US and Europe Agree to Escalate Sanctions on Russia

FRANKFURT - The United States and Europe put aside their differences and agreed on Monday to sharply escalate economic sanctions against Russia in a set of coordinated actions driven by the conclusion that Moscow has taken a more direct role in the war in Ukraine.

After months in which European leaders were hesitant to go as far as the Americans, the two sides settled on a package of measures that would target Russia's financial, energy and defense sectors. In some cases, the Europeans may actually leapfrog beyond what the United States has done, forcing Washington to try to catch up.

The agreement came during an unusual five-way video conference between President Obama and his counterparts from Britain, France, Germany and Italy in advance of a European Union meeting scheduled for Tuesday to consider new sanctions against Russia. American and European officials said the leaders agreed that Russia has not only not backed down since the shooting of a Malaysia Airlines passenger jet but has also accelerated its involvement in Ukraine's burgeoning civil war.

'They agreed on the importance of coordinated sanctions measures on Russia for its continued transfer of arms, equipment and fighters in eastern Ukraine, including since the crash, and to press Russia to end its efforts to destabilize the country and instead choose a diplomatic path to resolving the crisis,' Antony J. Blinken, Mr. Obama's deputy national security adviser, told reporters.

President François Hollande of France released a statement from his office saying that the leaders confirmed their intention to adopt new sanctions, and the office of Prime Minister David Cameron of Britain said it should be 'a strong package of sectoral sanctions' adopted 'as swiftly as possible.'

The steps risk direct harm to European interest, by curbing business with Russia and courting countersanctions from Moscow. But in contrast to previous debate this year over how aggressively to confront President Vladimir V. Putin over Russia's intervention in Ukraine, political and business leaders in Germany - the crucial player in determining Europe's response - now appear united behind the need to take more stringent action.

Several prominent German business leaders indicated in recent days that they supported tougher sanctions or were at least resigned to them, giving Chancellor Angela Merkel more political leeway at home to back what is expected to be the most far-reaching response yet by Europe to Russia's behavior in Ukraine.

'In light of the most recent escalation, new sanctions are unavoidable,' Hannes Hesse, executive director of the German Engineering Federation, which represents makers of machinery and heavy equipment, said in a statement.

Mr. Blinkden said: 'There's urgency to arresting these developments, to ending these efforts to destabilize Ukraine. On the call, the European leaders clearly shared this assessment, and a determination to act.'

The sanctions would have major consequences for European countries, notably the French weapons industry and the British banking industry. But they have been developed in a way that limits some of the most direct risks to European interests; France, for example, would be free to deliver to Russia the first of two warships it is completing in a French shipyard. They have also been developed with an eye toward spreading the potential pain to Europe among its biggest economies, Germany, Britain and France.

Germany's economic vulnerability may be broader than that of the other nations, reflecting the substantial commerce between Germany and Russia and Germany's position as a bridge between the economies of Eastern and Western Europe. Recent surveys show that optimism among business is sagging because of concern about Ukraine, and economists have begun predicting that the German economy could stagnate or even shrink as a result.

Planned restrictions on the export of equipment for the oil industry would most likely affect ZF Friedrichshafen, a company in the city of Friedrichshafen in southern Germany that makes equipment for energy producers as well as auto parts and other goods. Last year, ZF Friedrichshafen's sales in Russia soared 60 percent to more than 400 million euros, or about $540 million. This year sales have stagnated, and the company is worried that Russian customers will turn to Asian suppliers instead.

That fear is widespread. 'Just the announcement of sanctions has caused some Russian customers to stop ordering from German firms,' because they are worried that delivery of the products will be blocked, said Monika Hollacher, a Russia expert at the German Engineering Federation. 'The Chinese have already taken major market share. In a situation like what we have now, that will accelerate further.'

German exports to Russia and Ukraine will fall by €6 billion this year, according to an estimate by the Committee on Eastern European Economic Relations.

Until recently, many German businesspeople had argued that it was better to engage Russia rather than confront Mr. Putin. Some have continued to do so. 'Further sanctions raise the price that everyone has to pay for this conflict,' Eckhard Cordes, a former Daimler executive who is chairman of the Committee on Eastern European Economic Relations, said in a statement last week. A spokesman for the committee, which represents the interests of German companies doing business in Russia and former Soviet republics, said the statement still represented Mr. Cordes's position.

Yet many business leaders have been taking a harder line since Malaysia Airlines Flight 17 was shot down with the loss of 298 lives. 'The behavior of the Russian government in the Ukrainian secession conflict must have noticeable consequences,' Ulrich Grillo, president of the Federation of German Industries, said in an opinion article published Monday in Handelsblatt, a financial newspaper.

The shift by the business community parallels growing impatience by German political leaders with Mr. Putin and Russia.

Christiane Wirtz, spokeswoman for Chancellor Merkel, told reporters in Berlin on Monday that 'a completely new situation has emerged which makes further measures necessary,' in the wake of the crash. The chancellor would be willing to travel to Brussels this week if needed to push through stronger economic sanctions, Ms. Wirtz said.

'Only such a substantial package would enable the German government and the E.U. to send a clear, strong signal to Russia,' Ms. Wirtz said.

In Moscow, Sergey V. Lavrov, the Russian foreign minister, said that while Moscow clearly did not welcome the measures it had no plans to impose sanctions on Europe in response.

'We do not want to act tit-for-tat,' he said, adding that he was sure Russia could overcome any difficulties caused by the sanctions. 'Maybe we will be even more independent and more confident in our own course.'

But the planned measures still fall short of full-blown sanctions on entire sectors of the Russian economy. The British remain hesitant to block off the entire Russian finance sector, while the French are particularly sensitive to a blanket ban on the arms sales. The Germans are extremely wary about severing energy ties with Russia.

The European restrictions on Russian financial institutions would only cover banks that are 50 percent or more owned by the Russian state. Restrictions on the energy sector would not apply to the Russian natural gas industry, which supplies about a third of Europe's needs and an even larger proportion of Germany's.