UPDATE 3-EU considers widening ban on Russian borrowing

Tue Sep 2, 2014 9:59am EDT

* Mogherini calls for strong sanctions response against Russia

* Sanctions to include Russian defence, finance sectors

* EU could ban syndicated loans to Russian state banks (Adds sanctions proposals discussed by EU)

By Robin Emmott

BRUSSELS, Sept 2 (Reuters) - The European Union is considering widening to all Russian state-owned firms a ban on borrowing or raising capital in Europe, as a means of stepping up pressure on Russia over its involvement in Ukraine, diplomats said on Tuesday.

The bloc is also looking at barring Russian Defence Minister Sergei Shoigu from entering the EU, the diplomats said.

The proposals were floated at a meeting of EU ambassadors in Brussels on Monday.

EU leaders decided on Saturday that the direct engagement of Russian troops in the war in eastern and southern Ukraine called for a stepping up of the sanctions imposed so far unless Russia pulled its soldiers back.

They asked the EU's executive arm, the Commission, to prepare proposals on new sanctions within a week.

The European Commission is to prepare a final draft of new sanctions against Moscow over its invasion of Ukraine by Wednesday and EU governments will make a decision on the final shape of the package by Friday, Italian Foreign Minister Federica Mogherini said.

Ambassadors will meet on Wednesday, Thursday and Friday to hone the new sanctions package.

"We need to respond in the strongest possible way," Mogherini, who will be the EU's next foreign policy chief, told reporters following a presentation to EU lawmakers in the European Parliament.

Other measures discussed at Monday's meeting included banning syndicated EU loans to Russian government-owned banks and institutions.

The European Commission also proposed a shortening of the minimum maturity of Russian state-owned banks' debt instruments that cannot be sold in the EU under a decision from July to 30 days from the previously agreed 90 days.

RUSSIAN DERIVATIVES

The EU would also be considering imposing a ban on buying Russian derivative instruments too.

Other ideas floated on Monday included an expansion of a export ban on goods that can have both military and civilian use to all potential Russian importers, not just companies in the defence sector as agreed by the EU sanctions package from July.

A ban on selling advanced energy technologies to Russia could be extended to include servicing agreements, diplomats said.

Russia could also no longer be invited to cultural, economic and sports events.

The new EU sanctions package against Russia could be coordinated with other G7 countries -- the United States, Canada and Japan.

Cutting off Russia from the SWIFT international bank transaction system was not discussed, because the measure is considered too radical.

"Things on the ground are getting more and more dramatic. We speak about an aggression and I think sanctions are part of a political strategy," Mogherini said. She also described the situation as "a time of complete darkness."

Mogherini declined to give details of the sanctions package but said they would target Russia in four sectors, which include defence, dual use goods and finance.

German Chancellor Angela Merkel, who led the push for a tougher EU response, said on Monday that Moscow's behaviour in Ukraine must not go unanswered, even if sanctions hurt the German economy, heavily dependent on imported Russian gas.

However, the Czech Republic wants to modify some parts of the EU's proposed new trade measures against Russia, Prime Minister Bohuslav Sobotka said on Tuesday, warning that escalating sanctions was risky.

An equity analyst at a Russian bank said there was little market reaction to news of the latest EU sanctions proposal. Shares in energy giants Gazprom and Rosneft were up slightly and government bonds were steady.

"The capacity to raise new equity is pretty trivial because most of these companies don't raise equity anyway. And the capacity to raise debt in capital markets - you can get round it. It's the capacity to raise syndicated loans, particularly for the banks, that would be most important," the analyst, speaking on condition of anonymity, said.

Mogherini, whom some eastern European states have criticised for being too soft on Russia, sought to strike a firm tone on Tuesday, saying the situation in Ukraine had changed because of Russia's behaviour and the EU-Russia relationship was no longer a partnership.

"A strategic partnership is over. Clearly it's over and that was Moscow's choice ... We have a problem on the Ukrainian territory. We have a conflict, clearly," she said.

Mogherini also said she spoke by telephone on Monday to Russian Foreign Minister Sergei Lavrov, who congratulated her on her appointment as EU foreign policy chief, but said she did not discuss policy in detail. (Reporting by Jan Strupczewski, Robin Emmott, Adrian Croft; additional reporting by Jason Bush in Moscow; editing by Giles Elgood)

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