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Business News/ News / World/  Russia excluded from G8 as leaders warn Putin of more sanctions
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Russia excluded from G8 as leaders warn Putin of more sanctions

G7 leaders won't attend a planned G8 meeting in Sochi, and will instead hold their own summit in June in Brussels

With Monday’s move, the G7—the US, Germany, the UK, France, Italy, Canada and Japan—reverted to its Cold War-era format, suspending what became the G8 in 1998 when Russia was welcomed in. Photo: BloombergPremium
With Monday’s move, the G7—the US, Germany, the UK, France, Italy, Canada and Japan—reverted to its Cold War-era format, suspending what became the G8 in 1998 when Russia was welcomed in. Photo: Bloomberg

Brussels/The Hague/Washington: The world’s top industrial powers threatened further sanctions to deter Russian president Vladimir Putin from taking over other parts of Ukraine and suspended Russia from participating in the Group of Eight (G8).

Meeting for the first time since last week’s annexation of Crimea by Russia, Group of Seven (G7) leaders said last night they won’t attend a planned G8 meeting which was to have to been held in Sochi, site of the Winter Olympics, and will instead hold their own summit in June in Brussels.

“We remain ready to intensify actions including coordinated sectoral sanctions that will have an increasingly significant impact on the Russian economy, if Russia continues to escalate this situation," the G7 said in a statement emailed after a meeting in The Hague on Monday.

Both sides in Ukraine’s crisis spent the day calculating what to do next, with Russia consolidating its control over Crimea and massing forces along the border with Ukraine in the most serious confrontation between Moscow and the US and its allies since the demise of the Soviet Union.

“We’re united in imposing a cost on Russia for its actions so far," US President Barack Obama told reporters in Amsterdam on Monday at the start of a six-day trip that includes a nuclear-security summit in The Hague and a meeting with the heads of European Union institutions in Brussels.

Putin’s absence

With Monday’s move, the G7—the US, Germany, the UK, France, Italy, Canada and Japan—reverted to its Cold War-era format, suspending what became the G8 in 1998 when Russia was welcomed in. The group was all smiles around a Putin-less conference table in a photo posted on Twitter by European Commission President Jose Barroso, who attended along with EU President Herman Van Rompuy.

“It’s Russia that needs to change course," UK Prime Minister David Cameron told reporters.

US and European warnings focused on potential military moves by the Kremlin into Russian-speaking areas of eastern and southern Ukraine, leaving open whether the West hopes to dislodge Putin’s forces from Crimea, a Black Sea peninsula dominated by Russia since the 18th century.

The US has imposed asset freezes and visa bans on 31 Russians and Ukrainians, including political and business figures close to Putin, and barred Bank Rossiya. The 28-nation EU has put 51 people on its blacklist, including some on the US roster, while stopping short of punishing businesspeople.

No accident

“The current sanctions are still too little to matter, but that’s not by accident—it’s by design," said Fredrik Erixon, director of the European Centre for International Political Economy in Brussels. The EU and US are sitting on weapons of mass destruction when it comes to Russia’s economy. The US and EU are laying out possible step-by-step economic sanctions that will start rolling into place if Putin doesn’t behave.

US and European officials said sanctions are already biting. Russia’s Micex stock index has plunged 13.7% this year, worse than the almost 5% decline in the MSCI Emerging Markets Index. The ruble has dropped 8.9%, making it the second-worst performer against the dollar among 24 developing-market currencies tracked by Bloomberg.

Investors pulled $5.5 billion from Russian equities and bonds this year through 20 March, already approaching the total outflow of $6.1 billion for all of 2013, according to data compiled by EPFR Global, a Cambridge, Massachusetts-based firm tracking fund flows.

‘Flagrantly violating’

Net capital outflow from Russia is forecast at $65 billion to $75 billion in the first quarter of the year, deputy economy minister Andrey Klepach said on Monday. While sanctions haven’t yet affected the country’s growth, cooler ties with foreign governments are fueling capital outflow, he said.

Gross domestic product (GDP) rose 0.3% in February after gaining 0.1% in January. The government still doesn’t expect the economy to slide into recession, he said.

A Russian incursion into other parts of Ukraine would be the most likely trigger for wider sanctions that could cover Russia’s energy, banking and finance industries, as well as weapons procurement, an Obama administration official told reporters on condition of anonymity.

European governments are debating the costs of snubbing Russia. Banking curbs would hurt Britain, an arms embargo would bar France from selling Mistral-class helicopter carriers to the Kremlin, and cutbacks in purchases of Russian gas would harm a swathe of EU countries, starting with Germany.

Ukrainian constitution

Russia wants Ukraine to adopt a federal constitution that guarantees political and military neutrality, grants powers to Ukrainian regions and makes Russian a second official language. In a nod to those concerns, the G7 urged Ukraine to undertake broad-based constitutional reform, free and fair presidential elections in May, promotion of human rights and respect of national minorities.

Putin didn’t show his hand on Monday, instead using a public appearance in Moscow to tout Russia’s sporting prowess, urge more support for slopestyle and halfpipe snowboarding, and announce that the Sochi Olympics came in under budget.

Putin sent foreign minister Sergei Lavrov to The Hague for a 53-nation summit on the security of the world’s stockpiles of nuclear fuel. Lavrov told reporters that Russia isn’t clinging to the G-8 format, viewing the wider Group of 20 as the best forum for discussing global issues.

German Chancellor Angela Merkel said there is no political environment for a G8 meeting. G7 foreign ministers will also skip a Moscow meeting in April, the G7 said in the statement. A G7 energy ministers meeting will explore ways to diversify Europe’s energy supply in order to blunt the cost of imposing sanctions, the US official said.

“This group came together because of shared beliefs and shared responsibilities," the G7 said. “Russia’s actions in recent weeks are not consistent with them." Bloomberg

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Published: 25 Mar 2014, 11:34 AM IST
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