Germany and UK diverge on Russia sanctions

"The annexation of Crimea is a step that will never be recognised, it is unacceptable and of course it is a further destabilisation of the situation," a high-ranking EU diplomat told journalists in Brussels Wednesday.

But whether this will be enough to trigger economic sanctions "will be a matter for discussion among EU leaders" over a dinner that is expected to go into the early hours of Friday morning.

In the British and Irish reading of things, Russia's latest move is "at the worst end of expectations" formulated two weeks ago when EU leaders decided on the three-step approach.

"We do need further measures, the situation has escalated, signs are not encouraging. Europe needs to show it's serious and united," a British diplomat said.

Germany, meanwhile, considers that the EU's response to the Crimean move should be "within the step two" - meaning adding a further six to 10 names to the travel ban list and assets freeze.

"Chancellor Merkel has repeatedly said that for the third step to be triggered, Russia would have to enter southern or eastern Ukraine. But I cannot preclude the talks among EU leaders," a German diplomat said.

What is likely to happen is for EU leaders to task the EU commission and the EU diplomatic service to come up with detailed impact assessments of each of the possible economic sanctions and the retaliatory measures that Russia would impose.

Compensatory measures may also be envisaged for EU countries that would be hit harder than others - for instance Cyprus or Bulgaria.

French foreign minister Laurent Fabius said his country may consider the cancellation of a contract with Russia for two Mistral warships, but noted that the UK should also consider restrictions on the British financial sector's dealings with Russian oligarchs.

"Sanctions have to touch everyone," Fabius told Europe1 radio.

He also spelled out the dilemma EU countries are in. "On the one hand one can’t envisage supplying [Russia] indefinitely given its behaviour. On the other hand there is the reality of jobs and the economy," he said.

Contingency plans in case of Russian gas cuts to eastern European countries and Ukraine are also in the works and EU officials point out that Europe is better prepared than eight years ago when Russia turned off the tap in the middle of winter.

The latest draft conclusions, to be adopted at the summit, emphasise the need to speed up measures to diversify supplies and help each other in case of cuts.

The EU commission is tasked to come up with a plan by June to reduce energy dependence.

"The plan should reflect the fact that the EU needs to accelerate further diversification of its energy supply, increase its bargaining power and energy efficiency, continue to develop renewable and other indigenous energy sources and coordinate the development of the infrastructure to support this diversification in a sustainable manner," the draft reads.

"Member states will show solidarity in case of sudden disruptions of energy supply in one or several member states," it adds.