Reuters News - EU moves toward sanctions on Russians; Obama meets Ukraine PM

 Armed men, believed to be Russian servicemen, march outside an Ukrainian military base in the village of Perevalnoye, near the Crimean city of Simferopol, March 12, 2014.

(Reuters) - The European Union agreed on a framework on Wednesday for its first sanctions on Russia since the Cold War, a stronger response to the Ukraine crisis than many expected and a mark of solidarity with Washington in the drive to make Moscow pay for seizing Crimea.

U.S. President Barack Obama warned Russia it faced costs from the West unless it changed course in Ukraine, and pledged to "stand with Ukraine" as he met with the country's new prime minister in Washington.

"We will never surrender," Ukrainian Prime Minister Arseny Yatseniuk vowed as he and Obama met in a White House show of support for the embattled leader.

"Mr. Putin - tear down this wall - the wall of more intimidation and military aggression," Yatseniuk told reporters in remarks aimed at Russian President Vladimir Putin and a reference to then-President Ronald Reagan's challenge to the Soviet Union in a 1987 speech at the Berlin Wall.

But Obama and Yatseniuk outlined a potential diplomatic opening that could give Russians a greater voice in the disputed Crimean region, where a referendum is scheduled for Sunday on whether it should become part of Russia.

Yatseniuk told a forum in Washington after his White Housemeeting that his interim government was ready to have a dialogue and negotiations with Russia about Moscow's concerns for the rights of ethnic Russians in Crimea.

Asked what a political solution would look like, Yatseniuk said: "If it is about Crimea, we as the Ukrainian government are willing to start a nationwide dialogue (about) how to increase the rights of (the) autonomous republic of Crimea, starting with taxes and ending with other aspects like language issues."

The EU sanctions, outlined in a document seen by Reuters, would slap travel bans and asset freezes on an as-yet-undecided list of people and firms accused by Brussels of violating the territorial integrity of Ukraine.

German Chancellor Angela Merkel said the measures would be imposed on Monday unless diplomatic progress was made.

A Russian stock index dropped 2.6 percent and the central bank was forced to spend $1.5 billion to prop up the ruble as investors confronted the prospect that Russia could face unexpectedly serious consequences for its plans to annex Crimea.

Russian troops have seized control of the Black Sea peninsula, where separatists have taken over the provincial government and are preparing for Sunday's referendum, which the West calls illegal.

The measures outlined by the EU are similar to steps already announced by Washington, but would have far greater impact because Europe buys most of Russia's oil and gas exports, while the United States is only a minor trade partner. The EU's 335 billion euros ($465 billion) of trade with Russia in 2012 was worth about 10 times that of the United States.

The travel bans and asset freezes could cut members of Russia's elite off from the European cities that provide their second homes and the European banks that hold their cash.

The fast pace of Russian moves to annex Crimea appears to have galvanized the leaders of a 28-member bloc whose consensus rules often slow down its decisions.

Merkel herself had initially expressed reservations about sanctions but has been frustrated by Moscow's refusal to form a "contact group" to seek a diplomatic solution over Crimea.

"Almost a week ago, we said that if that wasn't successful within a few days, we'd have to consider a second stage of sanctions," Merkel said. "Six days have gone by since then, and we have to recognize, even though we will continue our efforts to form a contact group, that we haven't made any progress."

PREPARATIONS

In Crimea, the regional government is led by a Russian separatist businessman whose party received just 4 percent of the vote in the last provincial election in 2010 but who took power on February 27 after gunmen seized the assembly building.

Two days later, Putin announced that Russia had the right to invade Ukraine to protect Russian citizens.

Preparations for Sunday's referendum are in full swing. Banners hang in the center of Crimea's capital, reading: "Spring - Crimea - Russia!" and "Referendum - Crimea with Russia!"

A senior Russian lawmaker on Wednesday strongly suggested that Moscow had sent troops to Crimea to protect against any "armed aggression" by Ukrainian forces during the referendum. Putin and other Russian officials have said armed men who have taken control of facilities in Crimea are local "self-defense" forces.

Crimea has a narrow ethnic Russian majority, and many in the province of 2 million people clearly favor rule from Moscow. Opinion has been whipped up by state-run media that broadcast exaggerated reports of a threat from "fascist thugs" in Kiev.

"Enough with Ukraine, that unnatural creation of the Soviet Union, we have to go back to our motherland," said Anatoly, 38, from Simferopol, dressed in camouflage uniform and a traditional Cossack fur cap.

But a substantial, if quieter, part of the population still prefers being part of Ukraine. They include many ethnic Russians as well as Ukrainians and members of the peninsula's indigenous Tatar community, who were brutally repressed under Soviet rule.

"Crimea has been with Ukraine since the 1950s, and I want to know how they will cut it off from what was our mainland," said Musa, a Tatar. "If the referendum is free and fair, at least a little bit, I will vote against Crimean independence."

The referendum seems to leave no such choice: Voters will have to pick between joining Russia or adopting an earlier constitution that described Crimea as sovereign. The regional assembly says that if Crimea becomes sovereign, it will sever ties with Ukraine and join Russia anyway.

Still, with the streets firmly in control of pro-Russian militiamen and Russian troops, there is little doubt the separatist authorities will get the pro-Russian result they seek. Many opponents, including Tatar leaders, plan a boycott.

At the White House, Obama ridiculed the referendum, saying: "The issue now is whether Russia is able to militarily dominate a region of somebody else's country, engineer a slapdash referendum and ignore not only the Ukrainian constitution but a Ukrainian government that includes parties that are historically in opposition with each other."

"We will continue to say to the Russian government that if it continues on the path that it is on, then not only us but the international community, the European Union and others will be forced to apply a cost to Russia's violation of international law and its encroachments on Ukraine," he added.

Obama said the United States and Ukraine recognized the historic ties between Russia and Ukraine, but added: There is a constitutional process in place and a set of elections that they can move forward on that in fact could lead to different arrangements over time with the Crimean region.

"But that is not something that can be done with the barrel of a gun pointed at you," Obama said.

Yatseniuk said his government was eager for talks with Russia about Ukraine but made clear his country "is and will be a part of the Western world."

"We fight for our freedom, we fight for our independence, we fight for our sovereignty, and we will never surrender," he said at the White House.

"GRAVE IMPLICATIONS"

While tightening his grip on Crimea, Putin seems to have backed off from his March 1 threat to invade other parts of eastern and southern Ukraine, where most of the population, although ethnically Ukrainian, speak Russian as a first language.

That threat exposed the limits of Ukraine's military, which would be little match for the superpower next door and has seen its detachments in Crimea surrounded. The authorities in Kiev announced the formation of a new national guard on Wednesday.

But if Putin had expected to be able to seize Crimea without facing any consequences - as he did when he captured parts of tiny Georgia after a war in 2008 - the push toward sanctions suggests he may have miscalculated.

In a statement, the leaders of the G7 - the United States, Britain, France, Germany, Italy, Japan and Canada - called on Russia to stop the referendum from taking place.

"In addition to its impact on the unity, sovereignty and territorial integrity of Ukraine, the annexation of Crimea could have grave implications for the legal order that protects the unity and sovereignty of all states," they said. "Should the Russian Federation take such a step, we will take further action, individually and collectively."

The U.S. Senate Foreign Relations Committee approved legislation that would impose strict sanctions on Russians involved in the intervention in Ukraine and provide aid to the new government in Kiev. The bill now goes to the full Senate for a vote and must also be approved by the House of Representatives.

There has been a lot of diplomatic contact between Russia and the West but no breakthrough. Putin spoke on Wednesday to French President Francois Hollande and Swiss Foreign Minister Didier Burkhalter, whose country chairs the Organization for Security and Cooperation in Europe. U.S. Secretary of State John Kerry is due to meet with Russian Foreign Minister Sergei Lavrov in London on Friday.

Russia has pledged to retaliate for any sanctions, but EU leaders seem to be betting that Moscow has more to lose than they do. Merkel's finance minister, Wolfgang Schaeuble, said any potential impact on Germany's economy was likely to be limited.

While the EU has agreed to wording for its sanctions, it is still working on a target list. Talks took place in London this week between officials from Britain, the United States, Italy, France, Germany, Poland, Switzerland, Turkey and Japan.

"My understanding is that there was detailed discussion of names at the meeting," an EU official said. "No definitive list has been drawn up, but it will be ready by Monday."

European officials have indicated that Putin and Lavrov will not be on the list, in order to keep channels of communication open. The list is expected to focus on targets close to Putin in the security services and the military, as well as lawmakers.

In the past, U.S. and EU sanctions against countries such as Syria, Libya and Iran have started with lists of only around 20 people and companies. But those lists quickly evolved into more powerful weapons as other people and firms were added.

The EU has said it is also prepared to take further steps, such as an arms embargo and other trade measures.

BY MARTIN SANTA AND ALEKSANDAR VASOVIC

Reuters News - ECB to take tough stance in bank health check

The euro sign landmark is seen at the headquarters (R) of the European Central Bank (ECB) in Frankfurt September 2, 2013.

CREDIT: REUTERS/KAI PFAFFENBACH

(Reuters) - The European Central Bank will press banks to change the models they use to predict losses and take account of its views on asset valuation if the ECB is unhappy with their risk assessment, signaling an aggressive stance in its review of the bloc's lenders.

The ECB is putting the euro zone's 128 largest banks through a painstaking review of their loan books before becoming their supervisor in November in a bid to force them to come clean on hidden losses and restore investors' trust in the sector.

Between now and August, teams of national supervisors and auditors will check on average 1,250 credit files per bank - significantly more for larger banks - against common guidelines that the ECB published on Tuesday. The total exercise will cover 58 percent of banks' assets as weighted by risk.

A test to see how banks would hold up under certain shock scenarios will follow over the summer and all results will be released in October. Estimates of banks' capital shortfall range from 280 billion euros to as much as 770 billion.

The scope of the tests is unprecedented. Euro zone banks have never been measured against common thresholds, such as a single definition of when loans become impaired and many have never had their books interrogated in such detail.

Once the results are known, the ECB will push banks to reflect some of the findings in their 2014 accounts.

"Banks may be expected to correct specific provisions for collectively impaired credit facilities, where the bank's collective provisioning model is considered as missing crucial aspects required in accounting rules," the ECB document said.

"In this case, banks would be expected to correct internal models and policies."

Banks will only be expected to change their 2013 accounts in the unlikely event that the review highlights issues that should lead to restatement according to local law, it said.

Banks had been asked to adapt their asset valuations after reviews late 2012 in Slovenia and Ireland, but with limited success.

The ECB's guidelines also set out different scenarios when loans should be classified as impaired. For example when a debtor has requested emergency funding from a bank, or if a company that has taken a loan gets into financial difficulty and experiences a material decrease in turnover or the loss of a major customer.

ARTWORK, SHIPS AND AIRCRAFTS

As part of the exercise, the teams will also check whether collateral, for example in the form of real estate, aircraft, ships or artwork is correctly valued, with help from external experts or by updating recent independent market valuations.

"Generally, the majority of collateral will be revalued for all debtors selected in the sampling that do not have a third-party valuation less than one year old," the document said.

Beyond loans, 'level 3 assets' - a broad group of assets that are difficult to value - will also be assessed.

These include derivatives and assets such as real estate holdings banks have acquired through foreclosures, their participation in private equity deals and special investment vehicles.

"It is expected that, in most cases, fewer than ten derivative pricing models will be reviewed for each bank included in the trading book review, depending on the size of the bank's exposure to level 3 derivatives," the manual said.

Some banks included in the trading book review will have no relevant level 3 derivative pricing models to review, it added. ($1 = 0.7205 Euros)

(Reporting by Eva Taylor and Laura Noonan; Editing by Erica Billingham)

Bloomberg News - Debt Exceeds $100 Trillion as Governments Binge

Photographer: Gianluca Colla/Bloomberg

The headquarters of the Bank for International Settlements (BIS) are reflected in a window in Basel.

The amount of debt globally has soared more than 40 percent to $100 trillion since the first signs of the financial crisis as governments borrowed to pull their economies out of recession and companies took advantage of record lowinterest rates.

The $30 trillion increase from $70 trillion between mid-2007 and mid-2013 compares with a $3.86 trillion decline in the value of equities to $53.8 trillion, according to the Bank for International Settlements and data compiled by Bloomberg. The jump in debt as measured by the Basel, Switzerland-based BISin its quarterly review is almost twice the U.S. economy.

Borrowing has soared as central banks suppress benchmark interest rates to spur growth after the U.S. subprime mortgage market collapsed and Lehman Brothers Holdings Inc.’s bankruptcy sent the world into its worst financial crisis since the Great Depression. Yields on all types of bonds, from governments to corporates and mortgages, average about 2 percent, down from more than 4.8 percent in 2007, according to the Bank of America Merrill Lynch Global Broad Market Index.

“Given the significant expansion in government spending in recent years, governments (including central, state and local governments) have been the largest debt issuers,” said Branimir Gruic, an analyst, and Andreas Schrimpf, an economist at the BIS. The organization is owned by central banks and hosts the Basel Committee on Banking Supervision, which sets global capital standards.

Austerity Measures

Marketable U.S. government debt outstanding has soared to a record $12 trillion, from $4.5 trillion in 2007, according to U.S. Treasury data compiled by Bloomberg. Corporate bond sales globally surged during the period, with issuance totaling more than $21 trillion, Bloomberg data show.

Concerned that high debt loads would cause international investors to avoid their markets, many nations resorted to austerity measures of reduced spending and increased taxes, sacrificing their economies as they tried to restore the fiscal order they abandoned to fight the worldwide recession.

“To get out of debt, you need prudence and you need pro-growth structural reforms,” said Holger Schmieding, chief economist at Berenberg Bank in London. “Those are long-term processes. You can’t get out of debt too quickly or your economy collapses, as we saw in Greece.”

Bond Returns

Adjusting budgets to ignore interest payments, the International Monetary Fund said late last year that the so-called primary deficit in the Group of Seven countries reached an average 5.1 percent in 2010 when also smoothed to ignore large economic swings. The measure will fall to 1.2 percent this year, the IMF predicted.

The unprecedented retrenchments between 2010 and 2013 amounted to 3.5 percent of U.S. gross domestic product and 3.3 percent of euro-area GDP, according to Julian Callow, chief international economist at Barclays Plc in London.

Rising debt did little to diminish demand for fixed-income assets. Bonds worldwide have returned 31 percent since 2007, including reinvested interest, according to Bank of America Merrill Lynch index data. Treasury and agency debt handed investors gains of 27 percent, while corporate bonds returned more than 40 percent, the indexes show.

Rating Downgrades

“Total debt levels, the sum of household, government and corporate debt, haven’t declined at all in recent years,” said Ben Bennett, a credit strategist in London at Legal & General Investment Management, which oversees the equivalent of about $120 billion of corporate bonds. “Each time there’s a wobble, the central banks turn on the taps. Either that works by creating growth with asset prices eventually coming into line with fundamentals, or it doesn’t and we’re in for a massive fall.”

Bond investors haven’t penalized sovereign issuers such as the U.S., U.K., Japan and France for losing their top credit ratings. While Standard & Poor’s stripped the U.S. of its AAA ranking in August 2011, Treasuries moved in the opposite direction from what the downgrade suggested and yields touched a record low of 1.38 percent in 2012.

In the U.K., where ratings were cut one level to Aa1 from Aaa in February 2013 by Moody’s Investors Service, 10-year Gilt yields fell 26 basis points to 1.85 percent in the month after the downgrade.

Increasing Indebtedness

Yields on U.S. government bonds have dropped 2.3 percentage points since 2007 to an average 1.6 percent, according to Bank of America Merrill Lynch bond index data. Corporate yields have declined 2.6 percentage points to 2.9 percent.

Faster growth is deflecting concern about high debt loads. In the U.S., the government will borrow less money this year than at any time since 2008, validating the nation’s decision to go deeper into debt to combat the financial crisis as a stronger economy shrinks the deficit, based on a January survey of the Wall Street’s biggest bond dealers.

The government will sell $717 billion of notes and bonds on a net basis, 14 percent less than last year, according to a survey of primary dealers which are obligated to bid at Treasury auctions. Issuance has fallen every year since the U.S. borrowed a record $1.607 trillion in 2010, data compiled by the Securities Industry and Financial Markets Association show.

Unprecedented Stimulus

Helped by the Federal Reserve’s unprecedented stimulus, the Obama administration’s deficit spending has enabled the American economy to recover faster from the first global recession since World War II than European countries that chose austerity.

Faster economic growth and falling unemployment in the U.S. has slowed the build-up of debt as a proportion of GDP to 70 percent, less than two-thirds of the 24 developed nations tracked by Bloomberg. The jobless rate was 6.7 percent in February, government data showed last week, down from 7.7 percent a year earlier.

Higher corporate and individual tax receipts have prompted dealers in the Bloomberg survey to predict the U.S. budget deficit will decline by about $50 billion to $629 billion, the least since 2008.

Smaller deficits may be short-lived because government costs for retirement and health care are poised to surge in the coming decade. Spending on Social Security will rise 67 percent to $1.414 trillion in 2023 from $848 billion this year, while spending on programs including Medicare and Medicaid will almost double to $1.808 trillion in 2023, estimates from the Congressional Budget Office released in May show.

Debt Recovery

Bonds in Europe’s most indebted nations are recovering from the region’s sovereign debt crisis, with 10-year yields from Greece to Ireland sinking last week to the lowest since at least 2010.

The average yield to maturity on bonds from Greece, Ireland, Italy, Portugal and Spain fell to an average 2.44 percent on March 5, the lowest in the history of the euro area, according to Bank of America Merrill Lynch indexes. That’s down from more than 9.5 percent in 2011, when the region was rocked by concern nations may struggle to service their debt.

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

Bloomberg News - Emerging World Poses More Danger Than in 1990s: Cutting Research

Developed economies are less resilient to an emerging-market shock than they were in the 1990s, when crises from Thailand toRussia rattled investors without triggering a global recession.

That’s according to an 81-page study released March 5 by Morgan Stanley economists and strategists. They estimate a 1990s-style slump in emerging-market demand would create an average drag of 1.4 percent for four quarters on the growth of the U.S., while the euro area and Japan probably would be tipped into recession.

Reasons for the greater vulnerability include the fact that developing markets, and especially China, now have a stronger impact on the world’s economy, supply chains and trade. Emerging economies account for about half of global gross domestic product, up from 37 percent in 1997-1998.

Developed economies are also more exposed to their smaller counterparts via exports, corporate revenue and banking, and the financial crisis of 2008 means they are weaker now than two decades ago, said the authors, including London-based Manoj Pradhan.

The Federal Reserve and the Bank of Japan probably would respond by easing monetary policy, lowering commodity prices and bond yields as a result. That would help revive growth, although the recovery would be weak, they said.

“If an emerging-market shock materializes, we believe the impact on developed markets could be stronger than it was in the late 1990s and would most likely last longer,” the Morgan Stanley team wrote.

The study is based on a scenario in which emerging-market imports fall 15 percent for two quarters, financial conditions deteriorate as they did in the 1990s and commodity prices decline, with the cost of oil dropping to about $80 a barrel.

Europe’s equity markets would be the most adversely affected among global stocks given its companies have derived 65 percent to 80 percent of their revenue growth from emerging markets in recent years.

* * *

Debt travails will continue to plague the euro region’s biggest economies through 2030, according to Deutsche Bank AG.

A model created by co-chief European economist Gilles Moec aims to assess the extent to which European nations have addressed their macroeconomic and financial shortcomings.

Based on estimates of economies’ non-inflationary growth rates and historical trends, plus data for debt, current accounts and investment, Moec’s calculations show France, Italy and Spain are set to encounter difficulties in “meaningfully” reducing their debt ratios.

Italy, for example, won’t cut its public debt below 120 percent of GDP before 2023, while Spain’s will settle at around 90 percent starting in 2020. France’s may fall to 85 percent from a peak of 96 percent, only to set new highs by 2030.

Only Germany will “continue to display a quite healthy trajectory for deficits and public debt,” London-based Moec said in the Feb. 28 report.

“We suggest that the persistent macro-financial imbalances in Spain and Italy by the middle of the next decade would still generate some significant spread-widening, should another episode of ‘sovereign stress’ occur,” Moec wrote. “France would be less affected, but would not be as immune as it was in 2011/12.”

* * *

Emerging-market companies may be sitting on “hidden debt” that leaves them more vulnerable than official statistics suggest.

That’s because such companies often issue bonds through overseas affiliates, according to Jens Nordvig and David Fritz of Nomura Holdings Inc.

Inspired by a study from the Bank for International Settlements, New York-based Nordvig and Fritz estimated in a March 4 report that $400 billion, or almost 40 percent of private net developing-nation debt issued, has been done offshore since 2010.

Such exposure is generally not included in external debt statistics because it is issued by overseas subsidiaries rather than by entities in the countries where the firms are headquartered, the BIS said in a September study.

Looking to gauge the “external vulnerability” of countries, Nordvig and Fritz said that Brazil, China and Russia are the main contributors to offshore issuance. Brazil, for example, has $154 billion of offshore corporate bonds, equivalent to 7 percent of GDP. China has $200 billion, or 2 percent of GDP.

“In an environment of rising global interest rates and emerging-market currency depreciation, this hard-currency debt could become increasingly difficult for borrowers to repay, and as such it is important not to overlook the ‘hidden debt,’” said Nomura.

* * *

Breakthroughs in information and technology have increased demand and pay for highly skilled and university-educated workers, outpacing the need for employees with middle-range skills, according to the London School of Economics.

Technical change accounted for 15 percent to 25 percent of the growth in the aggregate wage bill of highly skilled workers, the study by Guy Michaels, Ashwini Natraj and John Van Reenen found.

The results were based on employment and wages in 11 countries during the past 25 years. The pay of low-skilled workers was less influenced by developments in technology, it said.

To contact the reporter on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net

Bloomberg News - Central Bankers Reach For Atlas as Ukraine Fallout Gauged

Central bankers are delving into their atlases again.

After global monetary policy was shaped in recent years by debt turmoil in southern Europe and an earthquake in northern Japan, the focus is falling on Ukraine, which accounts for just 0.4 percent of the world economy.

Most officials and economists say for now that the standoff in Crimea bears watching rather than reacting to as they maintain their forecasts for growth and monetary-policy stances. That could change if commodity prices or financial markets start to slide, with Russia already raising interestrates and Poland potentially rethinking its aversion to the euro.

“We should watch this situation with great attention and being aware that it’s not only monetary-policy decision-making that’s at stake, but also a broader issue that may have an impact on the economy,” European Central Bank President Mario Draghi said in Brussels on March 3.

Central bankers are on the alert just weeks after a market selloff in emerging economies raised fresh concerns the international economic expansion could falter. German stocks were among those to whipsaw this week on diplomatic developments as forces squared off in Crimea amid the worst standoff between Russia and the West since the end of the Cold War in the early 1990s.

‘Really Carefully’

“It’s something I’m watching really carefully for potential implications for growth,” Federal Reserve Bank of Richmond President Jeffrey Lacker said in New York on March 4. “So far commodity markets seem to absorb the news reasonably well.”

San Francisco Fed President John Williams said yesterday he doesn’t see the crisis in Ukraineposing a risk to the U.S. economy for now.

“Ukraine is a very small economy,” Williams said to reporters after a speech in Seattle. Still, “you’ve got to be thinking, what are the implications if this gets much worse, or if this starts to spill over to other regions,” he said. Williams and Lacker don’t vote on policy this year.

Bank of Japan officials don’t see a need to revise the outlook for their economy at present, though they will re-examine it if tensions mount and begin to have an impact on trade, according to people familiar with the Japanese central bank’s discussions, who asked not to be named as the talks were private.

‘Geopolitical Uncertainty’

The Bank of Canada yesterday cited Ukraine in explaining its decision to keep its main interest rate unchanged, saying the tensions “have added to geopolitical uncertainty.”

While Ukraine’s $180 billion economy is too small to wield a direct impact on global growth, potential channels of contagion for policy makers to monitor include trade, banking, exchange rates and shipments of natural gas to the European Union.

Ukraine is set to be the world’s third-largest corn exporter this year, and sixth for wheat shipments, according to the most recent estimates from the International Grains Council.

The most exposed economy in central and eastern Europe is Poland which sells 9 percent of its exports to Ukraine and Russia, followed by Turkey and Hungary at 6 percent each and Romaniaat 5 percent, according to Royal Bank of Scotland Group Plc. Among larger economies, Russia accounts for 0.7 percent of U.S. exports and 4.6 percent of the euro area’s, including 3 percent ofGermany’s.

Foreign Claims

As for banks, 6 percent of Austria’s foreign claims are tied to Russia and Ukraine compared with 4 percent of Italy’s and 2 percent of France’s, RBS estimates. JPMorgan Chase & Co. calculates that European banks have 56 billion euros ($77 billion) of exposure to Russia and 15 billion euros to Ukraine, where Raiffeisen Bank International AG of Austria and France’s Societe Generale SA have the biggest ties.

Fallout in the energy markets may pose a greater threat. As well as being the EU’s biggest provider of oil and coal, Russia supplies about 30 percent of Europe’s natural gas and five of the 12 pipelines that deliver it pass through Ukraine, JPMorgan says.

Oil prices could climb by as much as 10 percent if sanctions are imposed or supply disrupted, potentially crimping Europe’s economic recovery, according to Jonathan Loynes, chief European economist at Capital Economics Ltd. in London.

Russia’s central bank is already reacting to the crisis, raising interest rates this week the most since 1998 as the ruble slid to a record low. The $2 trillion economy decelerated for a fourth year in 2013.

Quicker Decision

The Polish central bank yesterday left its benchmark rate at 2.5 percent and Governor Marek Belka said the Ukraine turmoil sped up a decision to say rates should stay unchanged until at least the end of the third quarter.

In a sign the skirmish could still reshape Europe’s economy, Belka said March 3 that Poland may need to reconsider its skepticism toward adopting the euro. The country ditched plans to join the single currency in 2012.

Draghi and fellow ECB officials convene today with inflation still half their target of just below 2 percent. While the Ukraine crisis may add to reasons to ease monetary policy, the risk of higher energy costs could fan inflation concerns, said Nick Beecroft, the London-based chairman and senior market analyst at Saxo Capital Markets U.K. Ltd.

If the crisis endures, it may make it even more likely that emerging-market central banks have to tighten monetary policy to maintain the faith of investors, said Roberto Perli, a partner at Cornerstone Macro LP in Washington. Brazil, India and South Africa have already acted this year amid financial-market selloffs as the one-time drivers of global growth turn to drags.

Downward Pressure

“The situation, if it worsens, puts even more downward pressure on already weak currencies, which the central banks will feel compelled to defend to prevent more inflation problems and further capital outflows,” said Perli and colleagues in a March 3 report to clients.

For the U.S. Federal Reserve and other developed-nation central banks, the focus will be on ensuring liquidity is available to their financial systems rather than switching policy course, he said.

“The Ukrainian situation has not reached the level where major developed-world central banks will feel compelled to intervene at a macroeconomic level,” said Perli, a former Fed economist.

To contact the reporter on this story: Simon Kennedy in London at skennedy4@bloomberg.net

BBC News - Singapore named the world's most expensive city

Singapore has topped 131 cities globally to become the world's most expensive city to live in 2014, according to the Economist Intelligence Unit (EIU).

Singapore has been moving up the ranks of the world's most expensive cities to live in over the last decade

The city's strong currency combined with the high cost of running a car and soaring utility bills contributed to Singapore topping the list.

It is also the most expensive place in the world to buy clothes.

Singapore replaces Tokyo, which topped the list in 2013.

Other cities making up the top five most expensive cities to live in are Paris, Oslo, Zurich and Sydney, with Tokyo falling to sixth place.

The EIU's Worldwide Cost of Living Survey is a relocation tool that uses New York city as a base. It looks at more than 400 individual prices.

Soaring Asia

The top 10 cities this year have been dominated by Asian and Australasian cities as well as some in Europe.

"Improving sentiment in structurally expensive European cities combined with the continued rise of Asian hubs means that these two regions continue to supply most of the world's most expensive cities," said the editor of the report, Jon Copestake.

"But Asian cities also continue to make up many of the world's cheapest, especially in the Indian subcontinent."

Most Asian cities that top the list are there for predominantly higher costs of groceries. Tokyo is still at the top of the list for everyday food items.

Inexpensive India

However, not all Asian cities are tough on the wallet.

India's major cities - including Mumbai and New Delhi - were found to be among the least expensive in the world.

Mumbai's prices are kept low by large income inequality.

The low wages of many of the city's workers keep spending low, and government subsidies have helped them stay that way.

Outside of the subcontinent, Damascus in Syria saw the largest drop, becoming the fourth cheapest city in the world as the country's ongoing conflict has led to plummeting prices.

While the EIU's survey takes into account the cost of living, other firms employ different research methods.

Mercer conducts research to determine the most expensive cities for expatriate living.

It found that in 2013, Luanda, Angola was the hardest on expatriate wallets due to the difficulty of finding adequate secure housing, and the high price of imported goods.

Top 5 most expensive cities

1. Singapore, Singapore
2. Paris, France
3. Oslo, Norway
4. Zurich, Switzerland
5. Sydney, Australia

Reuters News - Swiss economy minister wants to save bilateral agreements with EU

Swiss Economy Minister Johann Schneider-Ammann talks to media during a news conference on the 1:12 initiative in Bern November 24, 2013.

CREDIT: REUTERS/RUBEN SPRICH

(Reuters) - Switzerland's economy minister wants to save bilateral agreements with the European Union, at risk after Switzerland voted to curb immigration from the bloc three weeks ago, he told a Swiss newspaper on Sunday.

"We have to reconcile the popular vote and the free movement of persons, also in order to save the bilateral agreements," Johann Schneider-Ammann told the SonntagsZeitung in an interview.

"That is a very difficult task, it may prove a 'mission impossible'," he said, adding it was important for Switzerland to continue to attract foreign investment.

Switzerland decided in a popular vote on February 9 to reintroduce quotas for immigrants from the European Union, which is contrary to the principle of the free movement of persons agreed with the EU.

It told new EU member Croatia it would not be able to sign a labor market pact as planned.

The EU has reacted by halting talks on a further integration of Switzerland into the European electricity market and by excluding Switzerland from the European student exchange program ERASMUS and research program Horizon 2020.

"There is no sustainable growth without immigration," Schneider-Ammann said in the interview. The government as well as business lobbies had recommended that voters reject the curbs on immigration.

The minister said he expected the decision to dampen Switzerland's economic growth and on Saturday met with business leaders to discuss how the immigration vote can be implemented.

He said everybody agreed the bilateral agreements should not be put at risk and the current level of education and research had to be preserved.

"I will submit proposals to the government for Erasmus and Horizon 2020," Schneider-Ammann said, adding, however, that the EU was expecting a solution for the free movement of persons with Croatia.

The EU and Switzerland signed bilateral agreements in 1999, including an agreement on the free movement of persons, which came into force in 2002.

Thousands demonstrated in the Swiss capital of Berne on Saturday for Switzerland to remain open.

(Reporting by Silke Koltrowitz; editing by Jason Neely)