It's crystal clear Ukraine has no interest in a ceasefire under any terms. Instead it demands rebels lay down weapons and for Russia to stop intervention. In short, Ukraine demands surrender.

Thus death and destruction will continue, possibly long after Ukraine takes over Luhansk and Donetsk (or rather what's left of Luhansk and Donetsk).

Please consider Ukraine Says It Makes Gains Against Rebels in Luhansk.

The Ukrainian government said its forces took control of one of four districts in the pro-Russian separatist stronghold of Luhansk and are fighting in the city center as diplomatic efforts to end the conflict intensified.

European leaders are pushing to halt the conflict that’s killed more than 2,000 people and fractured Ukraine since Russia annexed Crimea in March.

“Ukraine’s armed forces have been beating the separatists for weeks now and are moving deeper into the east,” Karl-Heinz Kamp, academic director at the German government’s Federal Academy for Security Policy in Berlin, said by phone. “Something must have happened that’s boosting their fighting skills. My gut feeling -- and I don’t have any concrete evidence -- is that the Ukrainian forces are getting support from the outside.”

’s government says it will declare a truce only if the pro-Russian rebels lay down their arms and Russia stops supplying them with weapons. Russian Foreign Minister Sergei Lavrov, meeting with his Ukrainian, French and German counterparts in Berlin, repeated calls yesterday for an unconditional cease-fire. Russia denies it’s aiding the rebels.

Ukraine Rates

The conflict has cost Ukraine $8 billion, Prime Minister Arseniy Yatsenyuk was quoted as saying today by the Unian newswire. Ukraine’s central bank raised its overnight refinancing rate to 17.5 percent today from 15 percent as it seeks to support the hryvnia. The Ukrainian currency fell as much as 1.6 percent before trading little changed at to 13.03 per dollar, taking its decline for the month to 5.8 percent.

Hryvnia vs. US Dollar

From mid-2007 the hryvnia crashed from 4.50 to the US dollar to 13.03 to the US dollar. That is a decline of 65%.

Given that Ukraine's external debt is not priced in hryvnia, but rather euros or US dollars, this currency decline really hurts.

Ukraine External Debt

Rule: When you have massive (relative to the size of your economy), external debts denominated in foreign currencies, very bad things happen.

Ukraine's external debt as valued in US dollars has risen from under $40 billion in 2005 to nearly $140 billion today. Yet, I hear no mainstream media reporting on how Ukraine is supposed to pay this back.

Here's a hint. It can't.

And that is why interest rates are totally out of control, and why Ukraine will be beholden to the IMF and other creditors for decades unless it defaults.

As we all know ... This is a "small price" to pay for "peace".
And in case you missed it, please consider the Rule of Small Prices.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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