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By Bloomberg

The European Union should expand sanctions on Russia’s finance industry if the crisis in Ukraine deteriorates, a panel of lawmakers in Britain’s House of Lords said.

Fighting between government troops and pro-Russian rebels continued in eastern Ukraine this week after a cease-fire came into force. Sanctions should be widened if no progress is made to defuse the situation, the cross-party EU European Union Committee of the unelected upper chamber of Parliament said in its report published in London Friday.

“If there is a further deterioration in eastern Ukraine, the EU should move to target individuals close to the regime and broaden sanctions into the Russian financial sector,” the panel said. At the same time, “the EU should make clear its desire to prevent the present crisis from deteriorating into something resembling the Cold War.”

EU and U.S. sanctions as a result of the war in Ukraine have helped propel Russia toward a recession, and the EU added 19 people and nine organizations to its blacklist on Monday, bringing the total to 151 people and 37 entities.

The U.S., the EU and NATO say Russia is sending troops to support the Ukrainian rebels, charges denied by Russian President Vladimir Putin.

U.K. Prime Minister David Cameron has been one of the strongest proponents of sanctions on Russia, and tensions have risen between the two countries this week.

Scrambled Jets

On Wednesday, Britain scrambled fighter jets to escort two Russian military aircraft away from the coast. The following day, the Daily Telegraph newspaper cited Defense Secretary Michael Fallon as saying Russia may test NATO resolve using propaganda, cyber attacks and covert forces to stir ethnic tensions in Estonia, Latvia and Lithuania.

That’s a view backed in the Lords report.

“The historical grievance of the rights of ethnic Russians in Estonia and Latvia offers the Russian government a convenient pretext which could be used to justify further destabilizing actions in those states,” the committee said.

The panel was also critical of the U.K. and other EU governments, saying they “seem to have missed the warning signs” in Ukraine, lacking “good intelligence-gathering capacity.” The EU also “underestimated the depth of Russian hostility” to the association agreement between the Ukraine and EU that triggered the present crisis.

Former Ukrainian President Viktor Yanukovych’s refusal to sign the accord caused protests that eventually toppled him, leading to a chain of events including the annexation by Russia of Crimea and the conflict in eastern Ukraine.

“There has been a strong element of sleep-walking into the current crisis, with member states being taken by surprise by events in Ukraine,” the panel said