Brussels/Kiev: Ukrainian President Petro Poroshenko said Russia has withdrawn more than two-thirds of its troops from his country as European Union (EU) governments meet to consider imposing tougher sanctions against the Kremlin.

“According to the latest information from our intelligence unit, 70% of Russia’s troops have been recalled across the border," Poroshenko said on Wednesday in Kiev. “This gives more hope that the peace initiatives have good prospects."

The talks in Brussels among the 28-member nations follow the EU’s abrupt decision this week to put on hold for at least a “few days" a second package of economic penalties against Russia over its encroachment in Ukraine. The delay offered more time to assess the viability of a truce in Ukraine without risking further trade retaliation by Russia. President Vladimir Putin has always denied any Russian government involvement in the Ukraine conflict.

The planned sanctions, originally due to be published in the Official Journal on Tuesday, include barring some Russian state-owned defence and energy companies from raising capital in the EU, according to a European official who spoke on the usual condition of anonymity.

Sanctions “dangerous"

“The sanctions spiral is dangerous—we don’t know what industries would be hit by possible Russia counter-sanctions," Lenita Toivakka, Finland’s minister for European affairs and foreign trade, said in an interview on Wednesday in Helsinki. Nonetheless, “it’s clear the sanctions will come into force in the next few days, if Russia doesn’t do more than it has so far."

German Chancellor Angela Merkel told parliament in Berlin that the new sanctions could be lifted if the peace plan holds.

The 5 September truce between Ukraine and pro-Russian separatists has raised the prospect of ending a conflict that has killed at least 3,000 people, displaced more than 1 million more and soured Russia’s ties with former Cold War foes.

Poroshenko said on Wednesday that rebel-held Luhansk and Donetsk in the eastern part of Ukraine will remain part of the country and that he’s reinforcing his forces while seeking to protect the ceasefire. Rebels have released almost 700 Ukrainian nationals they were holding, he said.

Shelling continues

Three Ukrainian border guards were killed by an explosive device while driving a car in the Luhansk region, the border guard service said on its website. Fighting continues around the Donetsk airport, Andriy Lysenko, a spokesman for Ukraine’s military, said.

The agreement to halt fighting came in the midst of an EU push to ratchet up penalties against Russia in coordination with the US in a bid to force Putin to end support for the rebels in eastern Ukraine. Putin’s backing of Ukrainian separatists and his annexation of Crimea have jolted the security order in Europe.

“Delaying sanctions is expanding Russia’s ability to manoeuvre," Joerg Forbrig, senior program officer for central and eastern Europe at the Berlin bureau of the German Marshall Fund of the US, said by phone. “The Russians don’t have one scenario. A frozen conflict is one option. Expanding rebel territory is another. It all depends on what the West does."

Putin, Poroshenko

Putin and Poroshenko agreed on the need to sustain the truce during a phone call late on Tuesday, the Kremlin said on its website. Putin reiterated Russia’s “readiness to continue to contribute to the peaceful settlement of the crisis."

The US is finishing measures to “deepen and broaden" its penalties across Russia’s financial, energy and defence sectors, state department spokeswoman Marie Harf told reporters in Washington on Tuesday. So far the ceasefire is “mostly holding," Harf said.

Russia hopes the truce “will be consolidated" within days, foreign minister Sergei Lavrov said in Moscow.

In an initial set of sanctions imposed in late July, the EU barred five state-owned Russian banks from selling shares or bonds in Europe; restricted the export of equipment to modernize the oil industry; prohibited new contracts to sell arms to Russia; and banned the export of machinery, electronics and other civilian products with military uses—so-called dual-use goods—to military users.

Russian reaction

Those measures prompted Russia to ban imports of some EU farm goods, a step that has cut off about €5 billion ($6.5 billion) of annual trade and left the bloc struggling to aid its producers. In a statement on 6 September, the day after EU member- state diplomats drew up the latest sanctions plan, the Russian government signalled it would take further retaliatory action should the extra penalties be enacted.

“In the case that they are introduced, a reaction from our side will undoubtedly follow," the foreign ministry said in a statement in Moscow.

EU sanction decisions require the support of all EU governments, giving any one nation leverage to seek concessions. Several European leaders including Finnish premier Alexander Stubb and his Hungarian counterpart, Viktor Orban, have expressed concerns the penalties against Russia will hurt the their own economies.

The delayed EU package would extend to three energy companies—OAO Gazprom Neft, OAO Rosneft and OAO Transneft as well as to nine defence companies—the ban on share or bond sales in the EU, according to a European official.

Debt sales

It would also shorten to 30 days from 90 days the threshold for the maturity of debt whose sale in the bloc by the targeted Russian businesses is banned; prohibit European banks from offering syndicated loans to sanctioned Russian companies; expand the restrictions on dual-use goods and widen the curbs on technologies for the oil industry, according to the official.

EU governments on 8 September approved the measures in principle while stopping short of giving the green light for their publication in the Official Journal and entry into force. The Ukrainian government on Tuesday pressed the bloc to complete the process for enacting the sanctions, saying they are key to countering Russian aggression.

In a sign of the political sensitivities of applying the tougher measures, EU diplomats met on short notice on 8 September to discuss the package they had approved three days earlier.

Russian blacklist

An additional outcome was that the EU put on hold a parallel plan to expand a blacklist of people and companies subject to asset freezes in Europe in connection with the Ukrainian unrest. EU leaders on 30 August, beyond calling for more economic penalties against Russia to be prepared, asked for proposals to blacklist people and institutions “dealing with" separatist groups in the Donbass region of eastern Ukraine.

The latest people who would be targeted include the new leadership in Donbass, the government of Crimea and “Russian decision-makers and oligarchs," EU president Herman Van Rompuy said in a 5 September statement after the EU diplomats had approved the new measures and sent them to the bloc’s national governments for final approval on 8 September.

The new blacklist would add 24 people, including two additional Kremlin “cronies," according to a second European official who spoke on the usual condition of anonymity.

Like the tougher economic penalties, the latest blacklist targets had been due to be disclosed on Tuesday in the Official Journal. The economic penalties would normally take effect the day after publication, while the blacklist decisions would enter into force the same day. Bloomberg

Volodymyr Verbyany, Kati Pohjanpalo, Jason Corcoran, Ilya Arkhipov, Henry Meyer, Andy Hoffman, Ian Wishart, Holly Rosenkrantz and Patrick Donahue contributed to this story.