* Merkel speaks in parliament before EU leaders meet
* Signals Russia could be booted out of G8
(Adds quotes, background)
By Madeline Chambers
BERLIN, March 20 European leaders will show they
are ready to ramp up punitive measures against Russia, including
politically sensitive economic sanctions, at a summit starting
on Thursday, Chancellor Angela Merkel told the German
The German leader, who has in the last few weeks toughened
her stance against Russia over its actions in Ukraine and the
integration of the Crimea region, also indicated that the Group
of Eight economic powers may expel Russia from the exclusive
"The EU summit today and tomorrow will make clear that we
are ready at any time to introduce phase-3 measures if there is
a worsening of the situation," Merkel told the Bundestag lower
The EU has imposed travel bans and asset freezes on people
deemed responsible for Russia's incursion into the Ukrainian
region of Crimea. Escalation would involve broader bans and
could then move to wider trade and financial restrictions.
Germany, Europe's biggest economy, has close economic ties
with Russia which is its main supplier of gas and some companies
are worried they would be hit if economic sanctions go ahead.
Reiterating her view that Russia's taking of Crimea violated
international law and served to isolate President Vladimir
Putin, Merkel warned of other consequences for Moscow.
The G8 format, which includes Russia, was effectively dead
as long as the diplomatic showdown with Moscow continued, she
said. Russia has the presidency of the group and is scheduled to
hold a summit in Sochi in June.
"As long as there is no political climate for an important
format such as the G8, as is the case at the moment, the G8 no
longer exists, neither does the summit nor the format as such."
The United States and its G7 allies will gather next week in
The Hague without Russia to consider a further response to the
Kremlin's moves in Crimea.
Merkel, who still wants a diplomatic solution to the crisis,
also questioned whether annual German-Russian government
consultations, scheduled to take place in Leipzig next month,
could go ahead.
Last week, Merkel, who was brought up in Communist East
Germany, warned Moscow that it risked "massive" political and
economic damage if it refused to change course.
The government on Wednesday publicly intervened in business
dealings with Russia for the first time since the escalation of
the crisis by telling defence contractor Rheinmetall
to halt delivery of combat simulation gear to Russia.
European Energy Commissioner Guenther Oettinger spelled out
some of the sectors further sanctions discussed by EU leaders in
Brussels this week could cover.
"We have products that Russia needs - machines, equipment,
hardware, software, vehicles," Oettinger told German television,
playing down the prospect of sanctions in the energy sector.
(Additional reporting by Stephen Brown and Sarah Marsh; Writing
by Madeline Chambers; Edting by Noah Barkin)