Angela Merkel in Berlin, Thursday, with, left, Albanian PM Edi Rama, and European commission head José Manuel Barroso, at a conference on south-east Europe's economy. Photograph: Odd Andersen/AFP/Getty Images  Was it a Russian invasion of east Ukraine or just an incursion? Judging by the response of the financial markets, probably the latter. Gold was up a bit. Shares fell. Investors sought out traditional safe havens, such as German bunds. But there was none of the panic selling associated with a real sense of crisis. Not yet, at any rate.  What is clear is that the ratcheting up of tension between Kiev and Moscow comes at an unhelpful time for the struggling European economy. It is not just that activity has come to a standstill; it is that events in Ukraine are having a depressing impact on confidence, particularly in Germany.  That is hardly surprising. Germany's exports to Russia are relatively small – amounting to only 3% of the total – but a key aim of Berlin's foreign policy for the past quarter of a century has been to re-integrate what used to be the Soviet Union and its satellites into the market economy. Expanding capitalism to the east was seen as both good for German business and for German security.  Angela Merkel, Germany's chancellor, believes that Vladimir Putin's actions are putting all this at risk. As someone born in the old East Germany, Merkel has been prepared to take a much tougher line on sanctions with Russia than that proposed by her two predecessors: Helmut Kohl and Gerhard Schröder. Berlin's assumption has been that Putin will see the damage being caused by sanctions and come to his senses.  That assumption now looks questionable. There is, therefore, likely to be pressure on Germany from two quarters: America, which will be pressing for even tougher sanctions, and France and Italy, which will be urging the Germans to back additional stimulus from the European Central Bank and an easing of austerity.  Resistance from German industry makes it unlikely Merkel will agree immediately to Iran-style sanctions that would freeze Russia out of western markets. But now that its own economy is feeling the chill from the east, Germany is likely to be more sympathetic to additional growth-friendly measures from the ECB before the year's end.
Angela Merkel could turn to more ECB growth measures rather than quickly agree to the sanctions on Russia sought by America