Economy

(Reuters) -San Francisco Federal Reserve Bank President Mary Daly said on Wednesday she expects the U.S. central bank will need to raise rates at least four times this year, and likely more, to stop high inflation from getting worse.”There is broad agreement that inflation is too high and the policy rate is too low,” Daly said at the Los Angeles World Affairs Council & Town Hall. It is important, she told reporters after the event, to have “a little more urgency” on raising interest rates; a rate hike every other meeting “doesn’t satisfy the moment,” she said, and neither does waiting until later in the year to start reducing the Fed’s $9 trillion balance sheet.Daly’s embrace Wednesday of a series of four or more rate hikes was a notably hawkish shift from her previous support for a less aggressive stance. She also said the Fed may need to consider a bigger-than-usual half-percentage-point rate hike down the road, although for now quarter-point rate hikes remain her expectation.”Raising rates at least four times — at least — would be my preference, but it most likely will need more than that” to bring demand back into line with supply — unless consumer demand falls more than she expects, or supply chains get fixed faster than she anticipates. Financial conditions are more accommodative now than they should be, given the strength of the economy and the pace of job gains, she said. And while the geopolitical situation with Ukraine and Russia adds to uncertainty, she said, it will not change the Fed’s plans to raise rates unless conditions get sharply worse. Once the Fed has begun raising rates, she said, it will then begin to reduce its $9 trillion balance sheet, a process that will further tighten policy, and work to slow inflation. Inflation by the Fed’s preferred gauge, the personal consumption expenditures (PCE) price index, rose 5.75% last year, the highest in about 40 years and more than twice the Fed’s 2% goal. “We need to demonstrate to the American people that we are committed to having that not be a perpetuating spiral,” Daly said. Still, she said, raising rates does not mean the Fed is slamming on the brakes, but rather allows economic growth to continue by easing inflation.”The last thing you want is an economy that’s going too fast, overruns what’s possible, and then you do have to bridle it back; but that’s not where we are at,” she said. “We’re doing the handoff from intense COVID-related support to gradually moving the policy rate up and getting this policy accommodation right-sized for the economy that we have.” Eventually, Daly said, she does expect pandemic-disrupted supply chains to heal and at least some workers to return to the labor force as public health improves, so for now there’s little need for the Fed to raise rates steeply.”If we run first and do everything at once… then we will have overcorrected,” she said. “We need to get policy in line, but we can’t be impatient about doing it all today.”Among data she’ll be watching, she said, is the transition from pandemic COVID-19 to an endemic state; how quickly disrupted supply chains recover; how rapidly workers sidelined by COVID-19 return to the workforce; and how quickly the fiscal support that bolstered the economy’s recovery from the pandemic shutdowns fades.TRANSPARENCYDaly also expressed hope that the Fed’s ability to communicate its inflation-fighting intentions and thus shape inflation expectations will keep an upward price spiral from taking hold as it did in the 1970s.Back then, she said, the more prices rose, the more people expected them to continue to rise, and the Fed — as was its custom – offered little guidance on what it would do in response. The Fed would have policy meetings, but did not even announce their decisions afterwards, for instance.That silence, she said, allowed the situation to snowball: inflation continued its rise until the Fed put in a series of steep interest rate hikes that knocked it back but also sent the economy into recession.Since then, she said, things have changed – not just in the economy itself, but more importantly with the Fed’s approach to communications. The central bank now has a 2% target for inflation and an explicit framework for adjusting policy to reach its goals; it publishes Fed policymaker forecasts, and policymakers like Daly routinely go out and give speeches about their views. That transparency, she said, has locked down inflation expectations despite the current rise in actual inflation, potentially reducing the need for the kind of aggressive action needed decades ago.”Greater transparency and a strong commitment to achieving our goals assures Americans that periods of high inflation or unemployment will not last forever; that there is an end in sight.” More

The Kremlin said two Moscow-backed separatist territories in eastern Ukraine had asked Vladimir Putin to “repel the aggression of the Ukrainian regime”, in the strongest signal yet that Russia is about to launch a full invasion of the country. Russian newswires published letters on Wednesday in which the leaders of the breakaway statelets in the Donbas border region asked Russia’s president to use military force to protect them from what they described as “ongoing military aggression” by Ukraine. Kyiv and its western allies say the claims of a Ukrainian attack — which have been spread widely on Russian state television, backed up by little or no evidence — are “phoney allegations” meant to create a pretext for war.Ukraine’s parliament late on Wednesday approved President Volodymyr Zelensky’s decree calling for declaring a “state of emergency” with 335 MPs voting in favour, more than a constitutional majority.Putin has repeatedly denied he is planning to invade Ukraine but demanded that Kyiv “demilitarise,” surrender the entire Donbas border region to the separatists, and declare neutrality.US stocks closed at their lowest levels since last June as tensions escalated between Russia and the west over Ukraine, exacerbating a sell-off that has taken the benchmark S&P 500 index deeper into correction territory.FT.com has the latest news on the Ukraine conflict. Explainer: Kyiv has few ways to respond beyond bolstering its defences.Sanctions: Vladimir Putin’s chief of staff and his defence minister have been blacklisted by the EU as part of the bloc’s first round of sanctions. Plus, fresh US sanctions imposed on Russian bonds add “more teeth” to existing curbs.Opinion: The UK’s weak initial response risks emboldening Putin’s coercive diplomacy, writes our editorial board. Russian banks are getting off lightly, says our Lex column.Thanks for reading FirstFT Asia. What questions do you have about the crisis in Ukraine? Share them with us at [email protected] — Emily Five more stories in the news1. Traders leave US penny stocks in sign speculative fever is cooling Trading in unlisted US shares has dropped almost three-quarters from its peak at the height of last year’s retail trading frenzy, as investors rein in speculative bets and regulators crack down on potential fraud in penny stocks.2. The world’s first quantum gravity sensor Birmingham university researchers and their industrial partners have demonstrated what they say is the world’s first quantum gravity sensor that works reliably in the real world, detecting subterranean structures outside tightly controlled lab conditions. Construction and infrastructure projects could be a key application of the technology. 3. Turkey set to ban German and US public broadcasters Two international public broadcasters are facing an imminent ban in Turkey after defying a demand from authorities that they described as “censorship”.4. Rio Tinto to pay $7.7bn final dividend as earnings soar Since the onset of the coronavirus pandemic, the mining sector has emerged as the dividend-paying powerhouse of the London stock market, returning huge sums of cash from record raw material prices.5. India’s IT sector grapples with hiring ‘crisis’ The India chief executive of software giant Salesforce said the country’s IT sector was suffering a skills shortage “crisis” as companies struggled to meet surging demand and compete with well-funded tech start-ups for workers.Coronavirus digestHong Kong launched a new round of financial handouts as the city struggles to contain China’s biggest outbreak of coronavirus since the start of the pandemic, even as economists warned the city’s zero-Covid strategy was “unsustainable”.Sanofi and GlaxoSmithKline will apply for regulatory approval of their long-awaited Covid-19 vaccine as a primary jab and booster, after reporting an overall efficacy rate of 57.9 per cent.The World Health Organization is establishing a South Korea facility to provide training for drug manufacturing in poorer countries to increase local production, combat chronic diseases and enhance preparation for future health crises.Employers warned they will be flying blind when all restrictions in England end as the government has not issued workplace safety guidance.Opinion: A mass return to the workplace brings a much-misunderstood area of risk to all careers: the work social event.

Conduct or conversation that is beyond the pale in the office is equally unacceptable at the party © Getty Images

The day aheadJimmy Lai in court The national security case of the media tycoon and other former Apple Daily associates is expected to resume in courtSouth Korea interest rate decision Policymakers are expected to keep interest rates on hold after raising rates at the previous two meetings. Rate hikes are expected to resume in the second quarter. (Yahoo Finance) EU summit in Brussels EU leaders are planning to convene to discuss the escalating crisis in Ukraine. Charles Michel, European Council president, told EU leaders that he wanted to meet in Brussels to “jointly define our collective approach and actions”.Join Financial Times journalists and leading experts on February 25 at 13:00 GMT for an unmissable virtual briefing, Russia-Ukraine Conflict: What Next? Register free here.What else we’re reading Ukraine crisis saddles Washington with Indo-Pacific dilemma In capitals from Canberra to Tokyo, the spectre of a Russian attack on Ukraine has diverted attention from the Indo-Pacific strategy — which the Biden administration published this month — to the fact that the US is again focusing its efforts elsewhere.The monetarist dog is having its day Economists are being forced to relearn lessons about the importance of money supply. When people are holding more money than they desire, they want to get rid of it. This would lower the price of most assets, but the nominal price of money is fixed: a dollar is a dollar. The adjustment comes via higher prices for everything else — or inflation, writes Martin Wolf.

Martin Wolf: ‘A big lesson of history is that if economists think they understand how the macroeconomy works, they will be wrong’ © James Ferguson

Carl Icahn’s push for happier McDonald’s pigs is just the start Single issue charities and activist hedge funds have long sought to use US annual general meetings to demand change. Now, they are getting backing from a much wider range of investors who won’t sit by idly when companies fail to match stakeholder rhetoric and ESG promises with genuine action.Real-world profits in the metaverse Retailers such as Forever 21, Nike and Chipotle are creating virtual world stores in a bet it can boost profits. But is it a gimmick, or will the metaverse allow for the creation of low-overhead, high-margin ecommerce businesses that will transform global retail?The rise of ‘wellness’ apartments For some, “wellness” isn’t merely an ill-defined buzzword, it’s a way of life. And property developers have been rushing to cash in. By one estimate there are now more than 2,300 “wellness residential projects” around the world that are either built, partially built, or in development. But buyers face hefty premiums.TelevisionConflicts come to a head in Peaky Blinders’ final series, which makes its debut on BBC1 this weekend. This season, the last battle looms for Cillian Murphy’s gangster Tommy Shelby as he moves across the Atlantic. Critic Dan Einav gives it four stars in his review.

Cillian Murphy returns as a more composed Tommy © BBC/Caryn Mandabach Productions More

Whether you call it a correction or a panic attack, a stock market that was already becoming shaky has been roiled by Russia’s hostilities toward Ukraine.The U.S. stock market has been stumbling since the beginning of the year. Now, Russia’s escalating conflict with Ukraine is adding considerably to the market’s problems.After President Vladimir V. Putin of Russia ordered troops to enter two separatist-controlled enclaves in Ukraine, the S&P 500, which often serves as a proxy for the U.S. stock market, also crossed a notable threshold.On Tuesday, the S&P 500 fell to 4,304.76, down 1.01 percent for the day. That wasn’t much of a loss, but it nonetheless represented a notable milestone. It brought the stock market down 10.3 percent from its most recent peak on Jan. 3.On Wednesday, the index dropped another 1.84 percent, bringing its losses from the record to 11.9 percent.In Wall Street jargon, that meant the S&P 500 is in a “correction,” because its losses since Jan. 3 exceeded 10 percent.That 10 percent definition is entirely arbitrary and the subject of many quibbles, but this much is clear: A correction is not a good thing.“It’s an early warning indicator that tells you the market isn’t heading in the direction you want it to be going in,” said Edward Yardeni, an independent Wall Street economist who has compiled detailed records on modern stock market history. “A 10 percent decline isn’t that bad in itself, necessarily, but if the market keeps heading down, the next thing you know, you’re down 20 percent and then by common agreement you’re in a bear market, and, maybe, worrying about a recession.”

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Recent S&P 500 Corrections
Note: Bear markets are highlighted in red. The low point of the correction from the peak on Jan. 3, 2022, has yet to be determined. Source: Yardeni ResearchBy The New York TimesWhat makes the market decline disconcerting is that an escalating geopolitical conflict in Eastern Europe is now being added to the stock market’s ample woes.Stocks have been falling for weeks, for a variety of reasons. Concerns about the prospect of rising interest rates and generally tighter monetary policy from the Federal Reserve are at the top of my personal list.The Fed is, perhaps belatedly, planning at its meeting on March 15-16 to start increasing its benchmark funds rate from its current near-zero level, and then to begin reducing its $8.9 trillion balance sheet. All that is intended to mitigate the inflation that is running at an annual rate of 7.5 percent, a 40-year high.In addition, the death, illness and inconvenience caused by the coronavirus pandemic have had myriad pernicious effects. The labor force in the United States is smaller than it would be otherwise, and the economy’s service sector hasn’t fully rebounded. The pandemic has also caused supply chain bottlenecks that have held back sales and production and increased the prices of important products as varied as automobiles and kitchen appliances.Many publicly traded companies are circumventing these problems and passing the associated costs on to consumers, but their ability to keep doing so, while generating the profits that fuel the stock market, is questionable.The Russia-Ukraine crisis threatens to make matters worse for the economy and the markets. Russia produces important commodities, like palladium, which is needed in the catalytic converters of gasoline-powered automobiles, and whose prices have contributed to the high inflation in the United States.The anticipation of interruptions in commodity supplies has increased prices in futures markets, particularly for oil and natural gas, all of which could go much higher if the Ukraine crisis intensifies and if Western sanctions begin to bite.For those who remember the 1970s and early 1980s, an era of soaring inflation and multiple recessions caused in part by a geopolitical shift and two oil shocks, the possibility of a 2020s parallel is deeply disturbing.So is the fact that Russia is a nuclear power engaging in aggressive action against an independent country that is supported by NATO. The possibility that the conflict could be the start of a new Cold War, or something even worse, can’t be totally dismissed.That said, for investors, it’s worth remembering that since the stock market hit bottom in March 2020, the S&P 500 rose 114.4 percent through Jan. 3. Compared with that stupendous increase, the market’s decline since then has been inconsequential.S&P 500Since the beginning of the coronavirus pandemic

Source: RefinitivBy The New York TimesWhat’s more, although just about everyone who closely follows the stock market agrees that it has had a correction, there is no agreement on when it took place. Laszlo Birinyi, who began analyzing the market with Salomon Brothers back in 1976, says a correction happens whenever the market crosses the 10 percent border, whether it’s at the end of the trading day or in the middle of it.That’s why Mr. Birinyi, who heads his own independent stock market research firm, Birinyi Associates, in Westport, Conn., says a market correction occurred on Jan. 24, not on Tuesday. The market at one point on Jan. 24 dropped as far as 12 percent below its close on Jan. 3 before rebounding smartly. “The psychology of the market, the mood, shifted then,” Mr. Birinyi said. “People were panicky until then — and then they weren’t.”The Ukraine Crisis’s Effect on the Global EconomyCard 1 of 6A rising concern. More

Companies signed up for $8.3 billion in new loans, leases and lines of credit last month, compared with $8.1 billion a year earlier. Borrowings rose 2% from December.”Despite persistent supply chain disruptions in several collateral categories and nagging inflation, the equipment finance industry picks up in January where it left off last year,” said Ralph Petta, ELFA’s chief executive officer, in a statement.ELFA, which reports economic activity for the nearly $1-trillion equipment finance sector, said credit approvals totaled 78.4%, marginally down from 78.6% in December.The Washington-based body’s leasing and finance index measures the volume of commercial equipment financed in the United States.The index is based on a survey of 25 members, including Bank of America Corp (NYSE:BAC), CIT Group (NYSE:CIT) Inc and financing affiliates or units of Caterpillar Inc (NYSE:CAT), Dell Technologies (NYSE:DELL) Inc, Siemens AG (OTC:SIEGY), Canon Inc and Volvo AB (OTC:VLVLY).The Equipment Leasing & Finance Foundation, ELFA’s non-profit affiliate, said its confidence index for February was at 61.8%, down from 63.9% in January. A reading above 50 indicates a positive business outlook. More

Wrestling like peers with rising costs for raw materials, energy, labour and logistics, Pirelli trimmed the top of its operating profit margin outlook for 2022.”Pirelli will respond to a challenging 2022 by strengthening the levers already foreseen in the industrial plan,” it said.The group said it would take “an even more selective approach … in original equipment” and focus “on bigger rims sizes and specialties, particularly electric”.The manufacturer of tyres for Formula One and high-end carmakers such as BMW and Audi lifted its revenue outlook for 2022 to between around 5.6-5.7 billion euros ($6.34-$6.45 billion) from a previous range of between 5.1-5.3 billion.However, it said its adjusted operating profit margin would be between around 16% and 16.5%.That compares with between around 16% and 17%, previously.Pirelli forecast a net cash generation before dividends of between around 450 million and 480 million euros. Pirelli, which manufactures in Russia 10% of its global tyres output, said it had analysed the potential impact on local operations linked to import and export to and from Russia of raw materials and finished goods.”Assuming that the cost of oil and energy will remain at current levels from March 2022 to the end of the year … it is estimated that the guidance for profitability and cash generation will be positioned in the lower part of the range,” it said.That would entail an adjusted operating profit of around 890 million euros and cash generation before dividends of around 450 million euro, it said.Milan-based Pirelli runs the Kirov and Voronezh plants in Russia, with its business in the country accounting for about 3-4% of the overall turnover. The company posted a 2021 operating profit of 815.8 million euros, up 62.8% compared with 2020 and slightly higher than a company-provided analyst consensus of 807 million euros thanks to an improvement of price/mix and cost cuts.($1 = 0.8839 euros) More

Good evening,Optimism that the global economy could be recovering from its pandemic-induced trauma is being severely tested by the unfolding Ukraine crisis. Russia’s movement of troops into Ukraine’s separatist regions have triggered sanctions that are likely to exacerbate the existing problems of rising energy prices and inflation, prompting sharp swings in share prices.Advanced countries have the capacity to cope, the FT’s economics editor Chris Giles writes, but Russia’s actions increase uncertainty over when central banks should tighten monetary policy.Meanwhile, the easing of pandemic restrictions in Europe, the US and elsewhere is raising business confidence, particularly in the travel and hospitality sector, although supply chain bottlenecks are frustrating the recovery for others. Heathrow, the UK’s busiest airport, predicted a surge in travellers getting away this summer and chief executive John Holland-Kaye said a third runway was “back on the table” to capitalise on the airline industry’s emergence from the ravages of lockdown. Equally bullish was InterContinental Hotels Group, the owner of the Holiday Inn and Crowne Plaza chains, which said business was “closer to pre-pandemic levels” in 2021.Arundhati Bhattacharya, Salesforce’s India chief executive, said that her company was struggling to fill roles, as pandemic-fuelled demand for remote back office support had created skills shortages in the country.The do-it-yourself frenzy brought on by the coronavirus pandemic has helped Home Depot. But despite resilient consumer demand, the Atlanta-based retailer warned yesterday that elevated supply chain costs would continue to weigh on profits in 2022.The road to recovery was going to bumpy even before the Ukraine crisis erupted. Now the path forward has become even less certain.Don’t miss our subscriber-only event “The Russia-Ukraine Conflict: What Next?” this Friday at 1pm GMT. Register free here for this unmissable virtual briefing, featuring Financial Times journalists and leading experts, including Arseniy Yatseniuk, the former prime minister of Ukraine, and Gideon Rachman, our chief foreign affairs commentator.Latest newsEU to hit Putin’s defence minister and chief of staff with sanctionsHong Kong to give out cash handouts as Covid cases hit record levelBarclays’ quarterly profit surges as dealmaking boosts investment bankFor up-to-the-minute news updates, visit our live blogNeed to know: the economyImposing sanctions on Russia poses a threat to the global economy. But the cautious, narrowly targeted measures announced over the last 24 hours will have little impact on Moscow, which can absorb significant economic pain, according to the latest Trade Secrets column by the FT’s senior trade writer Alan Beattie. You can sign up for Alan’s weekly Trade Secrets newsletter here.Latest for the UK and EuropeThe IMF has urged Rishi Sunak to bring forward planned tax rises to limit the risk of persistently high inflation, even though it would tighten the financial squeeze on Britain’s households. The fund added that in the short term the Bank of England should not increase interest rates rapidly — a view shared by the BoE’s deputy governor — as this could risk tipping the economy into recession.The UK government has also been criticised by a parliamentary committee for exposing taxpayers to “substantial, long-term financial risks” because of an estimated £15bn of Covid support lost to fraud and administrative errors. Future generations will be left to pay for these “unacceptable” sums that were “risked and lost” by ministers, according to the House of Commons public accounts committee report.Global latestYears of progress in tackling infectious diseases in the world’s poorest countries have been wiped out by the shift in resources to tackle the pandemic and subsequent disruption to treatments, experts have warned. Many fear that the disruption to treatments caused by lockdowns and the loss of funding to Covid prevention strategies will mean that deaths from HIV, tuberculosis and malaria in some nations are now on track to exceed those caused by the pandemic so far. However, the picture is not entirely bleak, with new approaches developed during the pandemic proving their worth.Need to know: businessSurging prices for raw materials enabled Rio Tinto to make the second-biggest payout in UK corporate history on the back of bumper results. Rio investors will receive a total of $16.8bn (£12.3bn) for the 2021 financial year.Aston Martin narrowed its losses in 2021 as revenues climbed back above pre-pandemic levels, boosted by customer deposits for its high-price special cars and increased demand for its luxury sport utility vehicle.HSBC reported buoyant fourth-quarter earnings yesterday, showing that the bank is recovering from the worst of the pandemic and is optimistic about growth, with interest rates set to rise. However, the London-listed lender set aside $451mn as it braced for more defaults in the troubled Chinese real estate sector and warned of a slowdown in wealth management because of Hong Kong’s restrictive “zero Covid” strategy.The World of WorkThe return to the office brings with it hidden dangers. One major — and much misunderstood — area of risk to all careers is the work social event, according to leadership and diversity consultant Nels Abbey, who offers tips for navigating the office party.The return to the office also creates real legal concerns. Employers in England have warned that they will be flying blind from tomorrow when all pandemic restrictions end. The UK government has not issued new workplace safety guidance and is refusing to fund free workplace coronavirus testing beyond April 1.Get the latest worldwide picture with our vaccine trackerAnd finally . . . 

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The collapse of the blood-testing company Theranos and the conviction of its founder Elizabeth Holmes was hailed as both the end of tech’s “fake it till you make it” culture and of the dubious cultural phenomenon of the “girlboss”. But Elaine Moore, the San Francisco-based deputy head of Lex, finds that in her local start-up community there is no interest in learning lessons from the debacle. More

Large companies operating in the European Union could be held responsible for environmental violations or human rights abuses committed by businesses in their supply chains under a law proposed on Wednesday by the European Commission, the bloc’s administrative arm.“We can no longer turn a blind eye on what happens down our value chains,” said Didier Reynders, the European Union’s commissioner for justice.Under the legislation, known as a due diligence law, businesses would need to establish regulations to detect, prevent and mitigate breaches of human rights, such as child labor, as well as environmental hazards in their supply chains. National governments would define the financial penalties for companies violating the rules.Victims could sue for compensation in domestic courts of E.U. member nations, even if the harm occurred outside the bloc.The commission proposed the rules after some member nations, including Germany and France, introduced different versions of due diligence law at the national level.The legislation will now be discussed by the European Parliament and the 27 national governments, with all parties able to modify the language. The final draft will require passage by the E.U. lawmakers and member nations. The whole process could take a year or more.The proposal would initially apply to companies with more than 500 employees and annual revenue over 150 million euros (about $170 million), a group that includes about 10,000 E.U. businesses, about 1 percent of the total. Around 2,000 companies based outside the bloc but doing business in the European Union, amounting to an annual revenue of more than €150 million, would also be covered. After two years, the range would be expanded to include smaller businesses in so-called high-impact sectors, such as textiles, food products and mining.Businesses expressed concern over the proposal.“It is unrealistic to expect that European companies can control their entire value chains across the world,” said Pierre Gattaz, president of BusinessEurope, a trade organization. “Ultimately these proposals will harm our companies’ ability to remain competitive worldwide.”But Richard Gardiner of Global Witness said the legislation had the potential to become “a watershed moment for human rights and the climate crisis,” if the European Union resisted efforts to water down the proposed measures.“We’ve been investigating big corporations for decades, and when we reveal the harm they’re causing to people and planet, the response is invariably the same: ‘We weren’t aware,’” Mr. Gardiner said. “Today’s proposal from the commission may make that response illegal.”But some analysts remained skeptical, pointing out that the commission’s final proposal, which was delayed several times, is much less ambitious than what was initially planned.“This outcome is the result of an unprecedented level of corporate lobbying,” said Alberto Alemanno, a professor of European Union law at the business school HEC Paris. He said the final result “was downgraded into yet another narrow piece of tick-the-boxes compliance law.”Julia Linares Sabater, a senior officer at the WWF European Policy Office, said the businesses affected “represent a drop in the ocean of the E.U.’s total economy.”“The E.U. needs to be far more ambitious to successfully tackle the climate and biodiversity crises,” she added. More

BRUSSELS (Reuters) – The European Union will be ready to launch a second package of sanctions against Russia, including export controls, if Russian troops move beyond the Ukrainian regions held by Russian-backed separatists, European Commission Executive Vice President Valdis Dombrovskis told Reuters on Wednesday.Russian President Vladimir Putin on Monday recognised the independence of two breakaway regions in the Donbass region of eastern Ukraine that adjoin Russia.Moscow sent troops there on Tuesday, prompting the EU, the United States and Britain to slap sanctions on Russian politicians and banks and curbing the government’s ability to raise capital via the EU’s financial markets.But the EU is concerned Russia may continue its invasion beyond the areas controlled by the separatists and EU leaders will hold an emergency summit on Thursday to discuss what to do next.”Russia decided to go for a major escalation of this conflict by the recognition of the independence of the Donetsk and Lugansk Republics and clarifying that they mean this in the territory of not what is actually controlled by the so-called republics, but the entire Donbass territory, so we are facing a major escalation,” Dombrovskis said in an interview.”If there is further Russian aggression and further incursion into Ukraine territory we are willing to step up our response also in terms of sanctions.”Asked what such a stepping up would mean, Dombrovskis said:”It would concern economic sanctions in the area of trade, for example export controls. The EU has been working on a sanctions package for several weeks, so there are ways how we are able to act quickly and further step up sanctions and do this in cooperation with the United States, Britain and other countries.”He said the conflict, the sanctions and potential Russian counter-sanctions would have economic repercussions for the EU, but that the seriousness of what is at stake meant the 27-nation bloc would have to accept them.”Coming with strong sanctions against Russia is going to have some impact on the EU economy and we need to be ready for this,” Dombrovskis said.”But here we have the security and territorial integrity of Ukraine at stake, and we have the broader security architecture at sake, so we need to be able to react and also take some economic cost, if it is necessary.” More