Russian Military Power, Syrian Federalization and Merkel's Refugee Deal with Turkey

Recently I've been wrong about two of the biggest issues facing the West: war in Syria and the European refugee crisis that it has helped to create. I didn't think that the February 27 U.S.-Russia negotiated ceasefire in Syria (minus territory controlled by Nusra and Islamic State) would work. It has for the most part. There have been violations from the outset, but the agreement has held; so much so that last week Putin announced the withdrawal of the bulk of Russian forces from the war-torn country. (The S-400 missile defense system will stay of course.) Then in Brussels on Friday Turkey and the Europe Union actually settled on a Rube Goldbergesque plan to stem the flow of refugees to Europe.

What is going on? It looks as if the warpig Western leaders are -- finally -- turning the battleship around. We should be incredulous since the neoliberal coin of the realm is stamped with the motto "In war we trust." But something is definitely happening here.

Whenever the reporting largely goes blank in The New York Times you know that it is not for lack of action on the ground but because a political decision has been made to put out the lights. It happened in Ukraine after the junta got its clock cleaned in Debaltseve. The paper, which had three reporters -- Andrew Kramer, David Herszenhorn and Neil MacFarquhar -- regularly filing dispatches, basically stopped reporting on the Donbass conflict. Debaltseve impressed upon the Obama administration the ease with which Russia could take Kiev. So I suspect the word went out to ratchet down coverage of the New Cold War in Ukraine, and editors of "the newspaper of record" complied. The free press at work.

I think what happened in Debaltseve at the beginning of last year in Ukraine is something similar to what the Russians accomplished in Syria with the recent victories in Aleppo Province. A game changer. The West and the Gulf sheikhs were forced to the table; we got the ceasefire and now the gradual press blackout.

There has been little coverage of the ongoing peace talks in Geneva. One thing seems clear though, federalization of Syria is the country's future. It is hard to believe that Turkey will accept any form of Kurdish statehood. I think this is where the refugee deal with Europe comes in. Beginning this summer, provided certain unnamed conditions are met, Turkish citizens will be able to enjoy passport-free travel to Europe. If Turkey and the EU manage to accomplish this, then Turkey's membership in the European Union is closer to becoming a reality than ever before; such a historic achievement for Erdogan would likely grease Turkish support for a federalized Syria.

As for Merkel's Rube Goldberg scheme to block refugees in Greece for rapid return to Turkey at the same time admitting to Europe a refugee warehoused in Anatolia, I think it is bound to fail. Just supplying the administrative manpower needed to process migrants in Greece for return to Turkey is an enormous logistical feat. What about corruption? What prevents smugglers from pursuing an Italian route? The agreement only covers Greece. How long can the heinous canard of listing Afghans as "economic migrants" be maintained? At least there is a partial ceasefire in Syria; in Afghanistan there is nothing of the sort. What about international humanitarian law? Merkel's EU plan is in violation. Refugees will not be allowed to seek asylum. They will be registered in Greece and then whisked back to Turkey.

Grexit + Serious Trouble in Kiev

Greece has asked for a six-month extension of its loan agreement with the troika (Niki Kitsantonis and James Kanter, "Greece Requests Extension of Loan Agreement and Meets Resistance From Germany"). A meeting will be held tomorrow afternoon in Brussels between eurogroup chief Jeroen Dijsselbloem and Greek finance minister Yanis Varoufakis. They will attempt for the third time to arrive at an understanding.

The question, as explored in depth this morning by Yves Smith, "Obama Administration Throws Greece Under the Bus; ECB Leak Recommends Capital Controls; Greece Weighing Capitulation," is whether Greece's six-month extension request is a capitulation to the troika's austerity demands. Smith sees it as such:

Things are not going well for Greece. It appears Syriza has largely capitulated to the demands of the Troika. Greece has submitted a request for a loan extension that the Eurogroup will consider Friday. From ekathimerini:

Government officials on Wednesday worked until late finalizing a proposal…

Specifically the government is expected to seek an extension to the so-called Master Financial Assistance Facility Agreement, the official name for the European Financial Stability Facility’s loan contract. That contract stipulates, however, that the dispensation of financial assistance is dependant on Greece honoring the terms of the so-called memorandum, which contains the economic reforms that the previous government committed to and which the current SYRIZA-led coalition has contested. Indeed, former Prime Minister Antonis Samaras had made the same request in December last year when he sought to extend the European part of Greece’s bailout program, from the end of the year to February 28. Kathimerini understands that Samaras’s request had then used the words “technical extension to the existing Master Financial Assistance Facility Agreement,” the same phrase that the new government was said to be considering last night.

The compromise is expected to satisfy both sides as it would mean Athens can avoid using the phrase “extension of the existing program” and the creditors can avoid using the term “loan agreement.” In substance, however, there would be little difference from the extension sought by Samaras as the terms of the memorandum would have to be respected in order for rescue loans to be disbursed.

This means that Greece is effectively asking for an extension of the bailout, which is what it had refused to do. And that means keeping the “conditionality” as in privatizations and labor-crushing structural reforms, intact. Greece is still fighting to keep some flexibility there but it is not clear they will obtain much. Again from ekathimerini:

The European Commission’s vice president for eurozone affairs, Valdis Dombrovskis, said efforts were under way to reach a compromise by finding “common ground for an extension of the current program.”

He insisted that “the best way forward is to extend the existing program with its conditionality.” Dombrovskis noted, however, that if Greece wants to substitute some of the existing measures in the memorandum with alternatives, it could do so.

In other words, this is a “peace with honor” solution.

Smith then goes on to list what led to the presumed capitulation: 1) the Syriza-led government was abandoned by the United States (no surprise there); 2) Greece is going to run out of a cash February 24, much earlier than originally anticipated; and, most importantly, 3) the European Central Bank (ECB) is fanning a bank run and then restricting the amount of Emergency Liquidity Assistance (ELA) that Greece could tap (basically, the ECB has been working to crater the Greek banking system to force Tsipras and Varoufakis to kneel).

The problem for the troika is that clearly Greek's Syriza-led government has no intention of implementing the austerity diktats contained in the loan memo. Can you imagine a situation in Athens (approval for Syriza is sky high) where Tsipras starts taking bids on publics assets and issuing pink slips to government workers? It is not going to happen.

If there is any wiggle room in the six-month extension document, Dijsselbloem will try to eliminate it. For one, Greece insists that the troika's auditors will not be welcomed back to Athens to oversee implementation of the diktats. According to Yves Smith,

[I]t may be that even the concessions that they are apparently prepared to offer will not be deemed sufficient. For instance, it does not appear that Syriza has agreed to let the Troika monitors back in, one of the five demand seen as critical by the Germans. And even though the European Commission spokesperson Valdis Dombrovskis said there might be some negotiating room on specific conditions, that is also inconsistent with the FAZ description of the German stance. Recall that it was a European Commission trial document that Varoufakis said Greece was willing to sign but was firmly nixed by the Eurogroup. 

So it may be that this last round of concessions is meant not as a capitulation but to demonstrate how much Greece was willing to give in the face of implacable Eurogroup demands and was still rebuffed. We’ll know the outcome either way shortly.

This has been my feeling all along about the underlying strategy of Syriza. Syriza is a pro-EU party. Varoufakis spoke eloquently and sincerely -- and in an impromptu manner -- about European unity during his Monday press conference. But if Syriza can prove that the status quo is irrational, which Varoufakis has made some headway communicating over the last several weeks, then a Grexit and the resulting turmoil will not be blamed on Syriza but on the troika.

Kitsantonis and Kanter are reporting that Germany is opposed to Greece's six-month extension request:

Germany is probably the central eurozone member in [Friday's] proceedings, and a German Finance Ministry spokesman, Martin Jäger, said in a statement on Thursday that the letter from Athens was “not a substantial proposal to resolve matters.” He added: “The written document does not meet the criteria agreed in the Eurogroup on Monday.”

Germany's intention is to break Syriza, de-legitimize it. Smith said the German ambassador to Greece requested that Varoufakis be replaced as finance minister. Germany sees Greece as a serf in bondage, and Germany will not accept an outcome that places the nations on equal footing.

The temptation in the West to interpret every relationship as one of lordship and bondage is on display in Ukraine. The junta's loss in Debaltseve is clearly a turning point. The Ukrainian Army which was cracking prior to Debaltseve (to the point that the Gray Lady was reporting plans floated in Kiev to create a brand new army) will probably not be able to recover from the rout it suffered this week. The Saker outlines the Debaltsve turning point as follows:

The real problem for Kiev is that more or less all of the current line of contact can become a potential counter-offensive point for the Novorussians who, by the way, have never concealed their desire to get back all of the historical Novorussian lands. So while the current (relative) cease-fire is all nice and dandy, I think that by this spring, when the Novorussians will have reinforced their infantry with up to 100'00 more men the situation for the Kiev regime will become absolutely horrific and no amount of US weapon deliveries will change that. This might well be the beginning of the end for the Nazi experiment in Kiev. 

The implications for the AngloZionist empire are rather clear: if the 1%ers have any kind of sense of reality left, they should toss out Poroshenko and the rest of the crazies and foster some kind of government of technocrats in charge of drafting a new constitution and organizing a referendum on federalization simply because the folks in Kiev better negotiate while there still is something left to negotiate then to way to be hiding in a surrounded bunker like their hero Hitler did. Alas, I don't think Uncle Sam or the Eurocretins have any common sense left in them. 

Whatever may be the case, by the ballot or by the bullet, but we *are* winning.

With the Ukrainian Army mortally wounded, Poroshenko is trying to get UN peacekeepers introduced to Donbass. Russia has nixed the move.

Would the U.S. try to piece together a "coalition of the willing"? I don't think so; such a move would invite an enormous Russian response.

No, Kiev's days are numbered, and so too apparently the eurzone's.

Germany's Reaction to NAF's Victory in Debaltseve Bad Sign for Greece

Debaltseve has fallen to the Novorossiya Armed Forces (NAF). What is interesting about David Herszenhorn's story, "Ukraine Forces Withdraw From Debaltseve, a Strategic Town," is he doesn't let on to where the Ukrainian Army is planning to retreat. 

Andriy Lysenko, a spokesman for the Ukrainian national security and defense council, confirmed the retreat at a briefing in Kiev, the capital, on Wednesday afternoon, and said that the pullout was nearly completed. 

“Today, the armed forces of Ukraine are conducting the organized, planned retreat of units of forces of the antiterrorist operation from the city of Debaltseve,” Mr. Lysenko said. “At the moment, almost 80 percent of the Ukrainian units have retreated from this sector, and this operation is to be completed soon.”

Herszenhorn doesn't mention in his story that Debaltseve is encircled by the NAF. There is nowhere for the Ukrainian Army to flee. But in a story yesterday by Andrew Kramer, "Despite Ukraine Truce, a Battle That Continues," it is clear Poroshenko's troops are surrounded and in deep trouble:

As many as 8,000 Ukrainian soldiers are holed up in the city, a rail hub connecting the capitals of the two rebel regions, Donetsk and Luhansk. Rebels have reportedly sent text messages to phones in the town, telling the soldiers that they have been abandoned and should surrender.

The Ukrainian government maintains that the town was not surrounded before the cease-fire took effect, and that European monitors of the truce should insist that the separatist forces halt their offensive and open a corridor to evacuate the wounded.

The main rebel group, the Donetsk People’s Republic, has said it will not observe the agreement in Debaltseve, saying that it was encircled before the cease-fire began and that it is therefore now an internal region in its enclave, not a section of the front.

The only resupply road into Debaltseve is mined, in range of rebel artillery and at times held by pro-Russian infantry. On Friday, eight Ukrainian soldiers reportedly escaped on foot through the fields, and on Sunday, a dozen or so made it out in a truck [one of the soldiers on the truck said it was dumb luck that they made it out alive]. 

On Tuesday, however, Ukrainian rocket-launching trucks and tanks were barreling down the resupply road toward the fighting, though the cease-fire required both sides to withdraw heavy weaponry starting at midnight Monday.

The Saker explains in a post yesterday, "Yet another monumental failure for the junta," that worse is yet to come for Kiev:

All my sources confirm that Debaltsevo is mostly in Novorussian hands and that the junta forces are in full retreat to the south of the pocket. All the top Novorussian brass was on hand today, including Kononov, Motorola, Givi, Mozgovoi and Zakharchenko as were many tens of Ukrainian prisoners. It appears that the junta forces were unable to provide the kind of resistance they showed in Peski, and that make sense because in Peski they were not surrounded and they had the fire support of Ukrainian forces just north and west of them. This time the cauldron is too deep and the "lid" too strong.

You can see that the cauldron "lid" has now closed on Debaltsevo from the north and that the junta forces are either surrendering of fleeing south where there is quite literally nothing for them to do then to wait until they run out of food and ammo. Bottom line: it's over for the Ukie forces in the Debaltsevo cauldron.

Amazingly, the freaks in Kiev as still insisting that there is no cauldron but only a "bridgehead". The good news is that apparently nobody buys that nonsense any more and the mothers and wifes of the men caught in the cauldron are trying everything they can to force the Ukie high command to accept the Novorussian offer of an evacuation corridor. The try to protest in front of the General Staff building in Kiev, then the blocked traffic. In a particularly poignant moment one of these women put a megaphone next to a cellphone to amplify the voice of her son/husband calling from the cauldron and announcing that they had for about 3 hours of supplies left.

All this is truly catastrophic news for the junta in Kiev. First, their policy of denying the issue made it impossible for their forces to get out while it was still possible. According to Russian military experts, about half of all the (comparatively) combat capable units of the Ukrainian military have been surrounded in this cauldron and that means that 50% of the Ukrainian army is now gone. Second, while Poroshenko and the junta freaks tried as hard as they could to completely deny the very existence of the cauldron, thanks to the Internet and the Russian TV channels most folks in junta-controlled Ukraine know that they are being lied to. That, in turns, means that the regime is loosing the very little credibility it might have had with the general public. Last and not least, now there will be a lot of very ugly recriminations from all sides of the political spectrum about who is guilty for that latest disaster. I would not be surprised one bit if the Ukrainian death-squads (aka Azov battalion & Co.) decided to storm Kiev for two reasons: a) to take out their rage on the regime and b) because it is safer to storm Kiev than Donetsk. Poroshenko better watch his back now. By the way, rumor (unconfirmed!) has it that he already evacuated his family to Germany.

Novorussian intel is reporting that the junta is trying to assemble three battalion tactical groups and numerous MLRS north of the cauldron to try to rescue the surrounded forces, but this will be too little too late. The Novorussians are used to Ukie artillery and they don't fear their armor or, even less so, infantry. Besides, I bet you that now that they are inside Debaltsevo, the Novorussians will deeply dig in. When is the last time that the junta forces succeeded in an urban assault operation? Exactly.

Bottom line: yet another brilliant victory for the Novorussian forces and yet another humiliating defeat for the junta in Kiev.

Judging from the reaction to Debaltseve by various participants at Minsk last week, The Saker is on the money: This is another titanic blunder by the junta which bodes ill not just for Kiev but for the West and Russia as well.

First, Herszenhorn reports Putin's reaction as follows:

[Poroshenko's] comments [asserting bizarrely that Ukrainian troops had accomplished their mission in Debaltseve], however, came after the separatists boasted of controlling the town, and after President Vladimir V. Putin of Russia suggested on Tuesday in Hungary that Ukraine should accept its defeat at Debaltseve by separatist forces he described as “underdogs.”

“Life is life; it just goes on,” Mr. Putin said. “No need to dwell on it.”

Germany's reaction is troubling: more sanctions, more blame for Russia. According to Herszenhorn:

Ms. Merkel’s office condemned the separatist offensive, calling it a clear violation of a cease-fire. 

At a regular government news conference, Steffen Seibert, Chancellor Merkel’s spokesman, said Europe was prepared to support a new round of sanctions against Russia if the situation in Ukraine continued to deteriorate. 

“There has been a massive violation of the cease-fire which took effect on Sunday,” Mr. Seibert said, according to Reuters. He said it was too early to say whether the Minsk peace deal had collapsed. 

“The hopes linked to the Minsk agreement have been seriously damaged,” he said. “We must push for the implementation of the package of measures.” 

“We see the U.N. resolution as an impulse in this direction, and in the coming days, we will work with the possibilities that we have,” he said.

To blame the NAF solely for a violation of the Minsk 2.0 ceasefire is not credible. Even the extremely biased Gray Lady reports that the Ukrainian Army violated the ceasefire. All indications are that the West is going to continue to back the junta. Hopefully, The Saker is right and Kiev will collapse from within either due to a new Maidan uprising or another Right Sector putsch. Because of the lifeline the West keeps extending to Poroshenko, change will have to come from within, and that appears to me to be a longshot.

Germany's insane behavior -- doing the same thing (sanctions) and expecting a different result (surrender of the NAF) -- does not bode well for the outcome of loan negotiations between Greece and the troika. Germany's institutional obtuseness has to be factored in.

On the other hand, one might argue that what determines German behavior is what Washington wants. Germany did not want a civil war in Ukraine, but Merkel has gone along with the disastrous U.S.-backed ATO in the Donbass. Washington supports some flexibility for Greece (see today's NYT unsigned editorial, "Give Greece Room to Maneuver"); Obama has voiced support, albeit meekly, for the Syriza-led government being allowed to implement some of its pro-growth policies. The idea here, as expressed in an "Upshot" today by Neil Irwin, "A Possible Day of Reckoning, Again, for Greece and Europe," is that eventually Germany will capitulate in favor of European unity:

If Greece ends up dropping out of the euro currency zone entirely, with unpredictable ripple effects across the Continent and the world financial system, the events of the last few days will look like a turning point that led to that moment. As of Tuesday, to be clear, markets were predicting nothing of the sort. European stock markets were down only slightly, and the value of the euro was actually up a bit. In effect, markets have seen this show before: the sturm und drang of threats and counterthreats that end in a last-minute deal.

The hedge fund manager Mark Dow offered on Twitter a way to think about the tense negotiations: “EZ bears underestimate the short-term resolve of EZ policy makers. EZ bulls overestimate the long-term viability of the exchange rate system.” 

Here’s what Mr. Dow is saying. We have seen again and again that this generation of European leaders, who built their careers on the altar of European unity, will eventually do what it takes to prevent the common currency from ripping apart. If this recent history is a guide, then the drama of the last few days is merely the theatrics required to get these finance ministers to arrive at a deal. 

On the other hand, Mr. Dow also points out, Europe really does have a big and plausibly unsolvable macroeconomic problem.

One more way to look at it is if Germany goes against her interests in Ukraine by supporting the Washington war drive then she earns the right to lead in negotiations with Greece. This means that the Moscovici document that Varoufakis was willing to sign but that was withdrawn at that last moment by Jeroen Dijsselbloem at Germany's behest will not be recycled. There are reports in the media that this is what is in the works.

Right now, given Germany's reaction to the fall of Debaltseve, it looks like continued impasse between the troika and Greece.

Ukraine's Economic Predicament

As the Minsk 2.0 ceasefire dies aborning because Poroshenko refused to admit that 8,000 troops of the Ukrainian Army were surrounded in Debaltseve, Michael Hudson has a tremendous article, "Ukraine Denouement – The Russian Loan and the IMF’s One-Two Punch," that reminds us that at the root of the civil war is a U.S.-backed neoliberal orthodoxy. It is always a fruitful exercise to remind oneself that the Maidan sprang to life when Yanukovych balked at signing an association agreement with Europe because, after crunching the numbers, it was apparent to him that the cost was not sustainable politically.

So Yanukovych took the Russian lifeline instead, and not too long thereafter the Ukrainian president was fleeing for his life.

Hudson begins his piece by outlining Ukraine's current dire economic straits:

The fate of Ukraine is now shifting from the military battlefield back to the arena that counts most: that of international finance. Kiev is broke, having depleted its foreign reserves on waging war that has destroyed its industrial export and coal mining capacity in the Donbass (especially vis-à-vis Russia, which normally has bought 38 percent of Ukraine’s exports). Deeply in debt (with €3 billion falling due on December 20 to Russia), Ukraine faces insolvency if the IMF and Europe do not release new loans next month to pay for new imports as well as Russian and foreign bondholders.

Finance Minister Natalia Yaresko announced on Friday that she hopes to see the money begin to flow in by early March. But Ukraine must meet conditions that seem almost impossible: It must implement an honest budget and start reforming its corrupt oligarchs (who dominate in the Rada and control the bureaucracy), implement more austerity, abolish its environmental protection, and make its industry “attractive” to foreign investors to buy Ukraine’s land, natural resources, monopolies and other assets, presumably at distress prices in view of the country’s recent devastation.

Looming over the IMF loan is the military situation. On January 28, Christine Lagarde said that the IMF would not release more money as long as Ukraine remains at war. Cessation of fighting was to begin Sunday morning. But Right Sector leader Dmytro Yarosh announced that his private army and that of the Azov Battalion will ignore the Minsk agreement and fight against Russian-speakers. He remains a major force within the Rada.

Poroshenko is on record -- not that this means anything for a junta predicated on one fiction peddled after the next -- saying that he will declare martial law if the situation in the Debaltseve is not resolved to Kiev's satisfaction. Given that the junta needs the IMF funds to remain afloat, this provides a powerful incentive for the Novorossiyan Armed Forces (NAF) to keep the 8,000 Ukrainian soldiers bottled up in the Debaltseve cauldron.

Hudson's piece does a good job explaining how the IMF might give short shrift to the €3 billion loan Russia extended to Ukraine:

The IMF has been drawn into U.S. confrontation with Russia in its role as coordinating Kiev foreign debt refinancing. It has stated that private-sector creditors must take a haircut, given that Kiev can’t pay the money its oligarchs have either stolen or spent on war. But what of the €3 billion that Russia’s sovereign wealth fund loaned Ukraine, under London rules that prevent such haircuts? Russia has complained that Ukraine’s budget makes no provision for payment. Will the IMF accept this budget as qualifying for a bailout, treating Russia as an odious creditor? If so, what kind of legal precedent would this set for sovereign debt negotiations in years to come?

International debt settlement rules were thrown into a turmoil last year when U.S. Judge Griesa gave a highly idiosyncratic interpretation of the pari passu clause with regard to Argentina’s sovereign debts. The clause states that all creditors must be treated equally. According to Griesa (uniquely), this means that if any creditor or vulture fund refuses to participate in a debt writedown, no such agreement can be reached and the sovereign government cannot pay any bondholders anywhere in the world, regardless of what foreign jurisdiction the bonds were issued under.

This bizarre interpretation of the “equal treatment” principle has never been strictly applied. Inter-governmental debts owed to the IMF, ECB and other international agencies have not been written down in keeping with private-sector debts. Russia’s loan was carefully framed in keeping with London rules. But U.S. diplomats have been openly – indeed, noisily and publicly – discussing how to “stiff” Russia. They even have thought about claiming that Russia’s Ukraine loans (to help it pay for gas to operate its factories and heat its homes) are an odious debt, or a form of foreign aid, or subject to anti-Russian sanctions. The aim is to make Russia “less equal,” transforming the concept of pari passu as it applies to sovereign debt.

Further, Hudson limns the rent-seeking logic that -- from Ireland and Greece to Ukraine -- lies behind the IMF's austerity diktats:

IMF loans are made mainly to enable governments to pay foreign bondholders and bankers, not spend on social programs or domestic economic recovery. Sovereign debtors must agree to IMF “conditionalities” in order to get enough credit to enable bondholders to take their money and run, avoiding haircuts and leaving “taxpayers” to bear the cost of capital flight and corruption.

The first conditionality is the guiding principle of neoliberal economics: that foreign debts can be paid by squeezing out a domestic budget surplus. The myth is that austerity programs and cuts in public spending will enable governments to pay foreign-currency debts – as if there is no “transfer problem.” 

The reality is that austerity causes deeper economic shrinkage and widens the budget deficit. And no matter how much domestic revenue the government squeezes out of the economy, it can pay foreign debts only in two ways: by exporting more, or by selling its public domain to foreign investors. The latter option leads to privatizing public infrastructure, replacing subsidized basic services with rent-extraction and future capital flight. So the IMF’s “solution” to the deb problem has the effect of making it worse – requiring yet further privatization sell-offs.

This is why the IMF has been wrong in its economic forecasts for Ukraine year after year, just as its prescriptions have devastated Ireland and Greece, and Third World economies from the 1970s onward. Its destructive financial policy must be seen as deliberate, not an innocent forecasting error. But the penalty for following this junk economics must be paid by the indebted victim.

In the wake of austerity, the IMF throws its Number Two punch. The debtor economy must pay by selling off whatever assets the government can find that foreign investors want. For Ukraine, investors want its rich farmland. Monsanto has been leasing its land and would like to buy. But Ukraine has a law against alienating its farmland and agricultural land to foreigners. The IMF no doubt will insist on repeal of this law, along with Ukraine’s dismantling of public regulations against foreign investment.

This is what Greece is fighting to free herself of. Since it is the very logic of Western capitalist hegemony, Yanis Varoufakis has repeatedly arrived at impasse with his interlocutors in Brussels. All he is asking for is a bridge loan of six months to discuss the technicalities of the troika's bailout. Not allowed.

And this is why war must continue in Ukraine. The IMF prescriptions Kiev must implement can only be carried out if the public is distracted by war. But herein lies the rub. The IMF cannot loan to a nation at war. Finally then after a year it seems that the Kiev junta has arrived at a day of reckoning.

Hudson holds out the possibility that Europe will come to its senses suddenly and break with the United States and align with Russia:

We can now see why the EU/IMF austerity plan that Yanukovich rejected made it clear why the United States sponsored last February’s coup in Kiev. The austerity that was called for, the removal of consumer subsidies and dismantling of public services would have led to an anti-West reaction turning Ukraine strongly back toward Russia. The Maidan coup sought to prevent this by making a war scar separating Western Ukraine from the East, leaving the country seemingly no choice but to turn West and lose its infrastructure to the privatizers and neo-rentiers. 

But the U.S. plan may lead Europe to seek an economic bridge to Russia and the BRICS, away from the U.S. orbit. That is the diplomatic risk when a great power forces other nations to choose one side or the other.

Sadly, I don't see this happening. The hive mind in Brussels, Berlin and other European capitals is still too melded with Washington D.C. If the junta can't get money from the IMF because Poroshenko has declared martial law, Kiev will widen the war and likely receive billions in direct military aid from the West. The war will go on until Kiev collapses.

In Minsk and Brussels a Maintenance of the Status Quo

Neil MacFarquhar writes this morning in "Leaders Announce Plan for Ukraine Cease-Fire" that the negotiations in Minsk succeeded in restoring the status quo prior to the junta losing the Donetsk airport, minus any territory lost by the Ukrainian Army:

The [late night] return to the negotiating table was accompanied by a flurry of Russian news agency reports that Mr. Poroshenko had declined at the last minute to accept the outlines of the deal that addressed the independent status of the breakaway areas of Donetsk and Luhansk, as well as the demarcation line meant to form the spine of a demilitarized zone.

The separatists and their Russian patrons want a federal system that gives the breakaway regions independence over their foreign and economic policies, while Mr. Poroshenko had vowed that only some manner of decentralization was acceptable.

In addition, the truce line has shifted since an original deal was signed in September, creating a more cohesive whole from the two breakaway regions. The town of Debaltseve remains a point of contention, with the Ukrainian troops holding it now surrounded.

Much of the negotiations overnight were believed to have been consumed by discussions over each of the 12 points of the protocol agreed last September, and efforts to come up with a working plan on how each might be implemented.

As the peace talks stalled, fighting continued in the disputed areas of southeastern Ukraine.

Pro-Russian rebel forces mounted a counterattack on areas east of the coastal city of Mariupol, trying to retake some of the ground seized in recent days by the volunteer, right-wing Azov Battalion.

Residents of the industrial port on the Sea of Azov, widely expected to be the next target of rebel attacks if the Minsk peace talks do not produce a truce, could hear heavy shelling throughout the morning. 

City and military officials said the fighting did not hit civilian areas in the city, but was confined to small villages to the east.

Moon of Alabama is calling the new deal "Minsk 2.0" ("Minsk 2.0 Is Just The Pause Button"), which so far seems the accurate way to describe it:

The actual ceasefire will start on February 15. We can expect some heavy fighting up to the last minute as each side will try to consolidate its position. There will surely be different interpretations of the clauses on both sides. It is also questionable if the paramilitary groups, especially on the Ukrainian state side, will follow orders to cease fighting.

The Ukrainian President Poroshenko seems to have severe illusions. As the Russian President Putin mentioned in his short press conference (video) Poroshenko does not believe that his several thousand troops in Debaltsevo are surrounded and cut off. That is ludicrous as even major, though unofficial sources on the Ukrainian side had confirmed the closing of the cauldron two days ago. It seems that the military leaders of the Ukrainian army do not tell him what is really happening in the field. Putin also said that the federalist expect the Ukrainian troops in the cauldron to put down their arms. Will they be given orders to do so or will they be ordered to fight on?

The U.S. inserted itself into the negotiation via the International Monetary Fund which it controls. The IMF announced new $17 billion plan for Ukraine, over four years, two hours before the negotiations ended. That was the U.S. joker telling Poroshenko that he would get enough money to continue fighting and does not have to give up any position. Merkel and Hollande, who tired to wring more concessions out of Poroshenko, must have fumed at that news.

For the moment the Minsk 2.0 plan is welcome relief. This certainly for the people in Donetsk and Luhansk who are under constant Ukrainian artillery fire. The EU countries will be happy that the pressure for new sanctions is off and the U.S. hawks will have to shelf their "arm Ukraine" campaign for now. But the ceasefire does not solve the main questions. The radical constituency of the Ukraine coup government will demand more "punishment" of the east while the people there will, without more representation, reject any demands from the central government.

We can therefore expect that the fighting will stop in the short term only. The violent conflict will likely resume in a month or two or so.

Germany and France were successful in at least restoring the Minsk status quo -- a lower level of warfare which allows the junta, with its infusion of money from the IMF, to muddle through. We know from Minsk 1.0 that the earlier ceasefire saved Kiev from total defeat in the Donbass; with three days of fighting left before Minsk 2.0 takes effect, it remains to be seen if the Novorossiyan Armed Forces can take Mariupol from the neo-Nazi Azhov Battalion.

As for talks in Brussels between finance minister Yanis Varoufakis of Greece and the eurogroup a planned announcement apparently was shelved because of a dispute over language. James Kanter reports in "After Talks, Eurozone and Greece Fail to Settle Differences Over Debt":

Over the course of the evening, the ministers had been expected to release a joint statement in which the Greeks pledged to keep most of their previous commitments, and that laid out plans for technical discussions to continue on Friday and during the weekend. But that plan had to be dropped at the end of the meeting after ministers could not agree on additional language, demanded by Greece, on the gravity of social conditions in the country.

The goal was “to successfully conclude the plan” but “it’s not done,” Pierre Gramegna, the finance minister of Luxembourg, told reporters at the end of the meeting.

Talks will resume on Monday. Yves Smith, "Greece, Eurozone Ministers at Fundamental Loggerheads," is more pessimistic than the Gray Lady's reporter. She sees no common ground between Greece and the eurogroup and says Greek default by June is the likely outcome at this point.

So in both sets of negotiations -- Minsk and Brussels -- we have no evidence of a dramatic break with the status quo; rather, we have a continuation of the status quo, a muddling through, which is always the safe bet of the dominant powers.