationalist Ukrainians have taken power after the fall of President Viktor Yanukovych – there are fears that the southern region of Crimea could become a battleground between forces loyal to Ukraine and Russia.

Armed men have raised flags over government buildings declaring “Crimea is Russia”, while separatist and pro-Ukrainian groups have clashed with each other in the streets.

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Why has Crimea become a flashpoint?

Map showing Crimea

Crimea is a centre of pro-Russian sentiment, which can spill into separatism. The region – a peninsula on Ukraine’s Black Sea coast – has 2.3 million inhabitants, most of whom identify themselves as ethnic Russians and speak Russian.

The region voted heavily for Viktor Yanukovych in the 2010 presidential election, and many people there believe he is the victim of a coup – leading to attempts by separatists in Crimea’s parliament to push for a vote on whether it should leave Ukraine.

Map: Ukraine's political and linguistic divide

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Russia has been the dominant power in Crimea for most of the past 200 years, since it annexed the region in 1783. However, it was transferred by Moscow to Ukraine – then part of the Soviet Union – in 1954. Some ethnic Russians see that as a historical wrong.

However, another significant minority, the Muslim Crimean Tatars, point out that they were once the majority in Ukraine, and were deported in large numbers by Soviet leader Joseph Stalin in 1944 for alleged collaboration with Nazi invaders in World War Two.

Ethnic Ukrainians made up 24% of the population in Crimea according to the 2001 census, compared with 58% Russians and 12% Tatars.

Tatars have been returning since the collapse of the Soviet Union in 1991 – causing persistent tensions with Russians over land rights.

Crimea profile

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What’s its legal status?

It remains legally part of Ukraine – a status that Russia backed when pledging to uphold the territorial integrity of Ukraine in a memorandum signed in 1994, also signed by the US, UK and France.

It is an autonomous republic within Ukraine, electing its own parliament. However, the post of Crimean president was abolished in 1995, shortly after a pro-Russian Crimean separatist won the post with a big majority. It now has a presidential representative, and a prime minister, but both are appointed by Kiev.

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What could Russia do?

Russian missile cruiser Moskva moored in the Ukrainian Black Sea port of SevastopolRussia’s lease on the Sevastopol base lasts until 2042

Russia keeps a major naval base in the Crimean city of Sevastopol, where its Black Sea Fleet is based. Some Ukrainians are therefore nervous about Russia’s military might being brought to bear.

The lease stipulates that Russian personnel should not take military equipment or vehicles outside the base area without Ukrainian permission. Olexander Turchynov, Ukraine’s acting president, warned that any move by Russian troops off of their base in Crimea “will be considered a military aggression”.

There are reports of Russian envoys distributing Russian passports in the peninsula. Russia’s defence laws allow military action overseas to “protect Russian citizens”. This has sparked fears of Russia using this as a pretext for invasion.

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Has that happened before?

Russia used a similar justification for sending troops into Georgia’s breakaway region of South Ossetia in 2008, routing Georgian forces which had tried to take back control.

As with Georgia, Moscow resents what it sees as EU and Nato overtures to Ukraine. And after all, Nato decided not to come to Georgia’s defence.

But Crimea is bigger than South Ossetia, Ukraine bigger than Georgia, and the Crimean population more divided than in pro-Russian South Ossetia – making Russian intervention in Ukraine a bigger gamble.

Comparing Crimea and South Ossetia (Eurasianet)

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Wasn’t there once a war in Crimea?

24th January 1856: The storming of the Malakoff leaving the remains of the Tower in Sevastopol, during the Crimean War. Original Artwork: Drawn by Simpson and lithographed by E Morin

Crimea has been fought over – and changed hands – many times in its history.

The occasion many will have heard of is the Crimean War of 1853-1856, known in Britain for the Siege of Sevastopol, the Charge of the Light Brigade, and the medical advances made by Florence Nightingale and Mary Seacole.

The war was a result of rival imperial ambitions, when Britain and France, suspicious of Russian ambitions in the Balkans as the Ottoman Empire declined, sent troops to Crimea to peg them back. Russia lost.

The Crimean War

Florence Nightingale – early celebrity

Mary Seacole


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