The Eurozone crisis is far from over

Three years ago, it looked like Greece would have to leave the Euro. The country was bust and had to be bailed out by the European Central Bank (ECB), the International Monetary Fund and the European Commission (the so-called “Troika”) as no one wanted to loan such a profligate state any more money. Of course, the country should never have been allowed to join the Single Currency in the first place. The books were cooked to hide the huge debt burden the government owed even back in 2000. One of the culprits was Lucas Papademos, the governor of the Central Bank at the time. He was later installed as Greek Prime Minister without any ballot after the incumbent, George Papandreou, incurred the wrath of Brussels by threatening to put the Troika’s tough bailout proposals to a referendum and was forced to resign.

The governments in Spain and Ireland had not been guilty of such profligacy, but the Eurozone interest rates in the years before the Great Recession of 2007 were too low for their housing markets, creating an unsustainable boom that turned into bust. Also vulnerable were Portugal and Italy. Portugal in particular had been struggling because some of its most important exports, such as textiles, were being undercut by cheap goods from Asia. With both countries being tied to the Euro straitjacket, they were unable to respond in their time-honoured manner – devaluing their currencies. (Remember how many lire you used to get to the pound on those Tuscan holidays?)

However, although the Eurozone wobbled for a while and its break-up was prophesied by a number of respectable economists, it became apparent that the various EU institutions were prepared to go to quite extreme lengths to ensure no country withdrew from the Single Currency. One particularly significant moment in the crisis was a speech in London in July 2012 by Mario Draghi, the ECB governor, who promised to do “whatever it takes” to keep the Eurozone together. In the weeks following this speech, Draghi didn’t actually do very much, but his words calmed the markets and borrowing costs for the Spanish and Italian governments started to fall from levels widely regarded as unsustainable. Last year, even the Greek government was able to return to the money markets after recording a “primary surplus” (greater tax revenue than expenditure excluding borrowing costs) for the first time in years.

So it’s all rosy in the Eurozone garden now? Not quite. The price paid by countries who have required a bailout has been very high. In order to balance their books, the governments of Spain, Italy and Greece have been forced to slash their expenditure. While the number of public sector employees in Greece in particular has been too high and their pensions too generous, the scale and the rapidity of the cuts has resulted in a series of strikes and a sharp rise in unemployment. In Greece, over one quarter of the entire workforce has been out of work for almost two years, with youth unemployment remaining stubbornly above 50% in spite of many young people leaving the country to find work elsewhere. Two years ago, one third of business in central Athens had closed because of the downturn. The unemployment figures in Spain are equally dire. Over half the young people are out of work here too and there is very little sign of things improving.

Although no one is talking about bailouts, government finances are facing increasing pressure because of low or, in some cases, negative inflation. While very low inflation is good news for consumers, governments rely on inflation to pay their bills. If you are a government which has borrowed a hundred thousand euros over a 10-year period, it helps if prices and wages go up because, thanks to a bigger tax take, you receive more money to help pay off your debt by the end of the loan period. If prices are actually falling, as they are in Greece, Cyprus and Portugal, people defer buying big-ticket items in the hope that they will become cheaper. Besides this being bad for governments, it does not help manufacturers either, as they suffer a fall in orders.

Then there is the problem with some Eurozone banks – particularly but not exclusively those located in the Mediterranean countries. The precedent set by the bail-out of banks in Cyprus, where savers had to take a hit, means that any hint of insolvency will cause a run on the bank in question. Portugal’s Banco Espirito Santo rattled the markets last week, and this is unlikely to be a one-off incident. In November this year “stress testing” of over 100 Eurozone banking groups by the ECB due to start. In order to ensure that their assets meet the necessary criteria and do not offer the slightest hint of insolvency, banks are tidying up their balance sheets and keeping well clear of any loans with an element of risk. This, of course, is hardly a healthy environment for businesses seeking to borrow money to finance expansion. , and the recent problems with Portugal’s Banco Espirito santo .

Added together, these developments have resulted in a climate of stagnation in much of the Eurozone. The stock of both consumer credit and mortgage loans across the 18-nation single currency area are decreasing and manufacturing in several countries is also in decline. France’s industrial production shrank by 1.7% in May compared to April while Italy’s fell by 1.2%. It is widely believed that the Italian Prime Minister Matteo Renzi dropped his opposition to the nomination of Jean-Claude Juncker as President of the European Commission in exchange for an agreement to relax the austerity policies demanded by Germany as his government struggles to balance its books.

So far, these ongoing troubles in the Eurozone have been kept out of the headlines. However, Anthony Couglan’s recent report on Ireland (See link here ) which captures the sombre mood of a country which has been widely touted as “the poster-child for austerity”, illustrates what is rumbling beneath the surface. The Irish, like the Spanish, Portugese and Greeks, have made heroic sacrifices to keep the Single Currency afloat. But if another spark causes a renewed eruption of this still-ongoing crisis, how much more will they be prepared to take?

CENSORING TRUTH IN THE EU: Rajoy revealed as prime mover for EU Court’s Article 29

This article was written by John Ward, it first appeared on his blog ‘The Slog’

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How Spain is leading the charge towards fascist corporatism

Some weeks ago, the European Court made a quite extraordinary ruling that gives EU governments the ability to sanitise their online history by petitioning Google and other search engines to remove potentially damaging links to newspaper articles and other websites with embarrassing information.

Although a working party is yet to meet and discuss ‘best practice’ (ironique ou quoi?) in enforcing the ruling, as it stands Italy would have the right to ask Google to take down all references to its blatant lies about ‘economic recovery’ in the Spring of 2013.

It will come as no surprise to discover (as I just have) that one of the prime influencers for Article 29 (the basis for this Orwellian policy) was everyone’s favourite control freak Wolfgang Schäuble; but perhaps more interesting (in the light of information coming through from Spain over the last month) is that it was also pushed with some urgency by none other than Mario Rajoy of Spain.

And there’s more on the story of Juan Carlos’s abrupt “abdication”. It seems his major blunder was to proclaim loudly that “a free press is vital to democracy” while giving out gongs at the recent awards ceremony for International Journalism Prizes.

In another startling announcement from Spain, it seems now that Juan Carlos is to be succeeded by some bloke called Phil Bourbon. So with very little chance of a biscuit answering Mario Rajoy back, this should make things easier for the Prime Minister to fulfil his goal of being given a free hand to do WTF he wants as soon as possible.

Rajoy has strong form in the area of censorship. In the Autumn of last year he described those going on protest marches as “abnormal” (he’s right, they’re abnormally poor), and then in December some 300 Spaniards were fined €500 euros each for attending a protest against the budget cuts.

Equally, former Interior Minister (aka spook) and GP politician Mayor Jaime Oreja thinks it is “crazy to let people view all these problems of public order on television, because it only incites people to demonstrate all the more”. Well ping my blog Jaime, you’re right on the ball there and no mistake.

Similar demonstrations have been banned and fines handed out in Greece of late – notably in Athens and, on one occasion when I was present, in Kalamata.

The point here is a very simple one. Any and all examples of bent statistics, government repression and laws forbidden by the Treaty of Rome can be “forgotten” under the EU Court ruling. Working parties on “best practice” in the EU by the EC do not impress me one iota, because it has been blindingly obvious for years that Brussels am Berlin is a fascist grouping prepared to pull any stunt in order to get their Truth to prevail.

What we’re seeing here is Winston Smith’s Ministry of Truth job made flesh. We are seeing the contemporary Mr K being fined for a crime so ill-defined as to be, effectively, a Bourbon lettre de cachet. We are watching the fruition of prophecies made by visionaries from Kafka to Orwell.

To paraphrase the late and much lamented Ed Murrow, “The lights are going out all over Europe”.

An Italian Perspective by Monia Benini

Monia

First of all I would like to bring you greetings from the political movement of Liberation Per il Bene Comune and then thank you for your kind invitation to participate in this important meeting.

It’s a great opportunity for me to explain the situation my country is facing from the European Union dictatorship and at the same time to gather information about Britain, to reinforce our position in Italy, too.

I come from a nation (let me call Italy a ‘nation’ even if the EU has scorched the earth around us), I come from a country where people had been led to a contemporary form of slavery. A dictatorship run by structures such as the European Central Bank and the European Commission, through weapons like onerous treaties, binding memorandum of understanding, austerity, fiscal compact, European Stability Mechanism, debt, or European Redemption Fund (they also went to disturb also the Biblical Psalms, to hang us).

The former Italian Premier Mario Monti said that crises are useful to give more power to EU, so that they can appropriate member’s sovereignty . Yes, he said that. Actually he also said that the biggest success of the Euro was Greece, and he made this statement while that country was facing a restricted default, and people were losing their houses, and jobs. As a matter of fact, the EU has stolen our sovereignty: monetary, economical and national sovereignty. And you know what? It was made against our constitutional charter, and with a decree that imposed a state secret on the entire route to Euro. And they talk about the EU as a cradle of democracy…

With the Maastricht Treaty, the Italian government gave the keys of the house to the ECB, from the money printing to the direction of economic policies, in the name of parameters decided on the progress of the German Mark.

In 2000, Giuliano Amato, former Prime Minister and later Vice President of the European Constitutional Convention said: “One must act ‘as if’ in Europe as if one wanted only very few things, in order to obtain a great deal. As if nations were to remain sovereign, in order to convince them to surrender their sovereignty. The Commission in Brussels, for example, must act as if it were a technical organism, in order to operate like a government and so on, camouflaging and toning down.”  So, before the Treaty of Lisbon and even before the European Constitution was rejected by referenda in France and in the Netherlands, the EU powerful ‘minds’ began to tease people. And they admitted it, too, like Amato did.

Until the 1980’s, Italy was a G7 member, with a low rate of unemployment, with a good welfare state and with growing exports. When we were finally bound hand and foot to the Euro, a rapid descent began, or perhaps I should say … that a rapid rise began…the rise of the debt.

With the blackmail of debt, the EU has managed to impose on countries such as Ireland, Portugal , Spain , Cyprus and Greece the memorandum of understanding, a real instrument of torture in the hands of the European masters and of the governments part of this non-democratic system. The ‘ troika ‘ requires all countries under  the memorandum continuous  lay-off; privatisations and the sell-off of national assets; cuts in wages, salaries and pensions; control regimes that destroy the national ability of government. The states no longer exist, robbed of their sovereignty , their independence and their ability to conduct political, economic, social and cultural independent choices.

With a global structure based on money that is inherently debt, the  ECB  may tighten the noose around the neck of the states (if one can speak of states, given the European dictatorship ) and decide how to occupy – in a contemporary way – the chosen victims. It’s a new kind of war,  waged by a structure made of  persons who are not democratically elected (but appointed within an elite and above a brand, the EU brand), who act as a contemporary army against the peoples of Europe.

I think to Italy, to my country, dragged within this European dictatorship with accounting tricks, with a nightly compulsory levy on current accounts and even with a state secret, imposed by Dini’s technical government in 1995. And everything was set to fulfil the roadmap designed within the EEC in 1970 by the Pierre Werner Commission, which provided the ultimate goal of the European union: a single currency, today the Euro, to be saved at all costs, as Draghi said.

Britain has been away from it and it  has been a very wise decision. But the opting out was not enough to save sovereignty. It’s not just a matter of Euro, it’s the whole EU construction that imprisoned our countries. Let’s think to the monstrous power of the European Commission, with Director Generals unelected that can rule for very long periods (and there won’t be a direct election of the EC President to change this institution).

In Italy, we know their power perfectly. Our farmers cannot cultivate what our lands could traditionally produce; our breeders have milk quotas; taxes; our fishermen have to disrupt their activities; the labour market is  disintegrated by EU rules and by a very high cost of  desperate people who come mainly from Africa and Middle East, an immigration that local authorities are totally unable to cope with. While young people are emigrating abroad and more and more workers are fired in Rome or Milan or in other big cities it is possible to find older people (but not only them) rummaging in garbage cans to find something to eat. Artisans and traders must adapt to directives and resolutions that deplete them, the industrial production is controlled and broken up and sacrificed to the dictates of certain structures that clearly do not operate in the interests of our peoples.

For example, in Italy last year 304 companies closed  every day,   every single day, also during Christmas and Easter. Every two and a half days someone has committed suicide because of the situation imposed by the EU. The decisions taken by a series of prime ministers not elected by the people (like Monti, Letta, Renzi) are nothing more than the executors of impositions delivered to Italy in November 2011 by Olli Rehn.  The European Commission and European Central Bank decide for us and they’re ruled by people not elected by us, not elected by our citizens.

Today we have the Euro and some countries have been keeping themselves away from it, but despite opting out, all the EU member states are forced to pay a price too high from the point of view of economy, production, employment and most of all…sovereignty.

We must realize that we are at war, a war waged against our people by the ECB, the European Commission and an unelected establishment. We do not live in democracy; it’ s a European dictatorship  and we have the right, the duty to resist and to defend ourselves, to react and to save us. We must free ourselves. They will not have our lives! They will not have our countries , they will not take away our future!

The countries inside the European Union can use Article 50 of the consolidated Treaty of the European Union,  which allows to exit from this European jail, with a negotiation process. Will it be costly ? Probably yes, but what are we paying today to be slaves and starved?

We see social tensions inside European countries  and we can also feel the dangerous seeds of hatred that can stop a peaceful coexistence for years to come. If we want to prevent conflicts,  we must be brave and responsible: we must exit from this EU that condemns our countries and our lives. It’s time to become  free and sovereign peoples.

They will do anything to stop us, but the ideas of those who work for the good of the people can never be arrested. We cannot remain with folded hands: everything we want is beyond our fears. We need to gain freedom with a withdrawal from the EU. Immediately.

Press Release from The United People’s Front (Greek based)

The United People’s Front has issued a Common Statement in advance of the European elections. The United People’s Front is supported by CIB and parties in Finland, France and Greece. CIB was represented at the UPF’s conference in Athen’s in November.

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April 2014

The Independence Party (IPU) (Finland), the Republican People’s Union (UPR) (France),  and the United People’s Front ( EPAM) (Greece) have announced their participation in the European elections to be held in May 2014. On this occasion they reaffirm their mutual support and their common positions:

-Exit from, the Eurozone & the European Union
-National Independency, Popular Sovereignty, Democracy & Social Progress

European Elections present a unique opportunity for our views and our proposals to be heard by a wider public. We should therefore take advantage of this opportunity to enhance our struggle for the restoration of democracy in our countries, which involves inevitably the exit from the EU and the eurozone.

The Peoples of Europe have to get emancipated as soon as possible from the European Union, which is an anti-democratic organisation at the service of the financial and economic oligarchy. The so-called ‘European construction’ is against the interests of the peoples of Europe in every sector.

This year’s vote is the most crucial one since the very foundation of the European Union. Major projects are to be implemented against the interests of Europe’s Peoples, namely the federation of Europe, the banking union, the fiscal pact, the Transatlantic Treaty, large scale privatizations, new austerity policies, event the confiscation of private property as well as confiscation of savings (remember Cyprus). We must act NOW.

The presence of our three movements in the European Parliament is necessary because the existence of movements, regardless of their political ideology, which truly oppose the European Union, will no longer be ignored unlike other movements which only superficially oppose the EU, damaging the sense of sovereignty and independency with their extremist positions.

Criticism of the EU and the euro has to stop being a taboo, so that alternatives to the EU policies can be heard.

Pro-EU movements participate in national elections, destroying the sovereignty and the independence of their countries from inside. We participate in the European elections with the aim of bringing down the entire ‘’European construction’’ from inside and being the voice of all those who want to leave the EU and the eurozone.

The power of the European Parliament is very limited but it provides a useful platform and an international voice as the example of other. We shall use this platform to make our movements better known and to build further international support for our struggle against the EU and for the restoration of democracy across Europe.

This common statement proves our cooperation as well as our commitment as undertaken during the Athens Meeting in 30 November-01 December 2013.

Signed by:

  • IPU – Finland
  • UPR – France
  • EPAM – Greece

Express support:

  • Per il Bene Comune – Italy
  • Asociacion Democracia Real Ya – Spain
  • Alza il pugno , Eurotruffa – Italy
  • National Platform – Ireland
  • CIB – UK

 

 

Descent into the Minor League – German Foreign Policy

2014/04/29

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Paris/Berlin (Own report) – Today, numerous parliamentarians in France’s Assemblé Nationale are planning to vote in favour of a program of dramatic austerity measures, in defiance of massive protests. This package of budget cuts had been inspired by Germany. The program is supposed to cut up to 50 billion Euros between 2015 and 2017, of which 21 billion will be from social services alone – and, 10 billion of this from health services. These measures are laying the groundwork for between 30 and 40 billion Euros in benefits for the industry. The redistribution from the middle and lower income strata of society to the industry is following Germany’s example – the “Agenda 2010” and “Hartz IV.” Within the framework of the Euro crisis, Germany has been imposing that other countries within the Euro zone imitate these measures. Paris is under massive pressure. German industry’s exports are pushing its French competitors further in retreat. The French foreign trade deficit has reached new heights and the French industry is sinking deeper into a crisis. The latest manifestation of this decline is the looming sale of France’s traditional Alstom, which Siemens, is competing with General Electric to become the majority shareholder. General Electric is seeking a “European presence” as a stepping stone to become the global market leader.

 

Redistribution

Today, hefty debates will ensue in France’s Assemblé Nationale over the 50 billion Euro austerity package adopted last week by the government in Paris. The package foresees a national budget cut of 18 billion Euros for the period from 2015 to 2017, – 11 billion in cuts from regional municipalities and another 21 billion in social cuts. Ten of the 21 billion will be cut from health insurance, for example, for hospitalization or the cost of medicine. Another eleven billion is to be won by freezing pensions and social benefits. These measures will primarily impact on the middle and lower strata of society. Simultaneously, the government is preparing to provide the industry enormous perks – said to be in the range of 30 to 40 billion Euros, for example, in tax reductions. These measures are massively rejected by the population and causing wide dissention within the parliamentary group of the ruling Socialist Party, where a double-digit number of parliamentarians intend to not vote in favour of this austerity package. Yesterday, in an effort to somewhat assuage the protesters, the government announced slight alleviating concessions, for example, that pensions of up to 1,200 Euros will be exempted from the freeze.

 

Defeat and Decline

On the one hand, with this package of cuts, President François Hollande’s government is taking the consequences of ultimate defeat in its struggle against the German austerity dictate imposed on the Euro zone.[1] In 2012, Hollande won an impressive electoral victory after promising to wage this struggle. On the other, this redistribution – from the middle and lower social strata to the business strata – is an attempt to halt French industry’s current decline, largely due to a combination of the introduction of the Euro and the simultaneous German austerity policy during the SPD – Green government coalition. A recent analysis by the German Council on Foreign Relations (DGAP) has provided current data on this development.

More Poverty than Ever

As was noted by the author of the DGAP analysis, since the 1990s, a “post-industrial Keynesianism” has been dominant in France: a “reduction of work hours and an expansion of the French social security model” have been financed by “additional strain on enterprises.” “As is known,” the development in Germany has gone “in exactly the opposite direction,” with the “enterprises’ cost components being reduced.”[2] Industrial support in Germany found its preliminary climax in the SPD – Green government coalition’s “Agenda 2010” (“Hartz IV”). Their social ramifications have been severe. In Germany “wage-earning poverty has reached a new record high of 15.2 percent” confirms the CEO of the Parity Social Welfare Association, Ulrich Schneider, at the presentation of the “Poverty Report” in December 2013. Schneider has observed an “expansion of the low-wage sector” and a “rise in inadequate part-time work and precarious employment relations over the past ten years.” He noted “the dichotomy between poverty and wealth in Germany has significantly grown. … The Federal Republic of Germany has never been as deeply divided as it is at present.”[3]

 

Billions Diverted

The mighty rise of German industry is being financed by the sacrifice of that portion of the German population, which is sinking deeper into poverty. While “the costs of a work hour” in France had “risen by approx. 50 percent” between 2000 and 2013 – and an average of about 40 percent within the Euro zone – it rose in Germany, by only 24 percent, according to the DGAP analysis. This is a European significant reason for Germany’s export success. In addition, France uses Eastern European and non-European low-wage production sites far less than Germany. The research has uncovered that, since the Euro’s adoption – which no longer permitted balancing measures using monetary depreciation – France has no longer been able to use compensatory measures to offset the German style low-wage sector. Therefore, France’s “share of exports in goods and services beyond the Euro zone has dropped from 16.6 to 12.8 percent,” whereas Germany’s share is almost at one-third – 31 percent.[4] The fact that the German industry with increased regularity is in a position to beat out its French competitor, has not only been shown in the relative decline in French exports, but also in the rise in German exports to France. Beginning in 2003, Paris’ competitive disadvantages, particularly those vis à vis Germany – after decades of an equilibrated trade balance, even showing in the 1990s a foreign trade surplus – caused France to rapidly accumulate a foreign trade deficit reaching a new high of 76 billion Euros in 2013. Nearly half of this deficit – 36.2 billion Euros – is on Germany’s account. According to German Bundesbank data, in the years 2002 to 2011, alone, 247.5 billion Euros – nearly a quarter trillion Euros – flowed from France to Germany, in goods, services and other lesser factors.

 

“Abolish the Social Welfare State”

Because, in the long run, this would lead to a collapse and because, up to now, it was impossible to break Germany’s austerity dictate in favor of an alternative economic policy – also due to a lack of protest potential inside Germany – Paris sees itself obliged to imitate Berlin’s redistribution from the middle and lower strata to the industry. There are serious doubts about how successful this will be. First of all, it is uncertain whether the French victims of these cuts will be as docile in their acceptance of the new situation as is the case in Germany, and secondly, German economists are now calling for further social cuts. Yesterday, Thomas Straubhaar, Director of Hamburg’s Institute of International Economics (HWWI), declared that “above all the social expenditures” are a problem for the German national budget. “We must get away from the consumptive, to return to the investment-related state. But, and this must be clearly understood, that means that the social welfare state must be cut back in many sectors.”[5] In Germany, this means further impoverishment – and, on the other hand, for France, it means an obvious impossibility of ever catching up to Germany’s head start in austerity.

 

All Excited

The pressure France is currently subjected to can be seen in the tug of war over the future of the tradition-steeped French company, Alstom. Alstom is stuck in a serious crisis. Ten years ago, when a similar crisis had occurred, Paris stabilized the situation with state subventions. Because of the current critical budget situation, this option is out of the question. Recently, the US General Electric (GE) announced its intention to take over Alstom. To prevent this, the French government offered to sell the company to its German rival, Siemens. The consideration behind this offer is obviously that a takeover by a company within the EU would offer better possibilities for influencing the further development, than would be the case if the sale went to a US company – at least the production site locations inside France. A commentary in a German journal explained the significance this procedure has for Paris: “whoever wants to see the situation from the French perspective should imagine Siemens – Alstom’s German counterpart – suddenly being the object of two foreign takeover bids. No wonder France is all excited. One of the last major classical industrial enterprises of the country … could soon lose its independence.”[6]

 

“European Electric” vs. GE

Currently, in the discussion is whether Siemens cedes half of its transport branch to Alstom, to be able to take over Alstom’s energy business, which, at the moment, accounts for approx. 70 percent of Alstom’s returns. It is said that Siemens – reinforced with the main segment of Alstom – would like to enter onto the global market as “European Electric,” in competition to General Electric (USA), to take over the leadership position on the world market. While this indicates a new transatlantic rivalry, Berlin’s dominance over the EU is also being reinforced by this tradeoff. Whereas, just a few years ago, there was talk of Germany and France leading the EU in “tandem” and “on an equal footing,” today a news commentator spoke wryly of “France making progress … in her industrial descent into the minor league.”[7]

 

 

[1] See “Le Modèle Gerhard Schröder”.
[2] Markus Gabel: Stärken und Schwächen des “Made in France”. DGAPanalyse No. 2, Februar 2014.
[3] Zwischen Wohlstand und Verarmung – Deutschland vor der Zerreißprobe: Bericht zur regionalen Armutsentwicklung 2013. Statement von Dr. Ulrich Schneider, Hauptgeschäftsführer des Paritätischen Gesamtverbandes, anlässlich der Präsentation des Armutsberichts 2013 in der Bundespressekonferenz am 19.12.2013.
[4] Markus Gabel: Stärken und Schwächen des “Made in France”. DGAPanalyse No. 2, Februar 2014.
[5] “Weniger Sozialstaat, dafür bessere Straßen”. www.welt.de 28.04.2014.
[6], [7] Christian Schubert: Alstom auf dem Abstiegspfad. Frankfurter Allgemeine Zeitung 28.04.2014.

 

Russia’s South Stream pipeline in deep freeze as EU tightens sanctions noose

gas pipeline

The European Union is close to freezing plans to complete the $50bn (£30bn) South Stream gas pipeline through the Black Sea from Russia, the first serious EU action to punish the Kremlin for the seizure of Crimea.

Key details emerged in a leaked briefing by the European Commission’s chief, Jose Manuel Barroso, to Bulgarian politicians, warning the country not to stand in the way of the EU’s tough new line on the project, or attempt to undercut a unified EU response over Ukraine. “We are telling Bulgaria to be very careful,” he said, according to reports in Bulgaria’s press.

Mr Barroso said there are “people in Bulgaria who are agents of Russia”, a reference to figures in the ruling Socialist party who have been trying to clinch a bilateral deal with the Kremlin.

The warning came as Ukraine once again rattled investors. Russia’s Micex index of stocks fell 2.4pc and the rouble slid 1pc against the dollar after armed pro-Russian protesters seized government buildings in the eastern Ukrainian city of Donetsk and declared the region “independent”. They also stormed offices in Kharkiv and Luhansk.

Ukraine’s premier, Arseniy Yatsenyuk, accused Russian president Vladimir Putin of preparing the ground for seizure of the Donbass region, home to most of Ukraine’s heavy industry. “The aim of this scenario is to divide Ukraine into parts and turn part of Ukraine into a slave territory under a Russian dictatorship,” he said.

There are still 40,000 Russian troops massing near Ukraine’s border. Mr Yatsenyuk said it was “crystal clear” that Mr Putin intended to go beyond Crimea, escalating the crisis to a much more dangerous level.

Brussels has been coy about the status of the South Stream project, which entails huge contracts for oligarchs close to Mr Putin. The official line is that the plans are still alive but Mr Barroso’s leaked comments confirm reports that it is politically dead.

The German group Siemens signed a contract with Gazprom as recently as last week to supply control systems for South Stream as if nothing had happened in Crimea. This followed a private meeting between Siemens chief Joe Kaeser and Mr Putin that caused a storm in Germany.

Professor Alan Riley, from City University, said the South Stream project – already well under way and intended to produce gas by 2015 – funnels energy long distances from Siberia to the Caucasus and then on to the Balkans purely to circumvent Ukraine. “It makes no sense. It provides no new gas and is intended solely in order to undermine Ukraine, yet the Western policy is now to spend huge sums of money to save Ukraine,” he said.

German Chancellor Angela Merkel has clearly lost patience with Mr Putin, who appears to have misled her twice in telephone calls – first promising that there would be no seizure of Crimea and then assuring her that no troops were at Ukraine’s border.

She warned Mr Putin that there would be painful consequences if Russia “violates” Ukraine any further. “Nobody should harbour any illusion. As different as we are in Europe, we will stand united,” she said. While she did not spell out details, the next tranche of measures is likely to target companies and banks in a bid to choke off Russia’s access to global finance.

The US has already listed Rossiya Bank and SMP Bank indirectly. It is tightening the noose by regulatory muscle, progressively complicating the ability of Russian companies to roll over $650bn of foreign debt. Diplomats say Washington may broaden targets in response to any concerted effort to destabilise Ukraine, even if it falls short of an invasion by troops.

This could be triggered if Gazprom acts on its threat to cut off supplies to Ukraine as of Tuesday. Gazprom’s chief, Alexei Miller, said the company will not deliver any more gas unless Ukraine “pays off” an immediate debt of $2.2bn for past deliveries.

The company has also increased the gas price from $268 per 1,000 cubic metres to $485, the highest in Europe. The White House said the move was a “tool of coercion”, not market pricing.

Financial markets have taken a nonchalant view of the crisis, betting that Mr Putin will get away with taking Crimea, with business returning to normal quickly.

“Investors are playing down the risks,” said Chris Weafer, from Macro Advisory in Moscow. “They think NATO is talking its own book with its hard-line rhetoric and that the defence companies can now frighten politicians into beefing up military budgets. The really cynical market view is that it’s all a godsend for the defence industry and we could even see a little boom.”

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