Even though plan A (rapid victory) appears to have failed, there is still a rational plan B: carve out the eastern and southern portions Putin wants, leave the rest of the country a smouldering ruin which will cost the west $1tn in aid to rebuild.
Also I bet you Putin wants these high yield parts, controlling not only Europe's oil and gas supply but also lots of their food supply can only be good for Putin. Look at how much Germany was trying not piss him off even while cruise missiles were destroying Ukraine:
http://static.producer.com/wp-content/uploads/2014/03/Ukrain...
So a little more on the coast too (Odessa). If he does leave some of Ukraine in the hands of Ukrainians to end the war and go back to selling Europe gas and oil then a land locked Ukraine would make much less of a threat later too.
And while we are at it why not try for the whole thing? There's a good plan B there. And if you're gonna threaten WWIII, do it for as much gain as you can.
Why the west? Sanctions against Russia should stay on place until they agree to pay for the reparations.
They seem equally likely to pay the reparations as Mexico is to pay for a wall.
Then over time take money from Russia as possible. Plus all the frozen assets.