Putin about to roll the dice

On one hand, eastern Ukraine appears to be slipping out of the government's control, as pro-Russian groups seize control of official buildings in big eastern cities like Donetsk and Luhansk and demand referendums on union with Russia. They almost certainly do not represent majority opinion in those cities, but the police stand aside and people who support Ukrainian unity are nervous about expressing their opinions in public.

On the other hand, the European Union's foreign policy chief, Catherine Ashton, has just announced that the EU, the United States, Ukraine and Russia will all meet somewhere in Europe next week to discuss ways of "de-escalating the situation in Ukraine".

That will be the first time that Russia's foreign minister, Sergei Lavrov, has agreed to meet with a representative of the Ukrainian government.

So is this crisis heading for a resolution or an explosion? It still depends on whether Russian President Vladimir Putin thinks that the annexation of Crimea is enough compensation for the humiliation he suffered when his ally in Kiev, former Ukrainian president Viktor Yanukovych, was overthrown by a popular revolution. And clearly Putin hasn't yet decided that himself.

Rationality says take your winnings to the bank and quit the game while you're ahead. Putin's action has guaranteed that almost any imaginable Ukrainian government will be hostile for the foreseeable future, but the NATO countries will be willing to forget about Crimea after a while if he goes no further. Does he really want the United States, Germany, France and Britain as his enemies too?

Yet the temptation is there. Putin's agents are everywhere in eastern Ukraine, he has 40,000 troops ready to go at a moment's notice just across the frontier, and all the Russian navy's amphibious assault ships are now in the Black Sea - he could grab the Ukrainian coast all the way west to Odessa at the same time. The Ukrainian army would fight, but could not hold out for more than a day or two, and Nato would not send troops. Why not do it?

There are lots of good reasons not to. Putin would face a protracted guerilla war in Ukraine (he would call it "terrorism", of course).

He would find himself in a new Cold War that Russia would lose much faster than it lost the last one: it has only half the population of the old Soviet Union, and now depends heavily on Western markets for its modest prosperity.

He would find new Nato military bases opening up in various countries on Russia's borders that joined the alliance for safety's sake, but have so far not allowed foreign (i.e. American or German) troops to be based permanently on their soil out of consideration for Russian anxieties.

He really shouldn't even consider grabbing Ukraine, but he is a man with a very big chip on his shoulder.

So what sort of line should the Europeans, the Americans and the Ukrainians be taking with Russia next week? This is about hard power, so appeals to sweet reason are pointless. "Sanctions" are also irrelevant: this has now gone considerably beyond the point where gesture politics has any role to play. The economic and strategic prices that Russia would pay need to be big and they need to be stated clearly.

But at the same time, Russia's own legitimate concerns have to be addressed, and the main one is its fear that Ukraine might some day join Nato. That requires a firm commitment that Ukraine will be strictly neutral, under international guarantee. Russia will also try to get a promise that Ukraine will be "federalised", but that is none of its business and should be rejected.

Ukraine needs lots of money, in a hurry, to stay solvent while it holds an election (on May 25) and sorts itself out politically. And if all that is done, then maybe Putin will settle for Crimea and put up with the prospect of having to live next door to a neutral but democratic Ukraine.

Otherwise, it's going to get quite ugly.