* West threatens sanctions over Crimea crisis
* Russian officials outline possible retaliation
* Russian economy faces growing difficulties
By Elizabeth Piper and Darya Korsunskaya
MOSCOW, March 5 Asset confiscations, non-payment
of debts and rejection of the dollar - Russian officials have
promised to retaliate if the United States and European Union
impose sanctions over its seizure of Ukraine's Crimea region.
But the tough talk and President Vladimir Putin's
exaggerated lack of concern about possible sanctions ignore the
reality that even by talking about such moves, Washington and
Brussels have hit him where it hurts - the faltering economy.
A drive to isolate Moscow over what the West says is its
military seizure of neighbouring Ukraine's Crimea region has
accelerated capital flight, tainted the investment climate and
forced Russians to pay more for everyday goods.
"It's a serious mistake. First, it has undermined confidence
in the rouble," said Konstantin Remchukov, editor-in-chief and
general director of Nesavisimaya Gazeta newspaper, questioning
the risks taken by the Kremlin in its Ukraine policy.
"Second it has undermined investment plans ... Third it has
hit in the pocket of people who are now paying more for a pack
of butter," he told Ekho Moskvy radio.
Putin has denied giving the orders in Crimea - where Russian
servicemen have been seen by reporters alongside armed men with
no insignia who control military installations and official
buildings - and warned that sanctions would hurt both sides.
Projecting Russia as a strong power able to take on Cold
War-era adversaries has helped push his popularity ratings up to
nearly 70 percent, but on Wednesday he signalled he may be more
worried about the impact on the fragile economy than he lets on.
On Monday, the central bank burned through $11 billion to
prop up the rouble and stock markets plunged 10-12 percent,
indicating little appetite for an economy which grew just 1.3
percent last year and is set to slow further.
"It's not necessary to add to the difficult situation. We
need to cooperate with all our traditional partners - while
providing for our interests, of course," Putin told a meeting of
his cabinet ministers.
"It is not necessary to whip things up and place political
considerations on top of issues of economic cooperation."
That was at odds with some loyal officials who touted a raft
of measures Russia could impose on foreign businesses - a
carrot-and-stick approach perhaps intended to keep Western
"We will have to respond," Foreign Ministry spokesman
Alexander Lukashevich said. "As always in such situations,
provoked by rash and irresponsible actions by Washington, we
stress: this is not our choice."
Kremlin aide Sergei Glazyev, often used by the authorities
to trail a hardline stance, said Moscow might be forced to drop
the dollar as a reserve currency and refuse to pay off any loans
to U.S. banks. The Kremlin quickly stepped in to say he was
expressing his personal opinion.
On Wednesday, RIA news agency quoted Andrei Klishas, head of
the constitutional legislation committee in the upper parliament
house, as saying lawmakers were working on a draft law to allow
the confiscation of property, assets and accounts of European or
U.S. companies if sanctions are were imposed.
The bill "would offer the president and government
opportunities to defend our sovereignty from threats", he said.
Moscow's firm stance has hardened attitudes in the West.
French Foreign Minister Laurent Fabius said European Union
leaders who will meet in Brussels on Thursday could decide on
sanctions against Russia if there is no "de-escalation" by then.
Such measures could include restrictions on visas, the assets of
individuals and EU economic negotiations, he said.
Washington has called off military cooperation, and frozen
trade talks with Moscow. Other members of the Group of Eight
most industrialised countries have pulled out of preparations
for a June meeting in Russia's Black Sea resort of Sochi.
While that has hurt sentiment, the consideration of measures
such as targeting Russian banks suspected of illicit financing,
or officials with visa bans and asset freezes, hits at the heart
of Putin's powerbase.
"If such a confrontation continues and the international
community assesses Russian actions in Ukraine as 'not playing
according to the rules', then there could be long-term economic
consequences in trying to attract capital, and in capital
flight," said MDM Bank chairman Oleg Vyugin, a former Russian
financial market regulator who now advises Morgan Stanley.
Former economy minister Andrei Nechayev said sanctions could
decimate the economy, especially if they required the early
repayment of loans. Foreign corporate debt stood at $750
billion, half of it owned by state banks and companies, he said.
"The authorities would hardly let them go bankrupt so would
have to cover their debts from foreign exchange reserves which
would lead to a sharp drop in the rouble," Nechayev said.
The rouble fell 2 percent against the dollar on Monday after
Putin said he had won approval to invade Ukraine if the
situation deteriorated there - a policy he has since defended
while saying force was a "last resort".
The Russian currency has stabilised since, largely thanks to
the central bank spending around $11 billion in foreign exchange
reserves to prop up the rouble on Monday. Only days ago the bank
head was talking up a currency she had hoped to float freely.
But it will do little to reassure many of Russia's middle
class voters, whom Putin won over in the early years of his rule
by establishing stability after the chaos unleashed when the
Soviet Union fell.
"It will hit the middle class," said Remchukov, adding that
many Russians see roubles in terms of foreign currency to buy
Western goods, such as clothing and food. "Therefore such a
sharp decline in revenues due to the devaluation of the rouble
.. is an irresponsible policy of our authorities."