By Gabriela Baczynska and Tulay Karadeniz
BRUSSELS/ANKARA (Reuters) - The European Union stepped up criticism on Tuesday of Turkey's crackdown on opponents and alleged plotters behind a failed coup, drawing a sharp retort from Ankara, which accused Europe of failing to grasp the threats it faces.
But neither seems ready to take the kind of active reprisal that might completely damage a delicate relationship of mutual dependence. Brussels needs Ankara to keep stopping migrants reaching Europe and Turkey, seeing its currency hit record lows on instability fears, wants to keep access to European markets.
The EU said recent events in Turkey were "extremely worrying" but that it would maintain dialogue with Ankara on its - all but distant - prospects of joining. But on the eve of an annual report on Turkey's progress to membership, it ignored calls from some for talks to be halted or for other sanctions.
Nonetheless, a strong statement by the EU and its states saying Turkey must stop polarizing its society and safeguard its democracy, plus a personal dig by EU chief executive Jean-Claude Juncker at President Tayyip Erdogan, underline concern that a vital Muslim ally and a buffer against the chaos of the Middle East risks pitching itself into a new era of instability.
EU leaders are also under pressure at home to speak out on Turkey's crackdown on the media and Kurdish politicians, while for its part, Ankara is seeking to satisfy expectations among Turks that it stand up to criticism from a historic adversary.
As it faces violence in the Kurdish southeast and its forces confront Islamic State across the borders in Iraq and Syria, the Foreign Ministry said Europeans had lost credibility with Turks after demands that it loosens anti-terrorism laws and goes easy after arresting journalists, Kurdish lawmakers and tens of thousands of public servants over a botched coup in July.
Since then, the two sides have been sharply divided by rhetoric. Europeans have voiced understanding for the challenges that Erdogan faces, but a new round of arrests, including those last week of leading Kurdish lawmakers, has strained that reserve.
Leaders on both sides speak of drifting apart.
Juncker said in a speech on Tuesday: "I note with bitterness that Turkey is day by day distancing itself further from Europe ... All that the Turkish authorities are doing today leads me to believe that in the end Turkey does not want to ... meet European standards."
Insisting that the EU would not ease visa requirements for Turkish travelers, as promised in the March deal that helped stem the influx of refugees and migrants to Europe, until Turkey amended its harsh anti-terror law, Juncker cited Erdogan by name and said Turks would blame him for any failure to free up travel to Europe.
"We need Turkey," he said. "But we cannot give up on our main principles."
For his part, Erdogan said in a speech on Sunday that he did not care being labeled a dictator: "Europe has been on a course that is leading to its own demise," he said.
"Those who are willing to drown the rest of the world in blood to preserve the sense of security and peace inside their own borders move further from humanity each day."
Despite occasional threats, however, Turkey has made no move to break the agreement with the EU, under which it agreed to take back Syrian refugees and others who might make it to Greece in return for EU funding for the Syrians living in Turkey, a new start on EU accession talks and a liberalization of EU visas.
From Europe, as long as the weekly arrivals from Turkey stay in the dozens compared to tens of thousands this time last year, there is little urgency in seeing Turkey meets the 72 criteria that would trigger the easing of visa controls.
Major elections due next year in the Netherlands, France and Germany, where anti-immigration parties are doing well and oppose fostering a closer relationship with Turkey, adds to the sense that Brussels is in no hurry to push to complete the deal.
The pro-Kurdish HDP party, whose leaders were arrested last week, issued a statement in Brussels on Tuesday, however, to warn that Europe's cooperation with Erdogan could backfire.
Accusing EU states of keeping quiet to protect the migrant deal, it said: "The current campaign of repression ... can cause a wave of millions of Kurdish and Turkish refugees heading for Europe."
(Additional reporting by Clement Rossignol and Alastair Macdonald in Brussels and Humeyra Pamuk and Nick Tattersall in Ankara; Writing by Alastair Macdonald; Editing by Tom Heneghan)