Germany condemned the seizure of a strategic east Ukrainian town by pro-Russian rebels on Wednesday as a "massive violation" of a cease-fire, but said it was too early to call the broader Minsk peace plan dead or ratchet up sanctions against Moscow.
The withdrawal of Ukrainian troops from the encircled town of Debaltseve on Wednesday was a blow to German Chancellor Angela Merkel's efforts to clinch a negotiated solution to the year-long conflict that has claimed thousands of lives.
But Berlin appears to be hoping that Russian President Vladimir Putin, whom the West accuses of actively supporting the rebels, will respect other aspects of a peace plan agreed last year in the Belarus capital, now that the rebels have achieved their goal of capturing Debaltseve.
Merkel's spokesman Steffen Seibert pointed to a resolution by the United Nations Security Council on Tuesday as a positive signal. Backed by Russia, the resolution called on all parties in eastern Ukraine to stop fighting and to implement the Minsk peace deal.
"The German government resolutely condemns the military actions by the separatists in Debaltseve. It is a massive violation of the cease-fire that went into effect on Sunday," Seibert said.
"We believe the Minsk process is under strain, it has perhaps been damaged, but we still believe it makes sense to continue working. The UN resolution appears to send a signal in the right direction."
Merkel, speaking later at a gathering of her conservative party in eastern Germany, did not mention the developments in Debaltseve, but said she wanted to work with Russia, not against it, to restore peace in Europe.
Some German politicians, including Juergen Hardt, a defense expert in her Christian Democratic Union (CDU), said the siege of the town was reason to consider tough new sanctions against Moscow.
But Merkel's spokesman was more cautious, saying more punitive measures hinged on developments on the ground in eastern Ukraine.
"If the fighting doesn't stop after the fall of Debaltseve, new sanctions are likely," said Ulrich Speck of the Carnegie Europe think tank.
"I don't think yet that the 'nuclear economic option,' cutting off Russia from SWIFT, is going to happen," he added, referring to the international bank transaction system.
Although Merkel's pursuit of dialogue with Putin is popular at home, the rebel advance has left her vulnerable to critics abroad, among them hawks in the U.S. Congress, who have accused her of naively persisting with diplomacy in the face of repeated broken promises by Putin.
In a statement on Tuesday, Republican Senators John McCain and Lindsey Graham accused Merkel and French President Francois Hollande, who negotiated the ceasefire last week with Putin and Ukraine's President Petro Poroshenko, of "legitimizing the dismemberment of a sovereign nation in Europe."
They have called on President Barack Obama to send defensive arms to to the Ukrainian army, a step Merkel opposes and cautioned against during a visit to Washington earlier this month. The rebel siege of Debaltseve could increase pressure on the president to ignore her warnings and send such weapons.
"The open question is what Putin does now," said a senior German official who requested anonymity.
"Is Debaltseve another step in a process that goes even further or does Putin now have an interest in sticking to the other aspects of the Minsk agreement? If Minsk does fall apart then there will have to be consequences."