Ukrainian border guards stand at a checkpoint at the border
with Moldova breakaway Transnistria region, near Odessa.
Russia has launched new military exercises near its
border with Ukraine, showing no sign of backing down in its
plans to annex its neighbour's Crimea region despite a stronger
than expected drive for sanctions from the EU and United
In an unusually robust and emotionally worded speech, German
Chancellor Angela Merkel warned of "catastrophe" unless
Russia changes course.
"We would not only see it, also as neighbours of Russia, as a
threat. And it would not only change the European Union's
relationship with Russia," she said in a speech in
parliament. "No, this would also cause massive damage to
Russia, economically and politically."
U.S. Secretary of State John Kerry said a serious steps would
be imposed on Monday by the United States and Europe if a
referendum on Crimea joining Russia takes place on Sunday as
Merkel, a fluent Russian speaker who grew up in Communist
East Germany, has emerged in recent days as a leading figure
in threatening tough measures against Moscow.
Her foreign minister, Frank-Walter Steinmeier, said European
states would draw up a list over the weekend of Russians who
will face visa restrictions and asset freezes.
President Vladimir Putin declared Russia's right to invade
its neighbour on March 1, even as Russian troops were already
seizing control of Crimea, a Black Sea peninsula with a
narrow ethnic Russian majority and a Russian naval base.
The pace of events has moved rapidly, perhaps signalling an
effort by Moscow to turn the annexation into a fait accompli
before the West could coordinate a response.
Away from Crimea, fighting broke out in the eastern city of
Donetsk after rival rallies staged by pro-Russian and
pro-European demonstrators and 10 people were hurt.
Pro-Russian demonstrators shouted "Russia, Putin!" and hurled
eggs, bottles and other projectiles at rival demonstrators.
But in an apparently conciliatory move, Russia backed
deployment of an OSCE monitoring mission in Ukraine,
including Crimea, the chairman of the European rights
Pro-Moscow separatist politicians, who took power in Crimea
after armed men seized its parliament on Feb. 27, are
planning to hold a referendum on union with Russia on Sunday.
Western countries say the vote is illegal.
Russia has taken territory from its former Soviet neighbours
in the past with no serious consequences - most recently in
2008 when Putin invaded Georgia and seized two breakaway
regions. But if Putin was hoping for a similarly tepid
response this time, he may have misjudged.
In particular, he seems to have alienated Merkel, the Western
leader with whom Putin - a German speaker once based as a KGB
spy in Merkel's native East Germany - has had the closest
relationship in the past.
Merkel was initially more cautious than other Western leaders
in responding to Russia's seizure of Crimea, but has emerged
in recent days as among the toughest critics of the Kremlin,
pushing the European Union to match U.S. sanctions.
EU action is critical because Europe does 10 times as much
trade with Russia as the United States, buying most of
Moscow's gas and oil exports.
The prospect that EU measures could be implemented as soon as
Monday has weighed down the Russian economy.
STASHING MONEY ABROAD
Goldman Sachs revised its prediction for Russian economic
growth this year down to 1 percent from 3 percent, blaming
the tension over Ukraine for fuelling capital flight that
would cripple investment. It said $45 billion had already
left Russia this year, mostly Russians stashing money abroad.
The Russian stock market hit a four-and-a-half-year low on
Thursday and is down 20 percent since mid-February. The cost
of insuring Moscow's debt against default rose to its highest
level in nearly two years.
The crisis has already forced several Russian firms to put
plans on hold for public offerings to raise cash abroad.
Yet none of that appears to have slowed down Putin, who told
officials of the Paralympic Games he is hosting in Sochi that
Russia was "not the initiator" of the crisis.
The Russian Defence Ministry said 8,500 troops were taking
part in new military exercises near the Ukrainian border,
testing artillery and rocket launchers.
It was the second big military exercise Moscow has ordered
since the crisis began; the first, involving 150,000 troops,
began days before Russian forces seized Crimea and ended
three days after Putin declared his right to invade.
In a gesture of support for NATO's eastern members after
Russia's intervention in Ukraine, U.S. F-16 fighter jets
landed at Poland's Lask air base on Thursday.
Among efforts by the West to isolate Russia politically, the
Organization for Economic Cooperation and Development, a
34-member rich nations' club, announced it was suspending
membership talks with Russia, under way since 2007.
RESPOND IN KIND
Russia has pledged to respond in kind to any Western
But European leaders appear to be calculating that the damage
to Russia would be far worse than to Europe. EU-Russian trade
makes up 15 percent of Russia's economy and just 1 percent of
Europe's. Although EU countries depend on Russian gas
imports, storage tanks are full after a mild winter season.
Diplomatic lines have been open between Russia and the West
throughout the crisis: U.S. Secretary of State Kerry and
Russian Foreign Minister Sergei Lavrov spoke on Thursday as
they have nearly every day. They are due to meet in London on
Russia's top general discussed Ukraine with the chairman of
NATO's Military Committee by telephone on Thursday, the
Interfax news agency said.
The crisis over Crimea began after pro-Russian president
Viktor Yanukovich fled Kiev and pro-European politicians took
charge, following three months of demonstrations.
A Ukrainian businessman who had wide influence under
Yanukovich, Dmytro Firtash, was arrested in Vienna at the
request of the United States, which has been investigating
him since 2006.