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WASHINGTON -- President Barack Obama and German Chancellor Angela Merkel threatened tough sanctions Friday on broad swaths of Russia's economy if Moscow disrupts Ukraine's May 25 presidential elections, putting President Vladimir Putin on notice for harsher penalties even if he stops short of a full invasion.
Standing side by side in the White House Rose Garden, Obama and Merkel sought to bat down the notion of any discord between the U.S and European approaches to dissuading Putin from interfering in Ukraine. Obama said the U.S. and Europe have shown "remarkable unity" in their response so far, though he acknowledged that some European countries are vulnerable to Russian retaliation for sanctions and said those concerns must be taken into account.
"The next step is going to be a broader-based sectoral sanctions regime," Obama declared, referring to entire segments of Russia's economy, such as energy or arms.
"If in fact we see the disruptions and the destabilization continuing so severely that it impedes elections on May 25, we will not have a choice but to move forward with additional, more severe sanctions," the president said.
As Merkel arrived at the White House, Ukraine's interim government launched its first major offensive against a pro-Russian insurgency that has seized government buildings across the eastern part of the country. The insurgents shot down two Ukrainian helicopters Friday, though Ukrainian officials said many insurgents had been killed or wounded. The Kremlin said the Ukrainian government's actions had destroyed all chances for a 2-week-old diplomatic deal to de-escalate the crisis.
While Obama and Merkel projected unity on Ukraine, there were clear differences between the two leaders over U.S. spying -- a touchy issue that has exasperated much of the German public after revelations that the National Security Agency had eavesdropped on Merkel's phone calls.
Obama has vowed to end that practice, but a broader "no-spy" agreement sought by many in Germany hasn't panned out.
Obama insisted the U.S. doesn't maintain that type of an arrangement with any country.
Merkel said that "we have a few difficulties still to overcome," while Obama said there are "some gaps that need to be worked through."
The leaders said they were committed to a "cyber dialogue" to resolve the lingering differences.
The U.S. and the European Union both ordered sanctions against Russian officials and individuals following Moscow's annexation of the Crimean Peninsula, but they have stopped short of broader sectoral sanctions out of concern about ricochet effects on European countries that do business with Russia.
Previously, Obama had said a Russian military incursion in eastern Ukraine would lead to those penalties, but on Friday, the two leaders signaled they could take such action even if Russia limited itself to more furtive means of stoking unrest in neighboring Ukraine.
"This is not necessarily what we want, but we are ready and prepared to undertake such a step," said Merkel, according to an English translation of her remarks, which she made in German. She has spoken with Putin more frequently throughout the crisis than perhaps any other Western leader.
Echoing Obama's insistence that punishing Russia isn't the goal, Merkel said the sanctions threat comes bundled with a renewed offer to Moscow to choose a diplomatic resolution instead.
The tough talk from Obama and Merkel -- the two leaders at the forefront of Western efforts to rein in Russia's actions in Ukraine -- came during a Washington visit in which the German chancellor was also meeting with U.S. lawmakers and promoting trans-Atlantic trade in a speech to the U.S. Chamber of Commerce.
In that speech, she said the free-trade deal could help open the way for American natural gas supplies to Europe. About one-third of Europe's energy now comes from Russia, and a majority of that supply passes through Ukraine, making it even more vulnerable.
The crisis over Ukraine, Merkel said, "could have a very positive effect" in promoting a much quicker agreement on the free-trade agreement. Current U.S. regulations prohibit oil and gas exports to countries with which the U.S. does not have free-trade deals.
Meanwhile, the European Union announced it would hold talks with Ukraine and Russia later this month on the price of natural gas, in an attempt to avoid any disruption in supplies. Moscow recently hiked the price of gas shipped to Ukraine and threatened to limit deliveries if Kiev does not meet the new price and repay a $3.5 billion debt.
The seemingly unraveling situation in eastern Ukraine topped the Merkel-Obama agenda and infused their roughly four hours of meetings with a heightened sense of urgency.
"What happened in Ukraine, what happened on the Crimean Peninsula -- well, the postwar order has been put into question," said Merkel, who was raised in communist East Germany amid the chill of the Cold War.
Ukrainians are expected to go to the polls on May 25 to select a replacement for President Viktor Yanukovych, who fled to Russia in February following widespread protests by Ukrainians miffed by his move to push Ukraine further into Russia's orbit. Western officials fear Russia may seek to stir more unrest ahead of the election so that it can later cast doubt on its validity if the outcome isn't to Moscow's liking.
Russia has sought to portray Ukraine's interim government as illegitimate, and the West is looking to May's election to re-establish Kiev's credibility. The U.S. and the EU accuse Russia's government of being the driving force behind pro-Russian insurgents stoking unrest in Ukraine -- a charge that Moscow disputes.
But with eastern Ukraine mired in chaos, and Ukraine's government admittedly unable to oust insurgents there, it's unclear whether conditions exist to hold a credible election. For Obama and Merkel, proving Russia's involvement may be harder than it would be if Russian tanks were to start rolling over the border into Ukraine.
Associated Press writers Geir Moulson in Berlin, James Heintz in Moscow and Steven R. Hurst in Washington contributed to this report.
Reach Josh Lederman at http://twitter.com/joshledermanAP