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Thursday, April 17, 2014 1:13 AM

Talk of Bloodless Coup in Donetsk; European Countries Resent US Tone; Low Hopes for Peace Talks; War, What Is It Good For?

Another bloodless coup in Ukraine is underway. This time, it's in the Donetsk region.

Should it come to that ending, it would be the third Ukrainian coup in a matter of months (counting the ouster of former president Viktor Yanukovych followed by the coup in Crimea).

Talk of Bloodless, Passive Coup in Donetsk

Please consider Kiev’s Weak Grip on East Falters.

Moscow is only an hour ahead of Donetsk but the inflammatory descriptions emanating from Russia over events in eastern Ukraine on Wednesday were much further distanced from reality.

As President Vladimir Putin was talking of his neighbouring country as being “on the brink of a civil war”, in Slavyansk the conflict was far more psychological than physical. Apart from the occasional fly-past by a single fighter jet and two helicopters, Kiev’s forces kept a low profile throughout the day in the area northeast of Donetsk, where militias and locals have seized or set up vigils at government buildings in several towns and cities.

Rather than civil war, the scene resembled a sort of bloodless, passive coup. “I am a citizen of the Soviet Union,” said one of the mysterious and heavily armed “green men” wearing military camouflage without insignia.

The man refused to give his name but admitted that, like others around him, he had travelled up from Semfiropol in Crimea – the autonomous republic annexed by Russia in March and now already switched to Moscow’s time zone. Many of his comrades sported the black and orange striped ribbon adopted by pro-Russian forces.

All along the main route from Donetsk, and in several adjacent town centres, local people have created and manned an increasing number of makeshift barricades of tyres, often topped by the flags of Russia and the “Donetsk Republic”.

But despite the government’s angry denunciations of the seizures of police offices, administrative buildings and other property, there have been few attempts by local authorities to prevent them and Kiev’s hold on the east appears to be weaker than ever. Despite orders several weeks ago to stop broadcasting Russian television, local people said the channels had been back on air in the Donetsk region since earlier this week.

Easterners who reject calls for a referendum on creating an autonomous republic in Donetsk, a federation or union with Russia – views which opinion polls until recently suggested remained in the a minority – are for the time being keeping their heads down.
Polls Show Majority in Donetsk Prefer Alliance with Russia

In spite of all the talk, the government in Kiev seems unable or unwilling to take Donetsk by force. Why should it?

Polls suggest a majority in Donetsk would vote for a federation or union with Russia. You cannot win over hearts and minds with force.

European Countries Resent US Hectoring Tone

The Financial Times reports EU Sanctions Push on Russia Falters Amid Big Business Lobbying.
Europe’s resolve to impose tough sanctions on Moscow is cracking under corporate lobbying, as companies warn governments that any retaliation from the Kremlin could cost them dearly.

Diplomats fear that talks in Geneva on Thursday between the US, Russia, Ukraine and the EU will prove fruitless in tackling the crisis over the occupation of local government buildings in eastern Ukraine by pro-Russian militants. If the talks fail, EU leaders are expected to meet next week to discuss broad economic sanctions against Moscow.

But even before such a meeting, the fissures between countries are evident. “Are the member states united on this? No. Are they willing to die for Ukraine? I don’t think so,” a senior European official said, noting that sanctions would demand a consensus from the 28-member bloc.  

European countries have resented the US’s hectoring tone on the need for sterner measures against Russia, when the EU’s trade relationship is almost a dozen times bigger than America’s.

On one side of the European debate, the Baltic nations and Poland favour strong action against Moscow, while accepting that Russian retaliation could be painful. On the other, Italy and Germany are more reticent about sanctions, partly because of lobbying from their leading companies.
Sanction Scorecard

  • Germany: BASF lobbying against sanctions
  • Italy: Energy company Eni lobbying against sanctions
  • UK: BP lobbying against sanctions. BP has a 20 per cent stake in Rosneft, the state-controlled oil company.
  • Cyprus and UK: Both concerned abut financial sector risks
  • US Business Groups: lobbying against sanctions
  • Obama: Wants sterner sanctions
  • Poland, Baltic Nations: Want sterner sanctions

Low Hopes for Peace Talks

Given the reaction from Ukraine and the huge disunity regarding sanctions, it should not be any surprise that Expectations Low as Ministers Hold Ukraine Peace Talks.
As the tense stand-off in eastern Ukraine continues, the main protagonists will meet on Thursday to try to find a diplomatic solution.

Despite fears the new round of unrest might scupper the quest, the foreign ministers of Russia and Ukraine will hold their long-awaited encounter in Geneva, along with their US and EU counterparts.

Expectations for the meeting remain low, given the different agendas of the two sides, with the US seeing a chance to boost the legitimacy of the government in Kiev, while Russia is calling for radical constitutional reform in Ukraine.

Russia is sticking to its demands of “federalisation” and military neutrality for Ukraine – first laid out in a proposal a month ago.

The paper demands that Ukraine undergoes a foreign-mediated process of constitutional reform that must happen before the next presidential election. This must result in a federal structure and military neutrality for the country, give Russian the status as second official language and recognise Crimea’s departure from Ukraine.
Best Deal Ukraine Can Get

The best chance for Ukraine to hold on to Donetsk may very well be acceptance of the Russian proposal.

While pondering the above thought, here is a song that expresses my point of view rather well.

War, What Is It Good For?

Absolutely nothing!

This is not our fight, so let's not make it one.

Mike "Mish" Shedlock

Wednesday, April 16, 2014 8:29 PM

Austerity In Spain? Where? Public Debt Threatens to Exceed 100% of GDP in 2014

EL Pais reports Spanish Public Debt Threatens to Exceed 100% of GDP in 2014

Via translation

General government debt accumulated through February was 987.945 billion euros, an amount that represents 96.5% of gross domestic product (GDP). This represents a new record in the amount of money the state, communities, and the municipalities have to return to financial institutions and investment funds. In February alone, the government liabilities increased by 8.130 billion, up 8% from the previous month.

The debt problem is not just that you have to pay, but the difficulty to stop the frenzied pace to growing-has risen from 37% of GDP in 2007 to 96.5% seven years later.

If this pace continues, the liabilities of the government would scale up to 110% of GDP, an unknown dimension in the last century. Since the early twentieth century, when Spain had to attend entrained war debts of Cuba, the barrier was not exceeded 100%, according to the historical series of the IMF. The debt ended 2013 at 94% of GDP.

The threat that public debt exceeds the red line of 100% of GDP grows as government is unable to decisively reduce the public deficit. The 2014 budget is expected to be in the red by 60.7 billion, 5.8% of GDP.

In addition, the Executive will launch a new section of the Autonomous Liquidity Fund (FLA), liquidity to support to the regions, totaling 23 billion, representing about two-points of GDP. In total, the public debt will grow by about 80 billion, eight points of GDP during 2014. The level of liability of public institutions would reach 104% compared to 98.9% government projection earlier this year.
Treasury Raises Less Than Expected Despite tax Increases

Compounding the spending problem, Treasury Raises Less Than Expected Despite tax Increases

Via translation from Libre Mercado
The Ministry of Finance announced 17 of every 100 workers are employed directly in government up 20% from levels 2007, when the ratio was 14%.

Speaking in net terms, the crisis has wiped out 3.6 million jobs in the private sector but has just reduced the workforce of 136,000 public employees. What does this mean? In essence, that 97% of the labor destruction has taken the private sector, while the government has just 3% of the course setting.

The situation is even more poignant when we realize the increase in spending on handpicked advisers. In 2013, the Ministries have triggered the eventual disbursement of staff salaries by 7.5%. Also the salaries of senior management have risen in 2013. Adding up all the costs of the central administration staff, we see that in 2013 an increase of 0.8% was recorded.

Although tax revenue was 37.8% of GDP and was in line with the historical average, the total outlay of the government in 2013 exceeded 44.4% of GDP. Grants have remained almost intact compared to 2012, while the total personnel costs assumed 900 billion euros.

To keep afloat these structures spending taxpayers in crisis have taken numerous tax increases. However, the resulting fiscal balance has not kept pace than projected by the Treasury:

  • The tax on winnings from lottery has raised less than half of schedule in 2013.
  • The 10% surcharge on excise duty on alcohol has not generated the expected returns, 70% lower than expected.
  • Income tax collection has a gap of 6% vs expectations.
  • The indirect quintessential tax generated 5% less than estimated by Treasury.

In sum, the income tax office have been 4.21% lower than projected. However, it is important to note that the number of taxpayers who pays this revenue has declined significantly as a result of mass unemployment and the destruction of businesses.
Austerity In Spain? Where?

The biggest things Spain needs to do are cut public spending and public employment, and lower taxes. Instead, it raised taxes on those with real jobs.

It should be no surprise that revenues don't meet expectations and public spending has not declined.

In spite of all the howls from misguided Keynesians and Monetarists over alleged austerity, the approach Spain took is not "austerity", rather it is economic insanity.

By the way, debt does not "threaten" to exceed 100% of GDP, it is a near-certainty.

Mike "Mish" Shedlock

1:17 PM

Ukraine Separatists Seize Six Armored Personnel Carriers, Parade Them in Two Towns

Pro-Russia forces in eastern Ukraine intensified their defiance against Kiev on Wednesday, seizing half a dozen armored vehicles and parading them through towns of Kramatorsk and Slavyansk.

The Financial Times reports Pro-Russia forces intensify defiance in eastern Ukraine

The escalating tension, a day after Kiev launched special operations against the separatists, prompted Nato to bolster its military presence on its eastern border, Anders Fogh Rasmussen, the alliance’s secretary-general announced on Wednesday.

Hundreds of local people in the centre of Kramatorsk cheered the vehicles and the roughly 100 militia men on them as they drove on to nearby Slavyansk. The defence ministry said the troops were guarded by “people in uniforms who have no relation to Ukraine’s armed forces”.

The crowd cheering the pro-Russia forces cried “Donbas, Donbas”, referring to the region of Donetsk, as they chatted excitedly and took photos on their phones. Some locals said the forces were troops from Kiev that had switched sides. More likely, they were more of the “green men” militants who took control of a series of government buildings in the region in recent days. There was no sign of struggle.

Unidentified armed militants had seized the mayor’s office in Donetsk, a large regional capital where pro-Russia separatists nearly two weeks ago seized the regional government building, news agencies reported on Wednesday. It was not immediately clear whether the group was allied with separatists that have in past days seized about 10 regional government buildings in eastern Ukrainian cities.

Meanwhile, Prime Minister Arseniy Yatseniuk told the cabinet that a newly formed “constitutional commission” would swiftly draft constitutional changes delegating more governing power from Kiev’s central government to regional legislatures and administrations.

Konstantin Dolgov, the Russian foreign ministry’s human rights representative, was quoted as saying: “To all appearances, events [in Ukraine] are beginning to develop under the worst-case scenario.” Earlier, Russian prime minister Dmitry Medvedev claimed Ukraine was close to “civil war”.

The comments from Moscow heightened concerns that any bloodshed resulting from attempts by the Kiev authorities to retake control of eastern Ukrainian cities could prompt direct military intervention by Russia.
Mike "Mish" Shedlock

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