Crimea annexed by Russia with stroke of Putin's pen

Two signatures Friday on opposite sides of Europe deepened the divide between East and West, as the European Union pulled Ukraine closer into its orbit and Russia formally annexed Crimea.

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In this "new post-Cold War order," as the Ukrainian prime minister called it, Ukrainian troops still in Crimea were forced to choose: leave, join the Russian military or demobilize. Ukraine was working on evacuating its outnumbered troops, but some servicemen said they were still awaiting orders.

The chief of the UN came to Kyiv and urged all sides to keep their tempers down.

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Many eyes were on Russian President Vladimir Putin's next move, as they have been ever since pro-Western protests drove out Ukraine's president a month ago, angering Russia and plunging Europe into its worst crisis in a generation.

Putin sounded a conciliatory note Friday, almost joking about U.S. and EU sanctions squeezing his inner circle and saying he saw no reason to retaliate but his government maintained warnings of further action.

Russia's troubled economic outlook may drive its decisions as much as any outside military threat. Stocks sank further Friday and a possible new downgrade loomed. Visa and MasterCard stopped serving two Russian banks and Russia conceded it may scrap plans to tap international markets for money this year.

Despite those clouds, Putin framed Friday's events in victorious colours, ordering fireworks in Moscow and Crimea reminiscent of the fireworks displays when Soviet troops drove the Nazis from occupied cities in World War II.

At the Kremlin, Putin hailed the incorporation of the Black Sea peninsula of Crimea into Russia as a "remarkable event," then finalized it by signing parliament bills into law.

At nearly the same time in a ceremony in Brussels, EU leaders sought to pull the rest of Ukraine westward by signing a political association agreement. This is a highly symbolic piece of paper part of the very same EU deal that touched off Ukraine's political crisis when President Viktor Yanukovych rejected it in November, igniting months of protests that eventually drove him from power.

Ukrainian Prime Minister Arseniy Yatsenyuk said this deal, and further sanctions against Russia, are necessary to ensure peace.

"Russia decided to actually impose a new post-Cold War order and revise the results of the Second World War," Yatsenyuk said in Brussels. "The best way to contain Russia is to impose real economic leverage over them."

The agreement includes security and defense cooperation, he said, though it is far from full EU membership and doesn't include an important free-trade element yet.

But the EU decided to grant Ukraine financial advantages such as reduced tariffs to boost its ailing economy until the full deal can be signed. Those trade advantages are a blow to Russia, which had hoped to pull Ukraine into a Moscow-focused customs union instead.

In exchange for the EU pact, Ukraine's government is promising economic reforms.

Russia's foreign minister dismissed the EU pact, saying the current Ukrainian leadership lacks popular support and should have held elections before making such a decision.

UN Secretary-General Ban Ki-moon, visiting Ukraine's capital, urged talks between Kyiv and Moscow.

"At times like this, it is vital that all parties refrain from any provocative actions that could exacerbate an already very tense and very volatile situation," he said.

EU announces new sanctions

The EU on Friday added 12 more people to bring its list of those facing visa ban and asset freeze sanctions to 33. According to a document obtained on Friday by the Associated Press, the list included some of Russian officials and lawmakers targeted by the first round of U.S. sanctions Monday.

EU leaders also decided to prepare economic sanctions in case the situation in eastern Ukraine deteriorates further.

On Thursday,U.S. President Barack Obama ordered a second round of sanctions targeting members of Putin's inner circle and a major bank supporting them, Bank Rossiya.

Canada also joined the U.S. in sanctioning the bank, and reports surfaced on Friday afternoon that credit card giants Visa and Mastercardhad ceased processing transactions involving the bank.

The St Petersburg-based bank which is chaired and partly owned by Yuri Kovalchuk, an old associate of Putin's and one of the highest profile individuals targeted by Western powers in their sanctions mainly serves clients in Russia's energy sector including businesses owned by state-run gas producer Gazprom.

International agencies downgraded Russia's economicoutlook, and Russian stocks plummeted Friday.

"The economic impact of the sanctions is already visible on the stock exchange, the value of the Ruble, the investment climate," EU President Herman Van Rompuy told Belgium'sVRT network.

Putinsaid he sees no immediate need for further Russian retaliation to the U.S. sanctions, a stance that reflected an apparent hope to limit further damage to ties with the West that have plummeted to their lowest point since the end of the Cold War.

"We must refrain from retaliatory steps for now," Putin said.

But Putin's spokesman, Dmitry Peskov, later said that Russia would retaliate to the latest U.S. sanctions.

"We will react every time. We responded to the first round of sanctions, and we will respond to those too," he said, according to the ITAR-Tass news agency. He did not elaborate.

OSCE observer mission

EU foreign ministers on Friday revealed that the OSCEhas agreed to send a six-month observer mission to nine different locations throughout Ukraine. Crimea was not included in the list, but Donetsk a city in a region considered by some to be a potential future target for Russian annexation will be visited by observers.

The Kyiv-based mission will initially consist of 100 civilian monitors but that number may later expand by another 400 personnel.

The decision came after several failed attempts in recent weeks to agree on such an observer mission in the former Soviet republic. Western diplomats have blamed Russia for the delay in agreeing the move.

German Foreign Minister Frank-Walter Steinmeier saidthe OSCE's decision to send a monitoring mission to Ukraine was a step towards deescalating the crisis in the country.

"This is not yet the end of the crisis but a step that helps to support our deescalation efforts," he said in a statement, shortly after the decision of the 57-nation rights and security group was announced.

"The situation in Ukraine remains unstable and menacing. For this reason, the (OSCE) observers must take up their work as quickly as possible," said Steinmeier.

Ukrainian soldiers in limbo

In Crimea, heavily armed Russian forces and pro-Russia militia have blocked Ukrainian military at their bases for weeks. Following Sunday's referendum they have moved aggressively to flush the Ukrainians out, storming some ships and military facilities.

The Ukrainian government said it was drawing up plans to extract its troops. At the Ukrainian military air base in Belbek, outside Sevastopol, Col. Yuly Mamchur told reporters Friday he was still waiting for orders from his commanders on whether to vacate.

Russia claimed some Ukrainian servicemen had already switched sides and agreed to join the Russian military. Friday had been the deadline for Ukrainian troops to leave Crimea, join the Russian military or demobilize.

On Friday afternoon, a stranded Ukrainian ship at a naval base in Crimea's DonuzlavBay attempted without success to break through a blockade set by Russian ships earlier this month and break out into the open ocean. The plan was reportedly abandoned when Russian snipers arrived at the scene.

Ukraine's minesweeper Cherkasy is one of six stranded naval ships which refused to be surrounded after their headquarters at a Black Sea inlet, northwest of Sevastopol, was taken over by Russian forces. They were trapped by a blockade at the entrance to the bay made of three hulks, scuttled by the Russian navy.

The crew on board the Cherkasy attached a rope to one of the sunken vessels and tried to pull it away in order to clear the passage, as Russian helicopters flew overhead and a Russian infantry unit deployed along the shoreline.

But when Russian troops with sniper rifles arrived at the site and took positions, the crew detached the ship from the sunken vessel and sailed away.