Europe is completely divided over how to respond to Russia's grab of Crimea

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Audio Transcript: Marco Werman: I'm Marco Werman and this is The World, a co-production of the BBC World Service, PRI and WGBH Boston. It's hard to know what's going on in Crimea if you're not there, so Europe wants to send monitors to see for themselves. It won't be easy, but it seems German chancellor, Angela Merkel, has at least persuaded Vladimir Putin to consider the arrangement. That approval, it seems, goes through Putin first. Germany has clout with Moscow, perhaps more than any other European country or the United States. Judy Dempsey is a senior associate at Carnegie Europe and she edits the Strategic Europe blog. It seems Angela Merkel has more sway with Vladimir Putin than Barack Obama but there's still some tension between Berlin and Moscow, right? Judy Dempsey: It's not only the tension between Berlin and Moscow, it's the fact that Berlin is quite divided over this. Chancellor Angela Merkel speaks Russian and grew up in the former communist East Germany. She knows Putin, she knows his KGB past, she has a very difficult relationship with him and she knows exactly what is at stake. But on the other side of the foreign ministry, which is now controlled by the social democrats and they're very much as old fashioned, what's called eastern politics and are soft, who don't want to alienate Russia, don't want to impose sanctions, but rather want to keep talking. We've seen so many crises over the past couple of years that the talking hasn't gotten very far and Merkel now has to decide how tough the EU will be with Russia because what Germany says will influence the EU's overall attitude. Werman: Is Europe basically looking at Angela Merkel as their conduit to Putin at this point? Dempsey: I think so. The thing is Europe is so divided over this Crimea issue, which is extraordinary because the potential for regional instability is just so enormous. There are experts, some of which are Russian, that believe that Putin won't stop just at Crimea. They might go a bit further, deep towards Odessa. Angela Merkel knows this and she has to decide which way she's going to jump and once she jumps she will have to bring in the other EU members behind her. At the moment, they're just so divided. They can't agree on the sanctions, they can't agree on the policies, they can't agree on how tough they should be. There is no hard power, this is all about soft power and they can't even agree how to use soft power. Werman: I'm kind of surprised to hear that Europe is divided on this. How would you define the blocks, generally speaking? Germany and who else versus who else? Dempsey: Well, this is a really interesting question. Sweden would like really tough sanctions against Russia. I think Poland has come around to this as well. Italy, is more "Oh well, it's another crisis. We can't corner Putin." Spain is out of it. Britain may come around to being much tougher, but remember, if Britain does agree to impose serious sanctions on assets, well, you know where all the Russian assets are at the moment. A lot of them are in London. And of course it's the Baltic states who want much tougher action against Russia. Werman: Where does France fall on this, Judy? Dempsey: Slightly ambiguous. Not as outspoken perhaps as one might have expected. They're willing to give diplomacy a chance. If push comes to shove, I think President Hollande will go for sanctions, depending on the sanctions and if anybody can agree on which kinds of sanctions. Werman: Let's talk for a moment about what's at stake for Germany itself in this whole relationship with Russia. They've got a strong trade relationship. How dependent are both country's economy on that single relationship? Dempsey: Germany is Russia's most important trading partner but that partnership is based on oil and energy. But on the other hand, there's about five or six thousand German companies in Russia. On the other hand, Russia needs Germany for the high-tech, for the know how, for the technological transfer and I would dare to speculate, even if chancellor Merkel did take the gamble and say "Well, posing sanctions - frankly, do you think Putin would stop German companies and countries? He would lose an awful lot." At the end of the day, the Russian economy would suffer, this is the key thing. Yesterday and today, the stock markets in Russia plummeted to the lowest in five years. 12 billion dollars have been wiped off Gazprom, the state monopoly energy company, Putin's political and economic instrument and the central is trying to prop up the ruble and capital flight from foreign investors will probably be accelerated because of this crisis. This isn't going to be a short crisis. These things happened during the 2008 crisis when Russia invaded Georgia. This is different. This is big time. This is Ukraine. If this is sustained, this sort of chiseling into the stock market and to Russian capital and to foreign direct investment, well then this really affects Putin because all he has relied on for so long is oil and gas and despite all the peace by Germany to diversify the economy, he's never done this. At the moment, I think this is a big weakness for him. Werman: Judy Dempsey is senior associate at Carnegie Europe. She also edits the Strategic Europe blog. Judy, thanks very much for your time today. Dempsey: Big pleasure, goodbye.