Russia's President Vladimir Putin arrives for an official group photo comprised of the leaders of the BRICS' nations and South American nations, during the BRICS Summit at the Itamaraty Palace, in Brasilia, Brazil, Wednesday, July 16, 2014 (Photo: AP)
Hesitant European leaders edged closer Wednesday to adopting tough but limited sanctions against Russia for its perceived backing of Ukrainian insurgents.
The Brussels debate came as three months of fighting that has already claimed more than 600 lives threatens to spill into all-out civil war with potential repercussions for neighbouring European nations.
Nearly 50 civilians have been killed in artillery and air strikes across the Russian-speaking eastern regions of Donetsk and Lugansk since the weekend that both sides blame on each other.
Kiev reported the deaths of 11 more servicemen overnight and warned that Russia had deployed thousands of troops along its entire border with Ukraine in preparation for a possible invasion.
Washington has issued increasingly transparent hints that it was growing impatient with the European Union's cautious approach and preparing to adopt punitive steps against Russia's defence and financial sectors on its own.
Ukrainian foreign ministry spokesman Vasyl Zvarych argued that "vast proof of Russia's involvement in the rebels' actions provide further grounds for adopting tougher sanctions -- a third level of sanctions aimed at countering Russia's aggression."
But EU diplomats have previously said they were prepared only to expand targeted measures against Russians and pro-Kremlin Ukrainians held responsible for the bloody uprising and Moscow's annexation of Crimea.
A draft document of Wednesday's summit statement seen by AFP includes a call on the 28-nation bloc's European Investment Bank to freeze its programmes in Russia -- already capped at a relatively modest 500 million euros ($675 million).
It also requests that the London-based European Bank for Reconstruction and Development (EBRD) halt its own work in Russia.
The EBRD invested nearly three billion euros in Russia in 2011 and just under two billion euros last year.
"What is expected is a certain escalation of sanctions but that does not reach Phase Three," said French Foreign Minister Laurent Fabius.
"We must at the same time show resolve and maintain dialogue," Fabius added.
The so-called Phase Three sanctions vigorously promoted by both Washington and Kiev would prohibit countries from buying Russia's arms and high-technology goods now being promoted abroad by President Vladimir Putin.
They would also limit Moscow's access to international debt markets and impose other restrictions on some big banks.
But many analysts have discounted the possibility of EU nations -- concerned about threatening their tight energy and financial ties with Russia -- adopting such measures in the coming months.
"Fully fledged sector sanctions... remain a distant risk, notwithstanding the latest rhetoric," Moscow's VTB Capital investment bank told its clients on Wednesday.
"Even the aggressive stance of the US seemingly presupposes targeting a collection of specific entities," it wrote in a research note.
Germany and France have been spearheading European efforts to revive a failed truce in Ukraine that would lead to peace negotiations and take some pressure off the bloc to punish Russia.
Ukrainian President Petro Poroshenko's attempts to set up a Skype videoconference on Tuesday with the separatists -- a conciliatory step previously agreed with Germany Chancellor Angela Merkel -- were rebuffed by the rebel command.
But senior rebel leaders said Wednesday that they had agreed to hold new European-mediated consultations with Kiev representatives by the weekend.
Merkel had earlier blamed Russia -- a country that she had spent her first years in office trying to coax into taking a cooperative approach with the West -- for the collapse of the peace talks.
US allies and Washington would prefer to move in coordination with Europe on measures that could target sectors of the Russian economy and defence industry -- a step that would likely be most effective.
The White House said US Vice President Joe Biden on Tuesday "told President Poroshenko that the United States was engaging with European leaders to discuss the imposition of costs on Russia for its continued escalation of the conflict."
It remains unclear whether the steps being weighed in Brussels were sufficient to keep Washington from taking tougher steps on its own.
US officials had said Tuesday that they would assess their response after the decision taken in Brussels later in the week.