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EU Halts Russian Trade, Visa Talks With Threat of More Curbs

European Union governments halted trade and visa negotiations with Russia and prepared sanctions against selected Russian officials to protest the Kremlin’s assertion of control over Ukraine’s southern Crimea region.

EU leaders sent the diplomatic signals at a summit in Brussels today that pitted western European countries keen to offer Russia more time to pull back its forces before imposing sanctions against eastern countries demanding retribution now.

“We must consider measures that have far-reaching consequences for the EU-Russia relationship,” U.K. Prime Minister David Cameron told reporters after the meeting. Cameron cited the potential “consequences” of such action on the U.K.’s banks or on France’s defense industry, saying they were worth it “if you are going to stand up to aggression.”

Some western European leaders had sought to delay sanctions, shifting to a tougher stance after the parliament of Crimea voted today to hold a referendum on March 16 on becoming part of Russia. The EU was also swayed by the presence of Ukraine’s new pro-western prime minister, Arseniy Yatsenyuk, who accused the Kremlin of putting up a new Berlin Wall.

‘This Wall’

“Tear down this wall, the wall of intimidation, the wall of military aggression,” Yatsenyuk said.

The time-out on the commercial talks echoed the bloc’s response to Russia’s invasion of another neighbor, Georgia, in 2008. Those contacts were resumed after two months and failed to dislodge the Russian troops that remain on parts of Georgia’s territory.

EU President Herman Van Rompuy said things will be different this time, noting that Russia is keen on expanded trade and improved European travel opportunities for its citizens. Van Rompuy called today’s EU decisions a surprise for the outside world and said the leaders “were very determined.”

Besides suspending talks on trade and the easing of travel visas, the leaders ordered the EU foreign service to draw up a list of Russian officials who could be targeted with asset freezes in a future round of sanctions.

That decision followed yesterday’s freezing of European bank accounts of 18 members of Ukraine’s former pro-Russian regime, including the ousted President Viktor Yanukovych. The U.S. targeted some unidentified Russians today in restricting visas deemed a threat to Ukraine’s security.

Van Rompuy declined to say whether a future blacklisting would cover Russian President Vladimir Putin or members of his inner circle.

Black Sea

The summit had loomed as a deadline for Putin to withdraw forces to bases which Russia leases in Crimea, where its Black Sea Fleet is headquartered. On March 3, EU foreign ministers demanded that Russia “immediately” take “de-escalating steps” or face consequences. Putin says the Russian troops stationed there have only been securing their bases.

EU leaders called again today for an immediate withdrawal and demanded that Russia stop blocking access to Crimea by monitors from the Organization for Security and Cooperation in Europe. A statement urged Russia to enter roundtable talks over Ukraine’s future, without setting a fixed deadline.

The Russia-Ukraine standoff plunged the EU back into the emergency diplomacy that dominated the euro-area debt crisis. The divide between the richer north and poorer south that marked the economic crisis gave way today to a renewal of the east-west divisions over ties with Russia that have plagued the bloc since it absorbed former Soviet satellite countries a decade ago.

‘No Enthusiasm’

Polish Prime Minister Donald Tusk said a pledge by Ukraine’s Yatsenyuk to sign a European trade pact shifted the mood among the 28 leaders.

“There’s no enthusiasm for tough steps like sanctions,” Tusk said. “But everybody understands that Russia’s stance today, combined with Ukraine’s situation and the EU’s obligations, requires such measures.”

Europe’s fiscal crisis also cast an economic shadow over the meeting, lessening the will to curb commercial ties with Russia. Germany, Europe’s largest economy, relies on Russia for 35 percent of its gas and oil imports.

France, for example, won’t yet suspend military contracts with Russia, President Francois Hollande said. Russia in 2011 bought two “Mistral” warships from France for more than $1 billion.

“We respect the contracts that we have signed,” Hollande said. “We haven’t reached that level yet. And we want to avoid getting there.”

German Chancellor Angela Merkel held out the prospect of additional steps against Russia including “a broad palette of economic measures” if Crimea is further destabilized. She said EU leaders might meet again before their regularly scheduled March 20-21 gathering to decide on possible further sanctions.

European leaders also agreed to add 1 billion euros ($1.4 billion) to the 610 million euros in emergency aid that the EU plans to disburse once Ukraine strikes a standby agreement with the International Monetary Fund. Those cash injections to avert a Ukrainian default would form the nucleus of a package of grants and project loans that could top 11 billion euros over seven years, the European Commission said yesterday.

To contact the reporter on this story: James G. Neuger in Brussels at jneuger@bloomberg.net

To contact the editor responsible for this story: Alan Crawford at acrawford6@bloomberg.net

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