While Ukraine was able to hold a largely peaceful presidential
election last month, the situation in the east near the Russian
border remains volatile, with armed groups attacking Ukrainian
government forces and occupying state buildings.
"We stand ready to intensify targeted sanctions and to consider
significant additional restrictive measures to impose further costs
on Russia should events so require," the G7 said in a statement
after evening talks in Brussels.
German Chancellor Angela Merkel said Western powers would check
"again and again" to verify that Russia was doing what it could to
stabilize the situation, which erupted in March after Russia seized
Crimea from Ukraine and annexed it.
"We cannot afford a further destabilization in Ukraine," Merkel told
"If we do not have progress in the questions we have to solve there
is the possibility of sanctions, even heavy sanctions of phase 3 on
the table," she said, referring to restrictions on trade, finance
So far, the United States and European Union have imposed relatively
minor travel bans and asset freezes on dozens of Russian officials
in reaction to the seizure of Crimea.
Further steps were threatened if the May 25 elections were affected.
However, they went smoothly and new President Petro Poroshenko will
be sworn in on Saturday.
Some saw that as an indication that Russia was being more
cooperative, reducing the threat of further sanctions. But
Wednesday's statement suggests the West is not yet satisfied that
President Vladimir Putin is doing enough to calm the situation.
Russia denies it is behind the revolt in eastern Ukraine, where
militias allied to Moscow have seized buildings, attacked Ukrainian
troops and declared independence. Putin has also defended his right
to protect Russian-speaking people.
While Putin has been cut out of the G7 - this is the first meeting
without Russia since it joined the club in 1997 - he will hold
face-to-face meetings with Merkel, French President Francois
Hollande and Britain's David Cameron at a D-Day anniversary
gathering in France later this week.
Asked about those bilateral meetings and whether they raised any
concerns for President Barack Obama, who has pointedly avoided any
contact with Putin, a U.S. official said it wasn't important who
Putin met but "what people say in those meetings". Ahead of the G7
summit, Obama met Poroshenko for talks in Warsaw and declared him a
"wise choice" to lead Ukraine, part of efforts by the EU and the
United States to provide moral and financial support to the new
Poroshenko, a chocolate-industry billionaire, said he would be
willing to meet Putin for peace talks on the sidelines of the D-Day
commemorations in Normandy although no meeting has been set up.
"As things stand now, a meeting between me and Putin is not
envisaged, but I do not rule out that it could take place in one
format or another," he told reporters, adding that he was working on
a peace plan for Ukraine that would involve the decentralization of
power, local elections and an amnesty.
[to top of second column]
ECONOMICS AND TRADE
As well as foreign policy, the two-day G7 summit will cover
economics, trade, climate and energy policy.
One of the most sensitive discussions will be over energy security,
particularly in Europe, which relies on Russia for around a third of
its oil and gas - a fact that gives Moscow leverage over the EU and
its 500 million people.
European leaders have committed themselves to diversifying away from
Russia but doing so will take time and be costly, and may in part
depend on the willingness of the United States to supply liquified
natural gas to Europe.
A separate communique will be released by the G7 leaders after talks
on Thursday which will highlight the need to prioritize security of
"The use of energy supplies as a means of political coercion or as a
threat to security is unacceptable," a draft of that statement, seen
be Reuters, said.
"The crisis in Ukraine makes plain that energy security must be at
the center of our collective agenda and requires a step-change to
our approach to diversifying energy supplies."
The economic discussion is not expected to break new ground, instead
reiterating that all the G7 members - the United States, Canada,
Germany, France, Britain, Japan and Italy - must focus on sustaining
economic recovery and tightening regulations to prevent future
banking sector problems.
The leaders will reaffirm a commitment to completing financial
reforms this year including ending "too-big-to-fail" banking.
(Additional reporting by Roberta Rampton, Jan Strupczewski, Robin
Emmott and Barbara Lewis in Brussels, Noah Barkin and Stephen Brown
in Berlin. Editing by Mike Peacock)
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