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In their telephone talk on Tuesday morning, Obama and Merkel viewed Russia's annexation of Crimea as a violation of international law and noted there would be costs, the White House said in a statement.
The leaders agreed to continue to underscore to Russian President Vladimir Putin that "there remains a clear path for resolving this crisis diplomatically", in a way that addresses the interests of both Russia and the people of Ukraine, said the statement.
Obama and Merkel also agreed that it was vital to send international monitors from the Organization for Security Cooperation in Europe and the United Nations to southern and eastern Ukraine immediately, according to the statement.
Earlier in the day, Russian President Vladimir Putin signed a treaty with the leaders of Crimea to accept the Republic of Crimea and the city of Sevastopol as part of the Russian territory.
The agreement follows Monday's decision by the Crimean parliament to declare independence from Ukraine after official results from the referendum on March 16 showed 96.77 percent of Crimean voters chose to join Russia.
Putin reiterated that the Crimean population's vote is in full compliance with international law, in particular with Article 1 of the U.N. Charter that stipulates the principle of equality and self-determination of peoples. He also added that Moscow did not seek and did not need to split Ukraine.
U.S. Secretary of State John Kerry spoke with Russian Foreign Minister Sergei Lavrov Tuesday morning on the events in Ukraine.
Kerry told Lavrov that the steps Russia had taken are "illegal" and "unacceptable", State Department spokeswoman Jen Psaki said in a press conference, adding that Kerry also warned that "there will continue to be costs and consequences."
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