Russia's economy is being hit hard by sanctions

Institute of International Finance Chief Economist Lubomir Mitov discusses the effect of western sanctions on Russia and what President Putin can do to revive the economy

“The cease-fire in Ukraine offers an opportunity, but Russia maintains its ability to destabilise Ukraine and Russia remains in breach of international law,” Nato’s new secretary general, Jens Stoltenberg, told reporters in Brussels on his first day as head of the military alliance.

The conflict has killed more than 3,500 people and driven at least 615,000 from their homes, the United Nations said.

Putin justified annexing Crimea from Ukraine in March by saying Russia needed to protect Russian speakers on the Black Sea peninsula. Deputy Premier Dmitry Rogozin said yesterday the same reasoning would prompt his country to defend its citizens in the breakaway Moldovan region of Transnistria, the Interfax news service reported.

EU leaders have refused to ease sanctions, deepening Russia’s economic woes, with the government in Moscow asking the central bank to consider providing foreign-currency swaps to banks. Sanctioned companies including state-run oil producer OAO Rosneft and gas producer OAO Novatek have asked for aid.

Russia, which says it wants to normalise ties with the US and EU, also drew ire from the latter after its government adopted a decree proposing new trade barriers with Ukraine. The decree violates a deal under which the bloc delayed deepening trade ties with Ukraine until 2016, European Commission President Jose Barroso said in a letter to Putin.

“We consider that the application of this decree would contravene the agreed joint conclusions and the decision to delay the provisional application of the trade related part of the Association Agreement,” Barroso said in the letter, referring to the EU’s pact to draw closer to Ukraine, a process that Putin opposes.

Russia risks an escalation of EU sanctions if separatists make further military gains in eastern Ukraine, a person familiar with German government policy told Bloomberg yesterday.

Russian Foreign Minister Sergei Lavrov has said his country won’t change its position over Ukraine to win a repeal of sanctions.

-With assistance from Brian Parkin, Arne Delfs and Tony Czuczka in Berlin and James G. Neuger in Brussels.