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MH17 threatens to divide Europe’s leadership

Instead of uniting allies, the missile attack that brought down Malaysian Airlines MH17 is in danger of dividing European leaders.

The biggest question mark lies over the behaviour of the Dutch government. It is grappling with the need to look tough in its response to the killing of 193 Dutch citizens while at the same time avoiding excessive harm to its trade with Russia.

This impossible task falls to Mark Rutte, the Netherlands prime minister, who has done his best to sound both indignant and statesman-like following the disaster in which 298 passengers and crew died. The missile attack is believed to be the work of Russian separatists in Ukraine.

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Images of horror at the crash site provoked the Dutch media into frenzied calls for NATO military action and elicited barbed comments about the cynical behaviour of Dutch multinationals, such as Royal Dutch Shell, Heineken and Philips, all of which have large Russian investments.

Mr. Rutte, who was a guest of honour of Russian President Vladimir Putin at the 2013 St. Petersburg international economic forum, has called for a united European Union response but has made no promises about any unilateral action by the Netherlands against Russian interests.

These would loom large in Holland, a tiny country that boasts a big international trade footprint, thanks to the port of Rotterdam, Amsterdam's Schiphol airport (the point of departure of the ill-fated flight MH17) and a liberal tax policy towards foreign holding companies. The Netherlands ranks as Russia's largest trading partner or No. 3, depending on whether you rely on Russian or International Monetary Fund statistics.

Other European politicians have already seized on the disaster as a way to bang drums and score political points. David Cameron, the British prime minister, has been urging strong action, declaring on Monday that the completion of a sale by France of helicopter carriers to Russia was now "unthinkable."

In quick response, the leader of the French socialist party, Jean-Christophe Cambadeli, called Mr. Cameron a hypocrite for harbouring so many Russian oligarchs in London. One of these, Roman Abramovich, the owner of Chelsea Football Club, is widely believed to be close to the Russian president and involved in managing the Russian leader's financial affairs.

President Putin can easily survive without a shiny new ship. He will survive less easily, if the Russian economy goes into a tailspin, a likely consequence of the much more severe financial sanctions that U.S. President Barack Obama would like to see imposed by Europe on Russia.

The U.S. has few big trading interests with Russia and it has therefore been able to aim sanctions at a number of big companies, such as Rosneft, Gazprombank, Novatek and Vnesheconombank, with little fear that American companies will be put at risk.

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Russia's economy is already flirting with recession and Morgan Stanley, in recent research, suggests the tipping count could come before the end of the year. Starved of credit, Russia will be forced into more heavily discounted loans for oil deals in Asia. The imposition of sanctions by Britain on capital raising by Russian companies in London could be the last straw, if Britain pulls the plug.

The wider question, though, is whether such a stern option would be welcome in Europe's capitals. A Russian financial and economic collapse would not be without its wider victims. It is not just the fear of gas cut-offs to the vulnerable states on Europe's eastern fringe but the wider consequence of an investment choke on a major European trading partner, which would send energy prices soaring, and push weak European states into recession.

It is a political and moral conundrum for the 21st century. Should the world grit its teeth and refuse to treat with an increasingly violent and corrupt neighbour, risking severe damage to itself or should it, once again, bluster but keep its sword in its sheath?

As with all big moral questions, the choices on the table are awful, and those charged with the decisions are weak and fearful.

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About the Author

Carl Mortished is a Canadian financial journalist and freelance consultant based in the U.K. With a career spanning investment banking, journalism and consulting for global companies, he was for many years a financial writer and columnist for The Times of London. More

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