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Global Sell-Off; Crimea Standoff; UN Security Council Meeting; Markets Down; EU Ministers Meet on Ukraine; Sanctions Threat; International Response to Russia; Former Georgia Prime Minister on Ukraine Crisis; Russian Markets Reaction; "Isolating" Russia Economically

Aired March 3, 2014 - 16:00   ET



RICHARD QUEST, HOST: It is a global sell-off. The crisis in Ukraine is hitting the financial market. From Europe to Russia to the United States, markets are off very sharply. It is Monday, it is the 3rd of March.

Tonight, Russia tightens its squeeze on Ukraine. In the last hour, its troops have crossed the border and seized control of Ukraine's border checkpoint.

Also, the United States warning Russia of political and economic isolation, and Russia is already paying the price. Stocks, bonds, and the ruble have plunged.

I'm Richard Quest in London. I mean business.

Good evening. The seriousness of the situation between Russia and the West over Ukraine, tonight we're dedicating the program to the entire issue, looking at it not only from the political and the geopolitical, but also the economic and the financial, as you'll hear over the next hour.

There are reports from Ukraine's Defense Ministry that Russian troops are entering the country by land and by sea. Russia's military intervention in the Crimean peninsula has already alarmed diplomats and investors and markets around the world.

President Barack Obama says the United States is examining economic and political options to isolate Russia, saying Moscow is clearing violating international law. US secretary of state John Kerry is expected in Kiev on Tuesday, when he'll be armed with an aid package for the country.

Meanwhile, across the markets, the crisis is triggering a massive sell-off. If you take a look at the numbers, in the US, the Dow, the NASDAQ and the S&P all closed down, nearly one percent, three quarters of a percent, three quarters of a percent.

But look at Europe. Get to grip with those numbers. The FTSE off 1.5, the DAX off 3.5 for reasons that we'll talk about later in the program. The Nikkei was down, even Australia was down as well. Across the world, the markets have been falling very sharply, indeed.

Our senior international correspondent Ben Wedeman is in the Crimean capital Simferopol and joins me now. Ben, the situation -- if you gauge it at the moment, how serious is it, and is it deteriorating?

BEN WEDEMAN, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, first of all, I'm Sevastopol, not Simferopol, but here, certainly, is where -- this is really the center of tension at the moment.

As we've been reporting today, according to an official at the Ukrainian Defense Ministry, a Russian official here in the Crimea gave an ultimatum to Ukrainian forces in the peninsula that they must surrender or face what he called a military storm if they do not surrender or swear their allegiance to the Crimea by 3:00 AM local time. That's five hours away.

Now, a Russian official has subsequently denied that such an ultimatum was made, but certainly these denials and claims and threats have certainly raised tensions quite markedly here. As we were driving into this city, there was a checkpoint set up by militia men armed with clubs. They were lighting the road with a bonfire.

There were also local police there, and they clearly were looking for people who might be coming to agitate. They were Russian sympathizers, clearly. And we're also hearing reports of crowds outside the main office of the Ukrainian navy here in this city, as well, so tensions are high.

Earlier today, we were in the town of Kerch, which is in the far eastern part of the peninsula. There we ran into a contingent of about 100 soldiers who were guarding the main ferry port that goes directly across the water to a Russian port.

And there we spoke to a Russian official, his name was Aleksandr, and he quite openly said that he was with the Russian Black Sea fleet, that he had gone there with his men on the 1st of March. He said to protect Ukrainians. But clearly, the Russians are beginning to feel that they don't have to conceal their presence as they did before.

They had the trucks that had the markings of the Black Sea fleet as well, so not so mysterious, these men and green, as they were 24 hours ago, but definitely in this area, there are worries that if this ultimatum does, in fact, come to pass, it will come to pass right here. Richard?

QUEST: Ben Wedeman, who's in Sevastopol. Ben, thank you very much, indeed, in Crimea for us tonight. And we'll obviously come back to Ben the moment there's more to report.

In the last hour, we've been hearing from various ambassadors to the United Nations. We've already heard the Russian ambassador with a very robust defense of the actions being taken by the Russian Federation.

The US ambassador, Samantha Power, gave short shrift to most of those arguments. Isha Sesay is at the United Nations. Who's speaking now, and how -- is this classic Security Council, where it's argy-bargy, but we know how this is going to come out, because frankly, Russia has a veto on the Council?

ISHA SESAY, CNN INTERNATIONAL CORRESPONDENT: You said it, Richard. That is just the reality on the ground, that Russia is a permanent member of the Security Council wielding veto power, so we know at this stage, there are no votes, no talk of resolutions, nothing of that sort.

Right now, speaking at the UN Security Council is the UK ambassador to the United Nations, Mark Lyall Grant. He is addressing this open meeting of the Security Council. As you rightly said, some very strong rhetoric flying around the chamber so far today since this meeting got underway at 3:30 PM Eastern Time.

The Russian ambassador to the UN being very clear that he says Russia, basically, their actions are fully appropriate and legitimate, claiming that their actions are being taken to protect the lives of ethnic Russians and pro-Russian communities in the Crimea.

But Richard, you've said it best, short shrift from the US ambassador, Samantha Power, who came out and said the rhetoric being expressed by Russians is nothing short of self-serving and that the facts -- so-called facts put forward by the Russians are not based in any kind of reality. Listen, with the realty that Russia has a veto power --


QUEST: Let me just --

SESAY: -- this is a venting exercise. What else can we call it?

QUEST: Right. That was my -- that was going to be my question, well anticipated. Look, I know they have to go through this forum. The secretary-general of the UN has called for a de-escalation in the crisis, and I'm wondering, does the UN see a role for itself at this stage?

SESAY: Listen, I think the UN will say that the very fact that the international community more or less is united in its call for de- escalation and for cooler heads to prevail that they are, indeed, playing a role in the sense that the situation has not, apparently, on the ground, escalated further. So, the secretary-general --

QUEST: Right.

SESAY: -- in speaking to people from across the world would say that he is playing an active role. He's sent his envoy to the region, they are there, engaging with authorities in Kiev.

But do they think that here at the UN they have the leverage to really change the facts on the ground? I think if you cornered some international diplomats, they would say that pressure would have to come from elsewhere, like the G8, Richard.

QUEST: Right. Let me just -- OK, so, do we have any idea where the Chinese ambassador -- where China's at -- going to stand in this debate or in this hearing at the Security Council?

SESAY: Not entirely clear, but comments that we have heard from China on this day have suggested that they're broadly in agreement with Russia, but also saying that they believe that dialogue is the way out of this.

So, China not being entirely clear in their position, but definitely not separating themselves entirely from Russia, but also standing with the international community and repeating what we've heard over and over and over again that there is a need for dialogue to bring the situation under control.

QUEST: Isha, many thanks, Isha Sesay, who's at the United Nations. The markets that I showed you at the start of the program showed very sharp falls. The Dow Jones Industrials, it was off the worst of the day, down 153 points. It had been much farther down, but it is the best part of 1 percent.

Russia's stock market was down 10, 11 percent, 14 percent over the last few days so far. All the major European bourses were down. The worst losses were in Frankfurt, where the market was off 3.5 percent, give or take. Maribel Aber is at the New York Stock Exchange.

We know the damage that's been done, and we know the reason why -- in other words, Ukraine. But what's the driving force for this? What are people fearful of?

MARIBEL ABER, CNN BUSINESS CORRESPONDENT: People are fearful of what the uncertainty is in terms of whether this diplomacy will be effective, right? That's what people are really afraid of.

You're talking about these losses. We're talking about the sixth- worst sell-off of the year for blue chips, and again, pretty much a blood bath. A lot of red on the board. All 30 Dow components closing lower, lots of concerns about how the conflict will affect trade and the world's food supply also.

Concern about fear of contagion is really reminiscent of what we've seen in years past with the tensions in Greece, in Syria, in Egypt. And it was just a temporary hit to the US markets, but Richard, we're still seeing the same thing today because there's nothing investors hate more than uncertainty. You've said it before, and when faced with it, they usually err on the side of caution.

But on the flip side, there are others who could see this, really, as a buying opportunity in the coming days. So, we'll have to see where this turns.

QUEST: Whoa! Whoa! Get us a buying opportunity. But early to be talking about buying opportunity, surely.

ABER: Well, you've got the yins and the yangs out there, and some see this as might be the time to get in. But --

QUEST: Good point. Good point. There's always some -- the contrarians will always have their view. Maribel, many thanks. One other point to point out to you, gold was also up about 2.5 percent, oil was up about 1.5 percent. Those two numbers themselves -- oh, and bond yields on the US treasury was up. These all show you the flight to quality is beginning.

European Union foreign ministers are condemning the action in Ukraine. The EU's foreign affairs council held an emergency meeting and said afterwards Russia had committed a clear violation of Ukraine's sovereignty. EU's foreign policy head, Catherine Ashton, said there would be consequences if Russia did not deescalate the situation.


CATHERINE ASHTON, UE FOREIGN POLICY CHIEF: In the absence of de- escalating steps by Russia, the EU will decide what the consequences will be for bilateral relations between the European Union and Russia. We talked about the potential of suspending bilateral talks on visa matters and the new agreement, and we will consider targeted measures.


QUEST: Now, President Obama sent a clear warning, the Americans are ready to punish Russia for its actions.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: What we are also indicating to the Russians is that if, in fact, they continue on the current trajectory that they're on that we are examining a whole series of steps -- economic, diplomatic -- that will isolate Russia and will have a negative impact on the Russia's economy and its status in the world.


QUEST: So, when we talk about what they might do, it's not entirely clear what US sanctions against Russia would look like. US secretary of state John Kerry and various administration officials have said options could include travel restrictions on individual Russians and visa bans, trade isolation. There could also be action against Russian banks.

Also, Russia's position at the economic talk table could be on the line. The other 7 members of the G8 -- that of course includes the US, Britain, Canada, France, Germany, Italy, and Japan -- they've suspended preparations for an E -- for a G8 summit that was meant to be held in Sochi in June. It's the regular annual summit. Some are now calling for Russia's OECD candidacy to be suspended.

You're getting an idea of the sort of situation that exists out there tonight. Nicholas Burns is professor of diplomacy and international politics at Harvard University. He also served as US undersecretary of state for political affairs. He joins me now from Washington.

Nicholas Burns, the situation -- I've read your article in the newspaper. You put forward a variety of potential economic -- from trade to sanctions to asset freezes -- which do you think would be the most effective against Russia in this case?

NICHOLAS BURNS, PROFESSOR OF INTERNATIONAL POLITICS, HARVARD KENNEDY SCHOOL: I think that what President Putin fears the most is isolation, of losing some of that soft power that he thinks he gained at the Sochi Olympics. And certainly Russia needs to be integrated with the global economy, so there's a variety of things the administration could do, the United States and Europe could do, but they need to do it in unison, Richard.

The US and EU are going to be much more powerful in driving up the cost to Putin if we are symmetrical in what we do. There's not an indication that that's taking place. In fact --


QUEST: Well, let me jump on this.

BURNS: -- it looks like the Germans --

QUEST: Right --

BURNS: -- are much less aggressive than the Americans.

QUEST: Right, because the Germans have the most to lose in terms of business with Russia. And there are those, like Merkel, who says it's better to have Putin at the table at the G8 then to kick him out the door. Isn't this a classic case where Putin's hard line promises to reap more benefits than the West's dithering on a response?

BURNS: Well, not necessarily. Putin's in a strong position because he knows that the United States and NATO are not going to use military force. We don't have a security commitment to Ukraine. It would be nonsensical to create a major conflict over this issue.

So, what's in the arsenal? In the case of the United States, there are these Magnitsky sanctions that have already been voted upon by the US Congress in the last year. There's a second chapter that could be put forward, additional sanctions against oligarchs and some of the people who are high up in the Russian government.

Secondly, the US and Russia, Russia wants a bilateral investment treaty. Those talks could be suspended. Third, you talked about the OECD, the Organization of the Economic Cooperation and Development, we could derail Russia's membership plans. And there's the Sochi meeting, the G8 meeting in June.

All this does not constitute a policy that might stop Putin, but it will begin to isolate him and begin to drive up the cost, and I think that is the calculation that Washington is making, and they're hoping for strong support from Europe.

QUEST: These piecemeal sanctions and trade talks, they will take time to be agreed, even longer to come into effect, and be some time before the effect is felt, by which time, Crimea could have been annexed or at least a puppet regime could have been put into Crimea.

So, I ask you again, Nicholas Burns, why do you have hope that the West, led by the United States, will get their act together on this one?

BURNS: Well, I'm hoping. I didn't say I have hope. I am hoping that Europe will join the United States. I think there's two things to think about here. The key question now is, will President Putin stop in the Crimea and not extend his military force into Eastern Ukraine, where there are significant --

QUEST: Right.

BURNS: -- Russian ethnic populations in the big cities there. And the second question is, will the US and EU deliver substantial economic support to the new embattled government in Kiev.

QUEST: Right.

BURNS: That's what I think John Kerry is going to do tomorrow. So, you've got to do both things at once, support for Kiev and drive up the cost to the Russian government.

QUEST: Finally, do you think that there's any merit in doing some grandstanding, some public relations stunt? For example, requiring visa -- massive visa restrictions on oligarchs who've got expensive houses in fashionable parts of London and New York, those sort of things. Would that work?

BURNS: I'm not sure that would be the most important thing to do, but President Obama did say they're looking at a range of options. He's clearly hoping that President Putin's going to consider this very ill- advised and illegal invasion of the Crimea.

But if he doesn't reconsider it, and if the Russians stay where they are, I think that there will be consideration in Washington and in Europe to some of those sanctions on individual oligarchs, who are very tightly tied to the Russian government.

And it's going to be very important, Richard -- what we haven't talked about is that NATO reaffirmed its security commitment to its current members, particularly those in Central Europe, who used to be victims, part of the Warsaw Pact. I think you'll see the United States and Europe go that far as well.

QUEST: What, you mean the -- I forget which article it is, the article that basically says --

BURNS: Article 5.

QUEST: -- attack one and -- thank you for reminding me. I was going to say Article 4, but that's the IMF. Article 5, the bit that says attack one and you attack the rest of us. Do you see that being -- obviously, not in Ukraine's case, but in the case of those other countries which enjoy the protection of that umbrella?

BURNS: Well, I do. Ukraine is not part of this, it's not a member of NATO, but --


BURNS: -- Estonia, Latvia, and Lithuania are. And Poland is, of course, a member of NATO. There are ten countries from Central Europe admitted into NATO --

QUEST: Right.

BURNS: -- between 1997 and 2002, very important that the US and Western Europe reaffirm our security commitment so President Putin can be under no illusion that that is NATO territory.

QUEST: And former undersecretary of state for political affairs, good to have you, Nicholas Burns, on the program tonight. Thank you, sir --

BURNS: Thank you, Richard.

QUEST: -- for making such common sense --

BURNS: Thank you.

QUEST: -- and putting it into perspective for us. Ukraine's not the first former Soviet republic to feel the impact of Russian military force. Turn back the clock, August 2008, and I'm not talking about the financial crisis, I'm talking about the Russian tanks rolling across the border into Georgia. Georgia's prime minister about Moscow's conduct then and now, the former prime minister after the break.



QUEST: The crisis in Ukraine brings back memories of what happened in Georgia in August 2008. Conflict erupted when Russian tanks rolled across the border to back separatists in a disputed part of Georgia. The fighting was over after a few days, but Russian forces stayed on inside Georgia.

Gega Mgaloblishvili is Georgia's former ambassador to NATO and also former prime minister joins us now from Washington. Sir, what's your advice in this situation? The Russian troops are now already in Crimea, they are taking over various installations. What should the West do?

GEGA MGALOBLISHVILI, FORMER PRIME MINISTER OF GEORGIA: Well, Russian military aggression and invasion of a sovereign European state is a direct result of Putin being able to get away from the invasion and occupation of my country six years ago without paying any political price.

So, my fear is that if there is not very serious political consequences for Putin, what he's doing right now, then we can face a similar crisis --


MGALOBLISHVILI: -- in the other parts of Europe as well.

QUEST: All right, but since nobody is suggesting that the US and the EU go to battle militarily over this, we're talking about sanctions and economic effect. Will that work against a president like Putin? You know the man.

MGALOBLISHVILI: Definitely. Because, well, today I think that President Obama gave a very important message by underlining the political and economic isolation of Russia. I think that that's extremely important.

But what is more important is that what we are talking about today is Putin's very corrupt and kleptocratic regime that has most of its assets in the West, the US, and in Europe. And I think that going for individual sanctions, freezing assets for those who instigates the murders in Maidan

QUEST: OK, but --

MGALOBLISHVILI: -- and later who gave these orders to invade sovereign European states might bear some fruit. So again, revoking visa regimes or expanding the Magnitsky --

QUEST: Do you --

MGALOBLISHVILI: -- those type of -- yes?

QUEST: Do you -- well, yes, this is what we -- but everybody's talking about doing these things. Do you think, with your knowledge in having negotiated before, do you think the West has the stomach to not only to agree to do it, but to get on and actually do it?

MGALOBLISHVILI: Well, I think again, the main problem we are facing right now is that for lots of years, Putin was able not to pay any political price for invading the sovereign European nation six years ago.

He basically changed forcefully the borders of my country and he violated the international agreements that were subsequently signed between European Union, Russia, and Georgia with rolling the Russian military forces.

But because he was able to get back just in a few weeks business as usual, I think that the direct implication what he's doing right now in Ukraine. So --

QUEST: Right. Right, so --

MGALOBLISHVILI: -- that's why I think that US leadership is extremely important, US and the European concerted actions are extremely important in making the Russian administration to pay political price. I think that is most important step that could be taken right now.

QUEST: Ambassador, thank you for joining us. Thank you very much, indeed.


QUEST: Good, strong, robust point of view there from the former prime minister of Georgia and former Ambassador to NATO.

When we come back, the Russian economy, the Russian markets, and why they fell out of bed at what's happening.



QUEST: The Russian index of leading shares fell 10 percent. The Russian central bank raised interest rates dramatically to protect the economy whilst the currency, the ruble, sank to an all-time low against the dollar. The bank raised its key interest rate by 1.5 percent to 7 percent.

The Obama administration's threatening sanctions -- we've been talking about that this program. Vice President Joe Biden spoke by phone to Russia's prime minister, Dmitry Medvedev, and said if the situation's not resolved, then Russia could be isolated politically and economically.

What does all this mean? I spoke to Jim O'Neill, the former chairman of Goldman Sachs asset management. I asked him how the West could exploit weaknesses in the Russian economy.


JIM O'NEILL, FORMER CHAIRMAN, GOLDMAN SACHS (via telephone): It requires those countries which have the most to lose, potentially, being fully behind tough economic sanctions. Germany, of course, of the G7 countries, have particularly close economic ties with Russia and gets a lot of its energy from there.

So, in an attempt to try and promote very aggressive economic restrictions, got to make sure that Germany's onboard, because otherwise, it wouldn't matter that much to them.

QUEST: Is the Russian economy fairly resilient? What is the fundamental strength at the moment of the Russian economy?

O'NEILL: Last year growth was only 1.5 percent. So far this year, it doesn't look as though it's going to do a great deal better. But the biggest reason why it's probably slow is because of some of the consequences of the fatigue in oil prices.

And whenever you get a big spat involving an oil producer at the core, Russia itself, oil prices don't go down anymore. So we'd also want to be careful that we're not doing anything that's just going to push oil prices up.

QUEST: If oil goes up, that's a double-whammy for not only -- for the effectiveness, because Russia then gains more revenue, but also that higher oil price will slow down the fragility of growth that we've already got.

O'NEILL: One of the things that has been helping power the recovery in the West, I think, is underestimated, and that's the benefit of declining commodity prices. You look at this past six months or so, all G7 countries are showing signs of recovery.

And of course, all our domestic politicians are all claiming it's due to some special thing they've all done, but it might well just because of declining oil and other commodity prices. And if you start doing things to push them all the way back up, that really would be a big whammy. So, this has to be thought through carefully and not with just emotion and flow back to the Cold War.

QUEST: This Ukrainian crisis coming relatively out of nowhere is really, as I think the British foreign secretary made clear, the first major and most serious crisis of the century. Would you agree?

O'NEILL: I completely agree with that. And I think it -- to me, given where I've come from with the whole BRIC economic story, it symbolizes the hopelessness of modern global governments, and we need some dramatic -- obviously, we need something to be done about this situation, but it should be a symbol of having much smarter global governance keeping up with global economic changes.


QUEST: Jim O'Neill. Ukraine's former prime minister's pleading with the West to help protect her country from Russia. Yulia Tymoshenko has spoke exclusively to Christiane Amanpour. You'll hear that and the proposed ideas of the British and whether they include sanctions and visa restrictions. We'll show you, potentially, a leaked document after the break.


QUEST: Hello, I'm Richard Quest. There's more "Quest Means Business" in just a moment. This is CNN, and on this network, the news always comes first. Ukraine's defense ministry has told CNN, Russian troops are entering the country by land and by sea. An officer with the border patrol says heavily-armed personnel from the Russian Black Sea Fleet forced their way ashore in eastern Crimea. He says they attacked and overpowered the Ukrainian border post. President Obama says the United States is examining economic and political options to isolate Russia. He was speaking during a meeting with the Israeli Prime Minister Benjamin Netanyahu at the Oval Office. Mr. Obama said Moscow's actions in Crimea are a violation of international law. U.S. Secretary of State John Kerry is expected to arrive in Kiev on Tuesday. In South Africa, Oscar Pistorius has pleaded not guilty on the first day of his murder trial. The court heard testimony from one witness - a neighbor who said she heard gunshots and chilling screams the night Reeva Steenkamp was killed. A defense lawyer challenged the witness' version of events. The testimony of the witness continues on Tuesday. Ukraine's former prime minister Yulia Tymoshenko has appealed for international help. She spoke exclusively to my colleague Christiane Amanpour in the first international TV interview since the former prime minister was released from jail last week. Christiane's with me now from CNN New York. This is very interesting, isn't it, Christiane? Because here's a woman who says she doesn't necessarily want the top job now, but she's been quite blunt in what she wants everybody else to do.

CHRISTIANE AMANPOUR, CHIEF INTERNATIONAL CORRESPONDENT FOR CNN AND HOST OF CNN INTERNATIONAL'S "AMANPOUR" SHOW: That's exactly right. Because she is the main political player, she doesn't have an official role right now, but all those who are in the interim Ukrainian government are former strong and close colleagues of hers, and she is the political power player. Also, she has a history of contact with President Putin. Now, it's hard to know whether that is still valid, but she has had a political relationship with President Putin that dates back many years. And potentially what the West wants to happen which is for there to be some kind of either direct or mediated negotiations between Russia and Ukraine - - potentially Tymoshenko has a role to play in that. Now, she spoke to me earlier this morning and it was at a time when she had just received news that the Russian Duma, the Parliament, was debating a draft law that would enable - if employed, this law - to annex Crimea or any other such place. And she at that point literally begged the West to help and to prevent Crimea being gobbled up by Russia.


YULIA TYMOSHENKO, FORMER UKRAINIAN PRIME MINISTER, VIA TRANSLATOR: It is in hard times Ukraine is left on its own and is given to - and when Russia allowed to take away Crimea, then the world will change. And then, not only politics and life in Ukraine will change, but politics and life will change practically everywhere in the world, and then we have to accept, to state that in 21st century, one country, an aggressor, can violate all the international agreements, take away territories whenever she likes. We can't afford this in the world, that's why if the instruments of diplomacy won't work, if all negotiations or instruments won't work and personal relations with Mr. Putin won't work, the world has to supply strongest means.

AMANPOUR: Ms. Tymoshenko, you sound like you're raising the stakes and you are calling for the West - the United States, Britain, Europe - to use military force against Russia. Am I reading you correctly? Is that was what you're calling for?

TYMOSHENKO: I am asking all the world personally - every world leader - to use all the possibilities in order to avoid Ukraine using Crimea.


AMANPOUR: She also said that she had been addressing the Ukrainian people to ask and urge them to stay calm, to keep their cool and not to provide any pretext for any kind of provocation, to make Russia feel that it can expand its military intervention. And the worry, of course, is that that might expand -

QUEST: Right.

AMANPOUR: -- beyond Crimea.

QUEST: Now, Christiane, I want to show you this picture that's coming in to us this evening from CNN London. It's a first draft of a document being carried into number Ten Downing Street, supposedly - supposedly - it's one of these things where the press has seen somebody carrying a document - it says the U.K. should - it refers to support for visa restrictions, travel bans on key figures. But it states the U.K. should not support for now trade sanctions or close London's financial center to Russians. Christiane, when you put this sort of petty balking and the sort of discussion that'll now take place with Europeans and the U.S., and you compare it with the very dramatic sort of measures that Tymoshenko's looking for - they're gulfs apart, aren't they?

AMANPOUR: They do -

QUEST: -- they're absolutely, massively different.

AMANPOUR: Yes, they are massively different, and it's going to be very interesting to know the result of the talks between Secretary Kerry and members of the Ukrainian opposition - or the Ukrainian interim authorities - tomorrow in Kiev. Presumably Tymoshenko will be either involved or deeply, you know, sitting around the sidelines of that. Look, there are many people who are incredibly skeptical, and you've had some of them on your air and they've been voicing these opinions today, that there could be anything done by Europe that would really give Putin a scare. And they point to the fact that, you know, Putin, his trade with the U.S. amounts to about 2 percent or something, of course is much more between Europe and Russia, and therefore it really is up to Europe to take that political will and decision to cause itself some pain in the interests of the better good. So, yes, there is a big problem with the idea of economic sanctions because if that - I don't know anything about that letter - but if that letter is accurate, it shows that people want to start with other measures before ratcheting up to that sort of silver bullet of economic sanctions. Now, here in the United States, the State Department said that they are preparing sanctions against Russia because of Ukraine, and are ready to deploy them if necessary. We're not sure exactly what that means. But, Richard, you know because your show does this a lot. Russia's economy is intrinsically linked with that of the West - intricately linked - much more than it ever was under the Cold War of course. And, as you pointed out earlier in your talk with Mr. O'Neill, there are so many -


AMANPOUR: -- oligarchs and people who have so much money that is being sheltered in the West. And, you know, the question is will the West have the will to take the pain and to make difficult decisions.

QUEST: Right. Christiane, thank you. We can see the whole of your interview -


QUEST: -- with Tymoshenko in about 20 minutes from now. Ten p.m. in London and 11 p.m. in Berlin here on CNN. And we're going to pick up what Christiane was just talking about there. Ukraine economy was struggling even before this latest crisis. The Russian economy has got its own problems. In a moment, the head of Ukraine's Chamber of Commerce tells us how much worse it's getting now and what they need. "Quest Means Business" from London tonight.


QUEST: G7 finance ministers say they are committed to helping Ukraine's economy and they will offer strong financial backing, whichever way this plays out, what's left of Ukraine will certainly need some serious money from the IMF and the E.U. and of the G7. The former deputy managing director of the IMF, John Lipsky, told us what this probably will involve.


JOHN LIPSKY, FORMER DEPUTY MANAGING DIRECTOR, IMF: The solutions to their problems are very clear and achievable if there's a will to achieve them. And generally speaking, if the problem is a financial bridge where there's a will, there's a way. So, if there was a government willing to enact the very clear economic reforms that are necessary and doable, then I think the financing will be found.

QUEST: Right, but when you say the economic reforms that are doable or necessary - which ones are there? I mean, we always get into this sort of woolly, phraseology of, you know, competitiveness -

LIPSKY: Oh, no.

QUEST: -- and all of the usual stuff. What're we talking about, John?

LIPSKY: Four policy measures are critical in Ukraine. First, hate to say it, Richard, but it's true - a competitive exchange rate. But of course the exchange rate has now fallen 20 percent over the past few months, so that's not a problem today. Secondly, they have to have a rational pricing policy for energy. They're spending about 8 percent of GDP on subsidies that are being wasted. They need to clean up the banking system and they need to institute a sustainable budgetary policy very much linked of course to the cost of the energy subsidies. All of these are concrete, all of these are doable, all of these are feasible. They just haven't been done up 'til now.

QUEST: This is austerity. This is a long word - a long way of saying - Ukraine is about to face its own version of austerity.

LIPSKY: Well, they're running a current account deficit of nearly 8 percent of GDP, they're running a budget deficit from when you include the energy subsidies of about 8 percent of GDP, their international reserves have dwindled to near nothing, and of course adjustments have to be made. They were -- they were running policy -


QUEST: Let's leave John Lipsky there for the moment and join the Ukraine ambassador to the United Nations.


YURIY SERGEYEV, UKRAINIAN AMBASSADOR TO THE UNITED NATIONS, VIA TRANSLATOR): -- helps on the Security Council, Madam, to exert all possible efforts on the international levels in order to - to guarantee the protection of the Ukrainian people, the sovereignty of my country and its territorial integrity. (WITHOUT TRANSLATOR): At the beginning of this session, we had the (inaudible) of the distinguished representation of Russian Federation with great attention. Unfortunately, we still have not received any compelling answer to the simple question - why are the military forces of Russian Federation illegally occupying Crimea and brutally violating international law and bilateral agreements? I would like to remind you that according to the Budapest Memorandum, when security assurances signed in 1994 between Ukraine and guaranteeing states including Russia itself, my country has got rid of its nuclear arsenals to Russia where Russia inter alia obliged to refrain from the threat or use of threat of force against the territorial integrity or political independence of Ukraine. In this regard, I want to underline that by this aggression, the Russian Federation is undermining the (inaudible) regime generally. I wish to brief you on the most recent development on the territory of the autonomous republic of Crimea, Ukraine. As of today, beginning from 24 February, approximately 16,000 Russian troops have been deployed in Crimea by the military ships, helicopters, cargo airplanes from the neighboring territory of the Russian Federation. The Russian troops keep taking their attempts to seize, block and control crucial governmental and military objects of Ukraine in Crimea. The Parliament of Crimea, (Inaudible) and military airports, means of communications, radio stations, custom service, military and coast guard bases, headquarters of Ukraine's navy in Crimea. All main roads are blocked. Accumulation of the Russian Federation troops and military equipment along the eastern border of Ukraine clearly indicates Russia's preparation for a possible military intervention into Ukraine - the outer parts of our country. So far, Ukraine and armed forces have exercised restraint and refrained from active resistance to the aggression although they are in full operational readiness. The Russian Federation is performing active informational and psychology operations in the outermost Republic of Crimea as well as in the southeastern regions of Ukraine. They are aimed at discrediting legitimate authorities of Ukraine and misleading public opinion by calling Russia intervention a peacekeeping operation. The minister of the interior of Ukraine announced today the information on possible provocative acts by the Russian side on the territory of Crimea. Tonight, unknown armed persons are planning to attack and possibly kill Russian soldiers, presenting it as if the attack was committed by Ukraine inside (ph). This is going to be used as an excuse for the ongoing armed intervention by Russia against Ukraine. Russian Federation is concerned of human rights and freedoms of the ethnic Russians in the territory of Ukraine. I would like to inform you that this is the obligations of our government, of our people, to care about that. We do not need the external help. We agreed with our minister when he first (ph) agreed with the high commissioner of OSCE on National Minorities to provide observing commission to - in Crimea. Once again, we are calling upon Security Council members to authorize international mediation and monitoring commission to Crimea as well to monitor the situation of human rights of Russian ethnics, other ethnic groups and so-called Russian-speaking persons. I'm also Russian-speaking persons, but I do not need any support. My appeal to the Russian Federation - do demonstrate that you are still a respected permanent member of the Security Council. Do not undermine authority of and confidence in this universal body. I know that we have within the media some Russian companies and one Ukraine organization (ph). Let's, with your permission, I will continue in Russian. (VIA TRANSLATOR): I would like to congratulate all Russian Christians with the fast and call on them - all of the leaders of the church - to pray and to consult God and to listen to us. In your attempts to explain the reason for the presence of Russian troops in Crimea as peacekeepers, unfortunately, and we heard this from many who spoke today, these acts are seen as aggression and provocation of a large scale armed conflict in Ukraine. It's unacceptable for a state that is one of the guarantors of our sovereignty and the territorial integrity under the bed (ph) of Budapest agreements. And moreover, a permanent member of the Security Council which shares with other - with other states, member states - a very important function. One to support peace and stability throughout the world. None of your reasoning about the legitimacy of the invasion into Ukraine can be condoned from the standpoint of the U.N. charter. All the arguments made by Russia on protecting the Russian population, for example, which supposedly condones military intervention, this is a question that is totally the internal purview of the citizens of Ukraine, its government and should be done under a constitution. All citizens regardless of their ethnicity or nationality have equal rights. Only the Ukrainian Parliament under the constitution of Ukraine can take decisions. Do we need military assistance to handle such humanitarian questions? I've already said that we don't need that type of assistance. You continue to reference the agreement of 21st of February as the foundation for settlement of the crisis in Ukraine. We're deeply surprised by this type of reasoning. The Russian side which participated in the mediation talks, in the preparation of this and together with our partners with the European countries refrained from the principle of signing this agreement and not even recognizing it in this way. And moreover, in your opinion, in how could this be implement - this agreement in this context that you're talking about - if one of the major players - President Yanukovych -- left the capital and in fact refused to implement his constitutional function. You continue to call what happened in Ukraine as a state coup d'etat. In the democratic world, there's a more exact definition - a revolution of dignity is what happened. We have different understandings about human rights from you. In November 2013, people of all nationalities went to protest in the streets without any people/officials telling them of any political parity to what to do. And moreover, without any - without any pressure from the West as you expressed it. People in November went out to defend their rights to a dignified life against a wretched, corrupt system, a system which had brought poverty in the eastern areas in the center and the south, had brought unemployment in the west. And in so doing, the former president Yanukovych who were defending, his relatives lived in luxury and we saw it - the whole world saw it on TV. You - today you reiterated what was said already in the statement by Minister Lavrov, to the effect that the government - the former government - used absolutely legitimate means in using discord (ph). This means on the night of the 30th of November to the 1st of December, overnight, that the peaceful protesting students who were truly beaten by the police violated the - their - rights and now they're being accused of violating rights. The police beat them, so the protesting people brought to Parliament a repressive law, one which limits their constitutional rights for freedom of speech, freedom of association, laws which limit the rights of the mass media and then public opinion spoken, Yanukovych should have eliminated that (inaudible). So, you are, I think - you are saying that something is wrong in your country. I'm sorry that you told something untrue about the Church. The Church - all denominations have been part of the people including the Ukrainian Orthodox Church which is canonically related to the Moscow patriarch - patriarchates. Once again, there's been an appeal to Christian Russia to stop and to pray for Ukraine. We made that appeal and to stop killing citizens. The Russian side (reasoned) its decision on the military intervention into Ukraine with the request that the minister of foreign affairs of (inaudible). He was appointed contrary to the constitution. He is not a legitimate leader of the administrative territory of - part - of Ukraine. Let me recall that we are a unitary state in Ukraine, and Crimea in its authorities is a member of the Federation. And without a central government saying troops can come in from Russia, we see it as aggression and unauthorized and even there in Crimea it's not supported by many of the people. So, (inaudible) in following the secretary general's - of the secretary general - I bring the people of the East into the work of the government - three ministers who were born in Russia. Currents - current - current cabinet membership of Ukraine - three were born in Russia. And some governors in those regions are people and some territory leaders of the eastern regions are also Russian speaking. And in spite of the existing economic difficulties in the country, the government of Ukraine is continuing to - is giving assistance to Crimea -- the National Bank of Ukraine gave support to the Crimean Bank - 400 million Hryvnias were given. Unfortunately, I have to note a fact of an unfair (gain/game) by Russia in the information space that also is helping destabilize the situation in our country. Many examples (inaudible) been given - I don't wish to reiterate them. But, we would like to take the opportunity of this meeting to once again call on our Russian partners to stop spreading untrue information. (WITHOUT TRANSLATOR): Finally, I would like to stress -


QUEST: That's the Ukrainian ambassador to the United Nations denying and defending the position against Russia and basically saying that all the arguments that were being put forward by Russia are incorrect. The (inaudible) Security Council. And now for viewers in Europe, it is Amanpour and for the rest of the world, we join Jake Tapper at our sister network in the United States.