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Is Angela Merkel going to turn nasty? As the leaders of the major Western countries of the G7 gather in the Netherlands Monday to attempt to reach agreement on punishments to be imposed on Russia for its annexation of Crimea, the central question is whether the German chancellor is willing to switch Germany's approach to Russia from carrots to sticks.

Ms. Merkel has more power than any other Western leader to deliver devastating economic damage to Russia by imposing large-scale commercial sanctions, because of the unparalleled scale of its economic and financial ties to Russia. But she is also the most reluctant to do so, for the same reason, and because Germany has a 35-year tradition of guiding Russia through engagement rather than confrontation.

She is now under enormous pressure from her fellow Western leaders to overcome those barriers and lead sanctions on Russia, and there are signs that she is beginning to change. On Sunday she spoke on the phone with Russian president Vladimir Putin, and delivered no good news other than his willingness to allow foreign observers into Crimea. German media reported that she had become increasingly frustrated and was giving up on the conciliatory approach.

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Her finance minister and close ally Wolfgang Schäuble said on Monday, sounding somewhat reluctant, that Berlin will have to go along with other EU nations and impose sanctions: "The international legal order must be respected," he told Der Spiegel magazine. "We do not want confrontation, but if Russia unilaterally changed things, it needs to be shown that we do not accept this, and that our relationship will be hurt… Whether that will cost us economically and financially or not is secondary."

Ms. Merkel suggested last week that Germany would turn to sanctions if matters escalated. G7 leaders, including Prime Minister Stephen Harper, are now trying to persuade her at the Hague that this has indeed happened.

Still, there remains a lot of resistance in Berlin to imposing crippling punishments on Russia in general (rather than on specific members of Mr. Putin's regime, who are now facing sanctions).

In part, this is because a lot of German homes are heated with Russian gas: Germany currently depends on Russia for 35 per cent of its gas imports, a number that is lower than before and likely to shrink further in the near future. But Germans remember 2009, when a Russia-Ukraine feud deprived Germany of vital heating gas at a crucial midwinter moment.

Or because Germany does a lot of business with Russia: An estimated 3.3 per cent of Germany's exports go to Russia, the largest proportion in any of the 16 euro zone countries. German investment in Russia is estimated at €20-billion.

But it's also, to a surprisingly large degree, because working with Russia, rather than against it, is a long-established and proud political tradition in Germany. When beloved chancellor Willy Brandt abandoned the Cold War military standoff with Moscow in the early 1970s to embrace Ostpolik – literally "east-looking politics" or, in practice, rapprochement and political and economic engagement – his move was seen as a success that reduced military tensions and prevented a wider "hot" war. Virtually every German government since then has followed his lead, to a greater or lesser degree, to the point that Ostpolitik is simply the German way of managing Russia, regardless how hot the conflict.

As the Financial Times noted on Monday, it will be difficult for senior German officials to back away from the Ostpolitik sensibility, as it is virtually hard-wired into their political DNA:

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Jeopardising years of co-operation with Russia is hard for Berlin, particularly for the foreign ministry where top diplomats cut their teeth on Ostpolitik. At a reception last week of the German-Russian Forum, a co-operation group, there was loud applause for Vladimir Grinin, the Russian ambassador, when he said the work of decades should not be "gambled".

When he took office late last year, Frank-Walter Steinmeier, the SPD foreign minister, prioritized improving ties with Moscow. He has rapidly adjusted to the new realities but insists the door must remain open for negotiations. Berlin has taken some comfort from Russia's agreement to the German-backed plan for OSCE observers in Ukraine.

There remains steep resistance in Germany's private sector, and many parts of its government, to the idea of sanctions – in part out of self-interest, but also because there is a deep-seated belief that engagement remains the better solution. Gernot Erler, Ms. Merkel's advisor for Russian affairs, told Bloomberg News that sanctions would be useless because they'd fail to change Vladimir Putin's course of action.

And the anger coming from the German private sector at any talk of sanctions should not be underestimated. On Monday, Bloomberg quoted Bernd Scheifele, head of the major cement maker HeidelbergCement AG, denouncing the sanctions in heated language that has become increasingly commonplace in Berlin:

"The greatest risk is if the Americans play power games – since they have very limited trade with Russia they could very well do so," Scheifele told reporters on March 19. "If the Russian state has no money, then all infrastructure and construction projects come to a standstill."

In other words, Ms. Merkel will not just be punishing Vladimir Putin for annexing Crimea, but also punishing her entire industrial sector and large parts of her public service. She can afford this loss, both economically and politically – both Germany and her government are in a strong position. But will this most cautious of leaders dare to get tough?

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