By Gabriela Baczynska, Sabine Siebold and Robin Emmott
BRUSSELS (Reuters) -European Union leaders on Friday rejected a Franco-German proposal to hold a summit with Russia after Poland and Baltic countries said it would send the wrong message as East-West ties deteriorate.
After U.S. President Joe Biden met Putin in Geneva on June 16, French President Emmanuel Macron said a first EU summit with Putin since January 2014 would be "a dialogue to defend our interests". He said the EU must be proactive in its diplomacy with Russia.
Italy, a big exporter to Russia with investments in Russian energy, also backed a summit with Putin, Prime Minister Mario Draghi said. "Russia is an important player on the economic and political front ... We must have an active dialogue," Draghi told reporters at the Brussels summit.
But late-night talks between the EU's 27 leaders failed to secure an agreement, German Chancellor Angela Merkel said.
France and Germany want to be able to work with Russia on combating climate change and to find ways to stabilise relations. Merkel said that, even without a summit, "formats will be explored ... under which dialogues can be started".
Austrian Chancellor Sebastian Kurz said he had supported the summit proposal, but many other leaders were opposed, and Russia's direct neighbours were the most vocal.
Macron said he had concluded that EU unity was more important and the summit was not a top priority.
Polish Prime Minister Mateusz Morawiecki told reporters that Putin must stop "aggressive" policies against its neighbours, and that there could be no summit while Moscow held Crimea, annexed from Ukraine in 2014, and sided with separatists in eastern Ukraine.
Lithuanian President Gitanas Nauseda said the idea was like "trying to engage the bear to keep a pot of honey safe", and Latvian Prime Minister Krisjanis Karins said Russia might see a summit as a reward when diplomacy had failed to end the conflict in eastern Ukraine.
MORE SANCTIONS?
The Kremlin said it was committed to improving ties with the EU, Russia's biggest foreign investor and a big oil and gas customer, and Russia's foreign ministry said the EU was being thwarted by an aggressive minority.
"In general, President Putin was and remains interested in improving working relations between Moscow and Brussels," Kremlin spokesman Dmitry Peskov told reporters. "The European position is fragmented, not always consistent and sometimes unclear."
The failure of the initiative underscores the contradictory pressures faced by the EU, which says it will never recognise Crimea as Russian territory and has accused Moscow of covert operations to try to undermine its democracies.
Moscow rejects what it says is Western interference.
In the event, the EU leaders fell back to a familiar position. In a statement, they called on the European Commission and the EU's top diplomat Josep Borrell "to present options for additional restrictive measures, including economic sanctions".
The EU already has sanctions in place on the Russian energy, financial and arms sectors, and personal sanctions on Russians accused of human rights abuses or of using banned chemical weapons.
Diplomats say further sanctions could target Russian money laundering or powerful oligarchs suspected of serious corruption abroad, as non-EU member Britain did for the first time in April.
On Thursday, the EU imposed economic sanctions on Belarus, an ally of Moscow that the Kremlin sees as a buffer state between Russia and NATO.
Many EU countries are concerned that the Kremlin does not take the bloc seriously, after Borrell was publicly humiliated in February when Russia expelled EU diplomats without warning during his visit to Moscow.
"We should be extremely cautious," Lithuania's Nauseda said. "This is not like the relationship of Russia with the United States."