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Europe Mulls, and Frets About, Stiffer Sanctions Against Russia

Armed pro-Russian separatists stand guard as monitors from the Organization for Security and Cooperation in Europe (OSCE) inspect the crash site of Malaysia Airlines Flight MH17.

Armed pro-Russian separatists stand guard as monitors from the Organization for Security and Cooperation in Europe (OSCE) and Malaysian air crash investigators inspect the crash site of Malaysia Airlines Flight MH17.MAXIM ZMEYEV / Reuters

The European Union may be preparing to step up its economic sanctions against Russia even as the West and Russia engage in a war of words over who was responsible for downing Malaysia Airlines passenger jet MH17 with 298 people aboard.

European governments are expected to discuss a list of possible new targets for Russian sanctions on Thursday, although some European countries worry that the sanctions could hurt them nearly as much as they impact Russia. From energy supplies to large arms deals, the economies of Europe and Russia have strong ties that could make talk of stiffer sanctions ring hollow.

EU foreign ministers met in Brussels on Tuesday to discuss whether there should be any new sanctions imposed against Moscow over the crisis in the former Soviet republic.

"There will be no names for the sanction list today," one EU diplomat told Reuters. "The European Commission will propose new names for (discussion) on Thursday."

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During Tuesday trading in Europe, the euro was below $1.3491, its lowest level since February 6, as fears of the economic impact of sanctions in Russia grew.

Further economic sanctions would be a "problem both for who is subjected to them and who imposes them."

Who is worried about stronger sanctions?

Italian Economy Minister Pier Carlo Padoan warned on Tuesday that further economic sanctions would be a "problem both for who is subjected to them and who imposes them."

There is a growing divergence between European Union governments over how tough further sanctions should be.

Italy has previously resisted further sanctions, and France is planning to continue with a key warship deal with Russia, despite consternation about its role in the Ukraine crisis.

Germany, one of the countries most dependent on Russian energy and exports, has continued trying to keep lines of communication open with Putin's government. The Committee on Eastern European Economic Relations, a German industrial group, has said that the crisis could endanger up to 25,000 German jobs, and recent German data suggests it may have already been hit by the cooling in relationships with Russia.

Some European companies, including banks and manufacturers, have already been operating self-imposed sanctions on deals with Russian businesses by delaying work or deals until the outcome of the Ukrainian crisis is clearer. Further sanctions may force this trend out into the open.

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Who supports strong measures?

Sweden, the U.K., and some of the former Soviet states have been most vocal in their support for stronger punitive measures this week.

The U.K. in particular has strengthened its stance from earlier in the crisis, when concerns about the importance to London's financial services of Russian business may have contributed to a cautious tone. Indeed, U.K. Chancellor George Osborne has warned that Britain must prepare for an economic hit from sanctions against Russia.

The announcement on Tuesday that the U.K. will make an official inquiry into the death of former KGB spy Alexander Litvinenko, in London in 2006, also indicates a hardening in diplomatic attitudes towards Russia.

In this, the government appears to be reflecting public opinion in the U.K. Almost two-thirds of U.K. citizens polled by agency YouGov support imposing trade sanctions against Russia, up from half in March, and 53 percent support freezing Russian assets held in Western banks, up from 42 percent when the crisis first unfolded in March.

Where now?

The EU foreign ministers meeting Tuesday can't approve "phase three" level sanctions - the next level of penalties against Russian businesses – only country leaders can do that. However, they can discuss what form these sanctions might take.

This level of sanctions, which could affect entire industry sectors, could now be introduced as early as September, according to analysts at Citi.

The "last resort for the West", according to Robert Burgess at Deutsche Bank, would be restrictions on energy trading with Russia – which could seriously swing the cost of oil and gas.

-- NBC News Staff and Reuters contributed to this report.