“…the risks of future Russian intervention in Ukraine have not permanently reduced – Moscow, likely, rather will be biding its time.”
LONDON, Sep 1, 2015 (UBO) – Nomura International’s top emerging market economist Timothy Ash provided the following update on Ukraine at 10:26 today:
Ukraine was in the headlines again for all the wrong reasons over the weekend, with violent clashes outside the Verkhovna Rada, associated with the passage, at the second reading, of proposed constitutional changes giving greater power to the regions, including “Special Status” (still unclear what exactly that will amount to as the fine detail will be published in a separate bill) to the rebel held regions of DPR and LPR.
Approval of laws decentralising powers to the Regions was a key part of the Minsk II ceasefire agreement back in February, brokered by Merkel and Hollande, with President Putin of Russia and President Petro Poroshenko of Ukraine. At Minsk II President Poroshenko committed to adopt a form of decentralisation (albeit not going far enough for Russia) as a pre-requisite, with holding local elections, to enable troop withdrawal and Ukraine retaking control over its borders by year end. Local elections are still slated for October, but it is unclear how all this squares with the time-table of rolling out constitutional reform, which seems to be dragging.
In a conference call last week with Merkel and Hollande, Putin re-iterated that he expected Minsk II commitments to be implemented in full.
In Putin’s Russia nothing much gets done these days without careful pre-planning and with non-too subliminal messaging at work. Therein views of Putin and Medvedev “pumping iron” over the weekend – before cooking/devouring their steak - were likely intended to send the message, to foes at home and abroad, that Russia and its political leadership is fit and focused and ready to face any challenges, and ultimately they get what that want (cutting up the steak). This was a clear warning in my mind to Ukraine – again to bow to Russian demands on the decentralisation front, and to move back out of the Western orbit, or face the consequences.
In the end Poroshenko managed to secure the backing of the Verkhovna Rada for the moves towards decentralisation – albeit that still falls well short of Russian demands, and those of DPR and LPR. It will hence be interesting to see how Russia reacts therein.
Poroshenko’s team argues that the current bills do indeed safeguard Ukrainian sovereignty (but falling short of Russian demands), and that the Verkhovna Rada has to back the bills as is, to ensure continued Western support against Russia – in particular the maintenance of the sanctions regime around Russia. The opposition in parliament to the decentralisation bills are suspicious of what might end up in the new Special Status laws for the east, and just view this whole constitutional debate as marking a sell-out of Ukraine, by the West, and also by Poroshenko and his supporters – the fact that the Opposition Block voted in favour of the bill, hardly helped ease these concerns.
Therein, a number of points should be made:
Note that today marks the start of a new ceasefire effort, centred on the start of the new school year in Ukraine - and so far it is encouraging that violence just does appear to be toning down moderately in the East. Russia will likely make much with its German/French interlocutors that it is still doing its best to support the peace effort in the East of Ukraine - with an eye still on trying to get sanctions ratcheted down by year end.
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