The 2014 G7 Summit in Brussels, Belgium.
The world's leading industrialised nations threatened onWednesday to impose harder-hitting sanctions on Russia if it does not helprestore stability to eastern Ukraine, where pro-Russian militias continue tooperate at will.
While Ukraine was able to hold a largely peacefulpresidential election last month, the situation in the east near the Russianborder remains volatile, with armed groups attacking Ukrainian governmentforces and occupying state buildings.
"We stand ready to intensify targeted sanctions and toconsider significant additional restrictive measures to impose further costs onRussia should events so require," the G7 said in a statement after eveningtalks in Brussels.
German Chancellor Angela Merkel said Western powers wouldcheck "again and again" to verify that Russia was doing what it couldto stabilise the situation, which erupted in March after Russia seized Crimeafrom Ukraine and annexed it.
"We cannot afford a further destabilization inUkraine," Merkel told reporters.
"If we do not have progress in the questions we have tosolve there is the possibility of sanctions, even heavy sanctions of phase 3 onthe table," she said, referring to restrictions on trade, finance andenergy.
So far, the United States and European Union have imposedrelatively minor travel bans and asset freezes on dozens of Russian officialsin reaction to the seizure of Crimea.
Further steps were threatened if the May 25 elections wereaffected. However, they went smoothly and new President Petro Poroshenko willbe sworn in on Saturday.
Some saw that as an indication that Russia was being morecooperative, reducing the threat of further sanctions. But Wednesday'sstatement suggests the West is not yet satisfied that President Vladimir Putinis doing enough to calm the situation.
Russia denies it is behind the revolt in eastern Ukraine,where militias allied to Moscow have seized buildings, attacked Ukrainiantroops and declared independence. Putin has also defended his right to protectRussian-speaking people.
While Putin has been cut out of the G7 - this is the firstmeeting without Russia since it joined the club in 1997 - he will holdface-to-face meetings with Merkel, French President Francois Hollande andBritain's David Cameron at a D-Day anniversary gathering in France later thisweek.
Asked about those bilateral meetings and whether they raisedany concerns for President Barack Obama, who has pointedly avoided any contactwith Putin, a U.S. official said it wasn't important who Putin met but"what people say in those meetings". Ahead of the G7 summit, Obamamet Poroshenko for talks in Warsaw and declared him a "wise choice"to lead Ukraine, part of efforts by the EU and the United States to providemoral and financial support to the new leadership.
Poroshenko, a chocolate-industry billionaire, said he wouldbe willing to meet Putin for peace talks on the sidelines of the D-Daycommemorations in Normandy although no meeting has been set up.
"As things stand now, a meeting between me and Putin isnot envisaged, but I do not rule out that it could take place in one format oranother," he told reporters, adding that he was working on a peace planfor Ukraine that would involve the decentralisation of power, local electionsand an amnesty.
ECONOMICS AND TRADE
As well as foreign policy, the two-day G7 summit will covereconomics, trade, climate and energy policy.
One of the most sensitive discussions will be over energysecurity, particularly in Europe, which relies on Russia for around a third ofits oil and gas - a fact that gives Moscow leverage over the EU and its 500million people.
European leaders have committed themselves to diversifyingaway from Russia but doing so will take time and be costly, and may in partdepend on the willingness of the United States to supply liquified natural gasto Europe.
A separate communique will be released by the G7 leadersafter talks on Thursday which will highlight the need to prioritise security ofenergy supplies.
"The use of energy supplies as a means of politicalcoercion or as a threat to security is unacceptable," a draft of thatstatement, seen be Reuters, said.
"The crisis in Ukraine makes plain that energy securitymust be at the centre of our collective agenda and requires a step-change toour approach to diversifying energy supplies."
The economic discussion is not expected to break new ground,instead reiterating that all the G7 members - the United States, Canada,Germany, France, Britain, Japan and Italy - must focus on sustaining economicrecovery and tightening regulations to prevent future banking sector problems.
The leaders will reaffirm a commitment to completingfinancial reforms this year including ending "too-big-to-fail"banking.
© Thomson Reuters 2014