* Downing of MH17 marks turning point in sanctions stance
* Emotion over crash wins over doubters
* Tougher German stance played a role
By Justyna Pawlak
BRUSSELS, July 25 (Reuters) - When Dutch Foreign Minister Frans Timmermans spoke to his European Union peers of his grief and anger over the downing of a Malaysia Airlines airliner over eastern Ukraine, it was a turning point in Europe’s approach to Russia.
Several ministers had tears in their eyes when Timmermans said he had known personally some of the 194 Dutch passengers among the 298 people who died on the plane, which Washington believes pro-Russian separatists shot down in error.
“To my dying day I will not understand that it took so much time for the rescue workers to be allowed to do their difficult job, and that human remains should be used in a political game,” Timmermans told the U.N. Security Council hours earlier, before flying overnight to Brussels for the crucial EU session.
Until that meeting on Tuesday, Europe had trailed the United States in imposing economic sanctions to pressure Moscow into working to defuse the eight-month crisis in Ukraine in which hundreds of people have been killed.
Many governments were reluctant to antagonise a major energy supplier. Concern over the cost to Europe’s convalescent economy of fraying the vast network of industrial and business links with Russia also weighed heavily.
Intense lobbying by Washington, including a warning by President Barack Obama that the plane downing should be “a wake up call for Europe”, had done little to change that mentality.
But like a supportive family, EU partners rallied around the bereaved Dutch, putting national economic interests aside and for the first time going beyond asset freezes and visa bans on individuals to envisage curbs on entire sectors of the Russian economy that could turn the screw on President Vladimir Putin.
Gruesome images of bodies strewn across fields after the downing of flight MH17 appear to have persuaded some of the opponents of sanctions to take a more decisive, if painful, stand against Russian destabilisation of Ukraine.
Within days of Timmermans’ address, senior EU diplomats had agreed the broad outlines of potential sanctions on Russian access to EU capital markets, defence and energy technology.
Final decisions await more deliberations next week - but diplomats said on Friday an initial package was now virtually a done deal.
“It is fair to say we are heading in the direction,” one EU diplomat told Reuters.
In the run up to Friday’s discussions, Dutch Prime Minister Mark Rutte had a series of phone calls with his EU counterparts, near daily calls with Obama and six conversations with Putin.
“We want, as a country that has acquired a certain moral obligation as a result of this tragedy, to promote Europe taking a common line on this,” Rutte told parliament in The Hague.
The Dutch are a trading nation with outsized commercial ties to Russia and are often reluctant to let politics get in the way of a good deal. But an opinion poll this week found 78 percent back economic sanctions even if it hurts their own economy.
Poland’s Foreign Minister Radoslaw Sikorski, long an advocate of harsher sanctions, said the plane crash was the “last straw that broke the camel’s back”.
“The behaviour of the separatists ... the scandalous plundering of the luggage and the bodies themselves - all this made an enormous impression on the Netherlands ... and on all of us,” he told reporters after Tuesday’s meeting.
The EU turnaround became possible when key players shifted their positions. Timmermans’ impassioned speech, several diplomats said, made it difficult for others to hold a firm line against sanctions at Tuesday’s meeting.
“The Dutch minister gave a very effective, emotional lead... saying we have got to move on beyond just naming individuals. No one found it possible to speak against that,” one senior European diplomat said.
German Chancellor Angela Merkel, who felt personally misled by Putin after months of intense dialogue, joined the drive for broader measures against Moscow even before the plane crash. Berlin has by far the biggest trade with Russia.
After the downing of the airliner, Britain too agreed to restrictions on Russian access to capital markets largely based in its City of London financial centre which it had previously resisted.
German government sources said Berlin, which had been hesitant on sanctions for months, demanded that senior EU diplomats meet as soon as last Monday to work out a more effective sanctions package. To their annoyance, a holiday at EU headquarters for Belgium’s national day got in the way.
EU leaders had agreed at a July 16 summit that more Russian people and companies should be targeted with asset freezes by the end of the month but that was suddenly not enough.
“It is true that the European Council had set a deadline of the end of the month, but after the plane crash everybody should have understood the situation was far more urgent”, one Berlin source said. “We were losing time when time was precious.”
Another notable change of tone came from Italy, which along with Germany is the biggest consumer of Russian gas in Europe.
Foreign Minister Federica Mogherini, who had drawn criticism for making her first visit in the EU’s rotating president to Moscow at the start of July, now said repeatedly she wanted to see additional sanctions imposed on Russia.
“The Malaysian air disaster weighed heavily on everyone,” an Italian source said. “Timmermans spoke for half an hour. It was a very emotional speech where he described the pain and anger of the Dutch. An airplane with 300 people in it was shot down and that changed everything.”
Some diplomats suggested Mogherini’s change of tone might have more to do with her push to become the next EU foreign policy chief after Catherine Ashton’s mandate ends in October. Several central European leaders expressed opposition to her at the summit because of her emollience towards Russia.
Lithuanian President Dalia Grybauskaite summed up their mood by saying she would not back a “pro-Kremlin” candidate.
The final shape of the sanctions package may hinge on a tug of war between Britain and France over who bears the brunt of economic pain of such decisions.
Diplomats said the French dug their heels in after British Prime Minister David Cameron publicly criticised Paris’ decision to deliver the first of two Mistral helicopter carriers it is building for Moscow under a 2011 contract.
“The estimates are that in the current package the pain for the UK would probably be greater than for anyone else,” said one senior diplomat, referring to the potential damage to London’s City banks if financial restrictions are imposed.
Recognising the shift, the U.S. ambassador to the European Union, Anthony Gardner, said his impression was the mood towards Russia had changed this week.
“Our impression is that several countries now believe that the choice that they thought was on the table of taking the bitter medicine today and not taking the bitter medicine tomorrow was a false choice,” he told reporters.
“That choice never existed. Now the choice is either taking the bitter medicine today or taking an even more bitter medicine tomorrow.” (Additional reporting by Paul Taylor in Paris, Adrian Croft, Jan Strupczewski and Martin Santa in Brussels, Thomas Escritt in Amsterdam, Andreas Rinke in Berlin and Steven Scherer in Rome; Editing by Paul Taylor)