"Of course we need to keep trying to find a political solution here. But I think it was also necessary for us to agree on sanctions against Russia to demonstrate the seriousness of our convictions," she said in the Latvian capital Riga.
"The effect of doing nothing and then seeing conditions become even more insecure could be even greater than if we take action," she added after talks with Latvian Prime Minister Laimdota Straujuma.
Merkel spoke as Ukraine accused pro-Russian rebels of shelling a convoy of civilians fleeing the war-torn east, leaving "many" dead including women and children.
The crisis talks yesterday between the foreign ministers of France, Germany, Russia and Ukraine broke up without agreement on how to end the conflict that has killed over 2,100 people and left the region facing a humanitarian catastrophe.
Also Read
Merkel today said she understood the concerns of the three Baltic states and Ukraine neighbour Poland over potential spillover from the crisis and pledged support.
She added that a planned NATO summit in Wales in September would decide on the issue of permanent NATO bases in the Baltic region.
The European Union imposed a new range of sanctions against Moscow last month over its alleged backing of rebels in east Ukraine.
A furious Moscow hit back with a year-long embargo on most food imports from the United States and the EU, which came as a trade blow to some member countries.