For Russia, hopes of a sanctions moderation (even for the European Union) appears to have been pushed backwards as there seems to be a growing irritation/recognition in Western diplomatic circles that it’s intervention in Syria is hardly helpful and indeed damaging to regional security, including to Europe, see the attached Financial Times piece.
The conflict in the Donbas, meanwhile, continues to bubble away, with the OSCE hinting over the weekend that they had seen more cross-border military flows from Russia, albeit with both sides “spinning” the story it is difficult to determine facts. Scores of live fire incidents are reported daily still, but given the presence of 40,000 troops facing off on both sides that is perhaps understandable.
Domestic politics will be the focus this week in Ukraine, with Prime Minister Arseniy Yatsenyuk on Feb. 16 set to present the results of his government’s actions over the past year and the plan for the year ahead.
Despite the fact that three of the four faction heads in the ruling coalition (controlling 265 seats in the 450-seat Rada) have indicated that they want a change at the head of the government, at this stage Yatsenyuk is expected to survive.
What seems fairly clearly now is that the opposition lacks the required Rada support to remove Yatsenyuk without the nod from President Petro Poroshenko, who seems worried that if he replaces Yatsenyuk he might not be able to muster support in the Rada for a replacement, and then this would force early elections which would risk uncertain outcomes.
Western creditors also appear reluctant to endorse early elections, reflected in calls this week for the coalition to pull together on reform efforts. Most likely there will be a “refreshing” of the ruling coalition with a fairly far-reaching cabinet reshuffle, trying to create some positive reform momentum after the departure of the economy minister, Aivaras Abromavicius.
Markets should appreciate an outcome which avoids early elections, further cements the reform cabinet and reform agenda, and ultimately gets International Monetary Fund lending back on track.
All that said, there is still the question over what Russia’s next step will be.
