A view of a house destroyed in an air strike carried out by Ukrainian armed forces in the village of Stanitsa Luganskaya , on July 2, 2014.
THE war in Ukraine is intensifying, as Russia’s incursions into the east of the country become ever more brazen. On August 27th a column of Russian troops and equipment crossed the Russia-Ukraine border in the far south, at Novoazovsk, in an apparent attempt to open a new front outside the rebel-held areas and closer to Crimea. Ukraine’s security services released videos of ten Russian soldiers captured in eastern Ukraine. Reports have surfaced in Russia of mysterious funerals for members of Pskov’s 76th Airborne Division. As The Economist went to press, NATO was releasing photographic evidence showing that as many as 1,000 Russian soldiers are now in eastern Ukraine. And Petro Poroshenko, Ukraine’s president, declared baldly that “an invasion of Russian forces has taken place.”
All this came after Mr Poroshenko met Vladimir Putin, for the first time since June, in the margins of a summit in Minsk. The meeting began icily and achieved little. Russia’s interests—keeping Ukraine out of NATO—have not changed. Even if many Russians are ready to buy claims of soldiers “accidentally” crossing the border, the rest of the world is not. Yet Mr Putin still maintains that the war is a “domestic matter”, and calls for negotiations to include representatives of eastern regions. The Kremlin will prop up its rebel proxies to ensure they are not defeated, but has no desire for a full-scale invasion. “Military activities are an instrument for strengthening their political position ahead of negotiations,” says Fyodor Lukyanov, editor of Russia in Global Affairs, a journal.
In Minsk Mr Putin sounded none of the nationalist notes that accompanied his annexation of Crimea. Instead, he harped on economic matters, perhaps foreshadowing a gas war. With the temperature dropping, Mr Putin believes that time is on his side. Ukraine needs 5 billion cubic metres of gas to get through the winter, and “Russia will certainly use that to influence the situation,” says Vitaliy Vavryshchuk, head of research at SP Advisors in Kiev. If the conflict drags on into winter, leverage could swing back to Moscow.
Russian soldiers captured in eastern Ukraine.
The Ukrainian economy is in tatters. The IMF says GDP will contract by 6.5% this year; some call this is optimistic. The hryvnia has fallen over 60% against the dollar this year. The loss of Crimea and disruption in the Donbas region have taken their toll on investor confidence and domestic production. “Ukraine does not function without Donbas,” says Timothy Ash, chief emerging-markets economist at Standard Bank, noting that the region accounts for 16% of GDP and 27% of industrial production. “Every day we are losing our economic potential,” said Arseniy Yatsenyuk, the prime minister, on August 20th. A day later his economy minister resigned. On August 25th Mr Poroshenko dissolved the Rada (parliament); he must wait until the election for progress on the economy.
The IMF is debating the delivery of a $1.4 billion loan, the second instalment of a $17 billion aid package. The German chancellor, Angela Merkel, pledged more than $690m in reconstruction aid during a visit to Kiev on August 23rd, a gesture Mr Poroshenko gratefully compared to the Marshall Plan. But it may not be enough.
Mr Poroshenko has hung his presidency on victory over the “terrorists” in the east. Any whiff of capitulation could leave him exposed domestically, where the mood is militant and nationalist parties are poised for gains in October. Mr Poroshenko knows this: he speaks of peace to international audiences, but sounds a different tune at home. When dissolving the Rada, he gave a speech full of patriotic exhortations and references to a fifth column. “Illegal armed formations can be dealt with only by force,” he said.
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