EXCLUSIVE-German industry sees "irreparable damage" from Russia sanctions

BERLIN, May 16 (Reuters) - Europe's showdown with Moscow over Ukraine is already having a major impact on German business in Russia and imposing economic sanctions would cause lasting damage to industry, a confidential paper sent to the German government by a business lobby warns.

The paper from the German-Russian chamber of foreign trade, a group representing 800 companies that provides support to German firms operating in Russia, underscores the extent of concern among German businesses over the Ukraine crisis.

It also suggests industry is stepping up efforts to dissuade Chancellor Angela Merkel's government from pressing ahead with tougher sanctions.

Merkel has warned of more punitive measures against Russia if a presidential election in Ukraine, scheduled for May 25th, is disrupted.

"The growing destabilisation of Ukraine and the diplomatic tug-of-war for a common solution are already having a massive impact on German business in Russia," the two-page "position paper" dated May 7th warns.

"Deeper economic sanctions would lead to a situation where contracts would increasingly be given to domestic firms, projects would be suspended or delayed by the Russian side, and Russian industry and politicians would turn to Asia, in particular China," the paper says.

It says the loss of market share for German and European firms would be "long-term and sustainable", causing "irreparable damage" to Germany's competitive position in Russia.

The paper says this would lead to job losses in Germany and would leave companies vulnerable to "massive compensation" claims if they were forced to break contracts with Russian counterparts.

(Reporting by Rene Wagner; Writing by Noah Barkin)