Europe Renews Threat of Russian Sanctions Over Ukraine Vote

May 10, 2014 11:04 am ET

(Updates with analyst comments starting in eighth paragraph. For more on the conflict in Ukraine, see EXT2.)

May 10 (Bloomberg) -- European nations intensified their threat of further sanctions against Russia if Ukraine’s May 25 presidential vote doesn’t meet international standards, after President Vladimir Putin visited the annexed Crimea peninsula.

“The Russian president must send out more signals of de- escalation so the elections can take place,” German Chancellor Angela Merkel said today after talks with French President Francois Hollande in Stralsund, Germany. “We’ve had first signs, but these have to get stronger so eastern and southern Ukraine also get the message that everyone wants free and general presidential elections.”

The national ballot is taking center stage in the Ukrainian crisis as violence lingers in southeast Ukraine. Insurgents in the Donetsk and Luhansk regions have said they plan to hold referendums tomorrow on autonomy, as Crimea did before Russia seized it in March, defying Putin’s call to postpone the ballots. Merkel and Hollande declared the separatist votes to be illegal and said Putin must do more to rein in Russian sympathizers or risk economic sanctions by the European Union.

The bloc is preparing to impose penalties on Russian companies that expropriated assets in Crimea, and may approve a list early next week, EU officials said. The U.S. and the EU accuse Putin of fomenting the unrest in what may be a prelude to another land grab.

‘New Hatreds’

“Armed thugs with modern weapons are stirring old tensions and stoking new hatreds,” U.K. Foreign Secretary William Hague said in an interview in the Daily Telegraph. Putin “seems to have unleashed forces that he cannot control.”

The situation in the city of Mariupol, where separatists clashed with government forces yesterday, remains “tense,” Ukraine’s National Guard said in a website statement. Putin’s trip yesterday to Sevastopol, home to Russia’s Black Sea Fleet, was criticized by the government in Kiev, the U.S. and its European allies, which deem Crimea’s seizure illegitimate.

Pro-Russian activists in the southeast have seized state buildings, and the Kiev government has sent troops to regain control. Barricades set up by separatists were ringing the center of Mariupol today, with overturned cars piled up in front of the burnt municipal headquarters.

‘Remaining Chasm’

“The referendums may add fuel to the conflict between government forces and pro-Russian separatists,” Tatiana Orlova, a London-based economist at Royal Bank of Scotland Group Plc, said in an e-mailed report yesterday. “While the diplomatic campaign for resolving the crisis by peaceful means seems to be gaining momentum, we see no quick resolution given the remaining chasm between the positions of the Ukrainian and Russian sides on Ukraine federalization.”

Ukraine’s acting Interior Minister Arsen Avakov said yesterday on his Facebook page that 20 rebels and at least one serviceman were killed in a battle for control of a police building in Mariupol. The city is less than 60 kilometers (37 miles) from the Russian border, along which NATO says Putin hasn’t fulfilled a pledge to pull back as many as 40,000 Russian troops.

In nearby Donetsk, seven Red Cross workers taken hostage by separatists were freed early this morning. Ukraine’s Orthodox Church of Moscow Patriarchy confirmed a priest had been killed in the region, with the prosecutor general’s office alleging rebels had shot him two days ago, according to Interfax.

Limited Access

The Kiev government, which took over after Kremlin-backed President Viktor Yanukovych was toppled by protesters in February, opposes tomorrow’s secession referendums. The organizers of the votes don’t have access to the official electoral register or other voting infrastructure.

The central authorities are also pressing ahead with plans for the May 25 presidential elections. The “main part” of the preparatory work for the ballot has been completed, according to Oleksandr Chernenko, chairman of the Ukrainian Voters Committee, a non-governmental organization that monitors elections.

“The Donetsk and Luhansk regions are the main danger zones, of course, but even there about 50 percent of people plan to vote,” he said by phone today. “The main risk is that separatists may use force to intimidate them.”

Voting may be fully disrupted in only parts of the two restive regions, he said, adding that Ukraine has no minimum turnout threshold for elections to be declared valid.

Surrender Weapons

Merkel and Hollande, who lead the two biggest euro-area economies, called for armed groups in Ukraine to surrender weapons starting May 15 to the Organization for Security and Cooperation in Europe and said Ukraine must be able to hold an internationally recognized vote.

Ukraine’s presidential vote must be held “in full regularity and in full transparency” and should provide the next president with “indispensable legitimacy,” Hollande said.

Requirements for elections that can win international approval include complete voter lists, absence of intimidation and unhindered access to polling stations, said Wolfgang Richter, an analyst at the Berlin-based German Institute for International and Security Affairs, which advises the German government.

‘Serious Obstacles’

“There still are serious obstacles and time is running short,” he said in a phone interview. “In the situation as it is today, I have grave doubts that you could hold an internationally recognized election. What’s needed is some kind of a process that leads to a cease-fire,” including the disarming of pro-Russian militants.

The OSCE plans to have about 1,000 monitors on the ground for the election, Richter said. The organization would report on how the election went in different parts of Ukraine, giving fodder to political leaders for the next steps in the crisis.

Germany and France also sent a message to the Ukrainian government of Prime Minister Arseniy Yatsenyuk, saying it should avoid excessive force, speed up constitutional reform and start a national dialogue about decentralizing power and minority rights.

A nationwide dialogue aimed at preserving national unity would start May 14, Yatsenyuk said yesterday, according Interfax. His government says it won’t talk to separatists involved in violence. Putin says only talks including pro- Russian groups can succeed in easing tensions.

Devolving Power

Ukraine is moving toward decentralization, acting President Oleksandr Turchynov said last night in televised comments.

“A strong Ukraine can’t exist if it doesn’t have strong regions,” he said. “We’re interested in strong regions that can shape local power and take decisions. We’re moving in this direction by preparing constitutional amendments.”

Before departing for Crimea, Putin watched a drive-by of tanks and armored personnel carriers in Moscow’s Red Square to mark the Soviet victory in World War II. Aircraft flew over releasing smoke trails in the white, blue and red colors of the Russian flag.

In Sevastopol, he attended a parade to mark the 70th anniversary of Soviet forces driving the Nazis out of the region, with ships from the Black Sea Fleet on display.

Putin was accompanied by officials including Deputy Prime Minister Dmitry Kozak and OAO Rosneft Chief Executive Officer Igor Sechin, both of whom were included on a U.S. sanctions list at the end of April.

The ruble weakened for a second day yesterday, falling 0.6 percent to 35.227 per dollar. The yield on Ukrainian dollar bonds maturing in April 2023 rose 12 basis points to 10.2 percent. Financial markets in Russia and Ukraine were closed.

White House spokesman Jay Carney said Putin’s Crimea visit is “certainly not helpful” and “further destabilizes the region.”

--With assistance from Ott Ummelas in Tallinn, Leon Mangasarian and Tony Czuczka in Berlin, Mark Sweetman and Emma Charlton in London, Daryna Krasnolutska in Kiev and Ekaterina Shatalova in Sevastopol, Crimea.