BY ADRIAN CROFT AND BARBARA LEWIS
European Union flags flew outside the European Commission headquarters in Brussels
European Union ambassadors reached a preliminary agreement on Friday to push ahead with hard-hitting economic sanctions against Russia over the Ukraine crisis but details remained to be worked out, diplomats said.
The 28-nation EU has toughened its stance towards Moscow since last week's downing of a Malaysian airliner in an area of eastern Ukraine held by Russian-backed separatists.
After a discussion that lasted all day Thursday and part of Friday, ambassadors asked the EU's executive Commission to draw up a legal text setting out economic sanctions that the EU would impose for possible agreement next week.
Key measures suggested by the Commission included closing EU capital markets to state-owned Russian banks, an embargo on arms sales to Moscow and restrictions on the supply of energy and dual-use technologies. They would not affect current supplies of oil, gas and other commodities from Russia, diplomats said.
One EU official said there was "an overall preliminary agreement on the concept" but ambassadors would hold more discussions next week on the basis of the legal text.
Maja Kocijancic, spokeswoman for EU foreign policy chief Catherine Ashton, said there was still work to be done.
"The direction of travel here is very clear but we are still travelling," she told reporters.
It was not immediately clear if the legal text would include all the options identified by the Commission. But EU officials said it would cover all four areas where sanctions have been proposed - restrictions on Russian access to European financial markets, defence and energy technology and equipment useful for both defence or civilian purposes.
Separately, the EU was due to publish later on Friday the names of 15 individuals and 18 entities, including companies, subject to asset freezes for their role in supporting Russia's annexation of Crimea and destabilisation of eastern Ukraine.
"STOP ARMING SEPARATISTS"
Member states will scrutinise the draft legal text over the weekend and give their feedback to the Commission on Monday, one diplomat said. A revised draft may be adopted on Tuesday, he said.
Remaining stumbling blocks were over issues such as existing contracts as well as on a so-called "off-ramp" - how to scale back sanctions if Russia began to play a more constructive role in de-escalating the situation in Ukraine, the diplomat said.
Dutch Prime Minister Mark Rutte, whose country is seen as having a key role in shaping the EU response because it lost 194 citizens in the plane crash, said he would back sanctions unless Moscow halts weapons supplies to the rebels.
"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," he told a parliamentary committee in The Hague.
"All indications are that Russia is continuing to arm the separatists," Rutte said, telling lawmakers he had spoken six times to Russian President Vladimir Putin since the disaster. "There's an easy way out for Russia: to distance themselves from the separatists, and stop arming them."
The issue of upholding existing contracts with Russia is sensitive for France, which has agreed to sell Mistral helicopter carriers in a 1.2 billion euro ($1.61 billion) deal.
Another difficulty is balancing the pain of imposing the sanctions among EU member states. Britain is strong in financial services, Germany in technology and machinery, France in arms sales, while Italy is heavily dependent on Russia for energy.
"To a degree everyone is reverting to trying to protect their own national interests from harm," a senior European diplomat said.
It remains to be decided whether a special summit of EU leaders will be needed to approve the proposals. European Council President Herman Van Rompuy is expected to contact leaders to consult them on the way forward, an EU source said.
European Commission spokesman Jonathan Todd said the economic sanctions would require a "political level decision" but it was up to member countries to decide "whether or not the heads of state or government would actually physically have to come to Brussels and sit in a room to give their agreement."
Under proposals put forward by the Commission, the EU would target state-owned Russian banks vital to financing Moscow's faltering economy.
Under the proposal, European investors would be banned from buying new debt or shares of banks owned 50 percent or more by the state. These banks raised almost half their 15.8 billion euro ($21.29 billion) capital needs on EU markets last year.
The EU is also weighing restricting exports of technology for deep-sea drilling, shale oil and Arctic energy exploration.
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