BERLIN Germany's Angela Merkel said on Friday that she had told Russian President Vladimir Putin by telephone that Moscow had not done enough to urge separatists in Ukraine to disarm, and that further sanctions against Russia must be contemplated.
The European Union and Group of Seven (G7) nations would consider sanctions "within the framework of the second stage of sanctions" she said at a news conference in Berlin with Poland's Prime Minister Donald Tusk, referring to a three-stage scheme.
The second stage of sanctions comprises overseas asset freezes and visa bans on those Russians and Ukrainians considered responsible for the escalation. Dozens of individuals are already on the list. Stage three, under preparation, would involve trade and economic sanctions against Moscow.
U.S. President Barack Obama was due to press European allies on Friday to impose tougher penalties on Moscow.
The United States is frustrated at the reluctance of some European nations, notably Germany and Italy, to impose a new round of economic sanctions on Russia but it would much prefer to act in concert with the EU rather than on its own.
Merkel said Russia has the means to convince the pro-Russian militants in eastern Ukraine to take a peaceful route, and must uphold an agreement struck in Geneva earlier this month.
"I spoke to the Russian president this morning and made clear again that on the one hand Ukraine has taken a whole series of steps to implement the Geneva accord, but on the other side I see no Russian backing for it, which would of course have an effect on the separatists in Ukraine," she said.
Under the terms of the deal Russia, the United States, Ukraine and the EU agreed to work to disarm illegal groups.
"Russia has the power, or could have the power, to bring the separatists on to a peaceful path of discussions about the constitution and preparations for elections, but such signals are unfortunately lacking," Merkel said.
Poland's Tusk warned: "The crisis in Ukraine may become permanent, which could require a new eastern policy from Europe". He added he could not imagine Europe sticking to a "business-as-usual" position.
Tusk has urged the EU to create an energy union to secure its gas supply and weaken its current dependence on Russian gas.
Jean-Claude Juncker, a candidate for European Commission president, was quoted by Polish state agency PAP on Friday as saying that the energy union proposal was "an intelligent and wise proposal".
Merkel said she supported the idea in principle but the details would need to be worked out and a joint market and joint structure was necessary.
(Additional reporting by Marcin Goettig in Warsaw; Editing by Mark Trevelyan)