Russian President Vladimir Putin will sign a decree recognizing two breakaway regions in Eastern Ukraine as independent entities shortly, the Kremlin said, upping the ante in a crisis the West fears could unleash a war.
Putin announced his decision in phone calls to the leaders of Germany and France, who voiced disappointment, the Kremlin said in a readout of the calls.
Moscow's move could torpedo a last-minute bid for a summit with U.S. President Joe Biden to prevent Russia from invading Ukraine. The ruble extended its losses as Putin spoke on the issue, falling 3.3 per cent on the day to 79.83 per dollar.
The European Union warned of sanctions from the 27-nation bloc should Moscow annex or recognize the breakaway regions in the east of Ukraine and largely controlled by Russia-backed separatists.
Recognition of the rebel-held areas could provide a pretext for Russian troops to cross the border into those areas.
It will also narrow the diplomatic options to avoid war, since it is an explicit rejection of a seven-year-old ceasefire mediated by France and Germany, touted as the framework for future negotiations on the wider crisis.
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Separately, Moscow said Ukrainian military saboteurs had tried to enter Russian territory in armed vehicles leading to five deaths, an accusation dismissed as "fake news" by Kyiv.
Both developments fit a pattern repeatedly predicted by Western governments, who accuse Russia of preparing to fabricate a pretext to invade Ukraine by blaming Kyiv for attacks and relying on pleas for help from separatist proxies.
Hours earlier, French President Emmanuel Macron gave hope of a diplomatic solution, saying Putin and U.S. President Joe Biden had agreed in principle to meet.
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But the Kremlin said there were no specific plans for a summit. The White House said Biden had accepted the meeting "in principle," but only "if an invasion hasn't happened."
In Washington, Biden summoned his top security advisers. Secretary of State Antony Blinken, Defence Secretary Lloyd Austin and Gen. Mark Milley, chairman of the U.S. Joint Chiefs of Staff, could be seen entering the White House on the President's Day holiday.
Washington says Russia has amassed a force numbering 169,000 to 190,000 troops in the region, including the pro-Russian rebels in the breakaway regions in Eastern Ukraine, and could invade within days. The recognition of the rebel-held areas could also provide a pretext for Russian troops to cross the border into those areas.
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Russia denies any plan to attack its neighbour but has threatened unspecified "military-technical" action unless it receives sweeping security guarantees, including a promise that Ukraine will never join NATO.
European financial markets tumbled at the signs of increased confrontation, after having briefly edged higher on the glimmer of hope that a summit might offer a path out of Europe's biggest military crisis in decades. The price of oil — Russia's main export — rose, while Russian shares and the rouble plunged.
