With the Moscow stock market down by more than ten per cent, and the ruble hitting a historic low, the Western effort to make Vladimir Putin pay for sending Russian troops into Crimea is under way. Speaking from Kiev on Monday, the British foreign secretary, William Hague, repeated the Obama Administration’s message to Putin, saying that Russia will face “significant diplomatic and economic costs” unless it reverses course.

John Kerry is planning to travel to the Ukrainian capital on Tuesday. At a moment when Republicans, including his old pal John McCain, are busy claiming that Putin’s military gambit reflects weakness on the part of the Obama Administration, we can expect more heated rhetoric from the Secretary of State. Having already called Russia’s troop movements an invasion of Ukraine and “an incredible act of aggression,” he seems unlikely to confine himself to more diplomatic language at this stage.

If there is a solution to the crisis, it may lay in Berlin, in the personage of Angela Merkel, the German Chancellor and the de facto leader of the European Union. Since the Russian troops moved into Crimea, Merkel has said little publicly, confining herself to a few anodyne comments about “preserving the territorial integrity” of Ukraine. Behind the scenes, though, she is at the center of things. And, if anybody can persuade Putin that it is in his interests to order his soldiers back to their barracks, she might be the one.

Russia is Germany’s biggest supplier of energy, and it still regards Germany as an ally rather than a potential enemy. Merkel, despite having criticized Russia for its human-rights violations on several occasions over the years, has maintained a businesslike relationship with Putin, who speaks excellent German. (He was once stationed in Dresden as a K.G.B. officer.) The two leaders appear to respect each other’s toughness. As the crisis has unfolded, they have spoken several times, most recently on Sunday night, when Putin agreed to Merkel’s proposal to establish a “contact group” to open a dialogue between the two sides.

But it is not clear what, if anything, this initiative amounts to. According to German media reports, the contact group would operate under the auspices of the Organization for Security and Co-operation in Europe, an East-West forum based in Vienna that dates back to the Cold War. There hasn’t been any word on how the contact group will be composed, or when it will get to work. Quite possibly, Putin is just stalling for time while his forces in Crimea secure complete control. (On Monday, there were reports that Russian forces had ordered the crews of two Ukrainian warships to surrender.) Still, the German initiative demonstrated that Merkel is determined to find a diplomatic solution—and she isn’t willing to cede that ground fully to Washington.

Over the weekend, Germany signed onto a G7 communiqué that condemned Russia’s incursion. The signatories—Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States—announced that they would suspend preparations for a G8 meeting in Sochi, Russia, that was to be held in June. But officials in Berlin have said that, at least for now, they oppose the idea of ejecting Russia from the G8 completely, which is something that Kerry and others have mooted. It isn’t even clear whether Germany would support economic sanctions against Russia, another possibility that the Obama Administration has raised. European Union rules require unanimity for the imposition of sanctions, and without Germany’s support the idea would go nowhere.

On Monday, Frank-Walter Steinmeier, the German foreign minister, insisted that this was a time for diplomacy rather than punitive action. “Diplomacy does not mean weakness but is more needed than ever to prevent us from being drawn into the abyss of military escalation,” he said before an emergency meeting of E.U. foreign ministers. That statement followed a conversation on Sunday between Merkel and President Obama, in which, according to a report in the New York Times, the German Chancellor said, of Putin, that “she was not sure he was in touch with reality,” and was “living in another world.”

Official German accounts of the conversation made no mention of this description, although it fits Merkel’s reputation as a blunt talker. But, whatever she really thinks of Putin, Merkel will be determined to broker a peaceful solution in Ukraine. That’s not just because Germany gets about a third of its energy from Russia, mostly in the form of natural gas; it also reflects Germany’s broader interests. Since the collapse of the Soviet Union, no country has benefitted more from expanded ties to Eastern Europe and friendly relations with Russia. As members of the E.U., many former Communist countries, such as Poland, Slovakia, and Romania, now serve as production centers and consumer markets for German manufacturers.

Over the past few years, Merkel has made clear she would like for Ukraine to eventually join the club of Germany’s democratic trading partners. But, like all Germans, she also knows the dangers of lasting enmity with Russia. According to some informed commentary, Europe is now facing the prospect of a new Cold War. Even if that’s over-egging things, as it might well be, Germany would be among the biggest losers in any permanent East-West standoff. In any case, Merkel will do all she can to prevent such an outcome. And, as many Europeans have learned over the past decade, she often gets her way.

Photograph by Thomas Trutschel/Photothek/Getty.