@Stančikas's answer is correct but only half the story, as it only addresses motivations and desired PR outcomes.
Official designation will a) hinder diplomacy and b) be difficult to withdraw - politically - once put in place.
If and when Putin's Russia withdraws its sorry butt from Ukraine it will probably want to trade security and territorial guarantees for lessening of sanctions and international pressures (travel bans and the likes).
However this terrorist designation, will it be easily repealable on the say-so of EU executive branches and diplomats? Likely not. Big on symbology, short on practicality.
I also don't buy, from the drift in UN votes, that African and South Americas fence-sitting nations will suddenly "see the light" and turn against Russia. Just because the EU used the T-word?
This is for internal Western popular opinion consumption. Allowing the members of parliament to look like they are doing something. While in fact they are encroaching on diplomacy which is usually the prerogative of the heads of states.
No one quite knows what an EU terrorist designation will mean, but Politico covered possible downsides on a US designation:
First, state sponsor designation is too blunt an instrument to use with Russia, a country that the U.S. still must work with on the global stage. Lawmakers should look to the countries already on the state sponsorship list — Cuba, North Korea, Iran and Syria: These are all countries with which the U.S. has no formal or commercial ties. For all the friction the U.S. has with Russia, it is not yet at that point, nor should it wish to be. While increasingly strained, diplomatic relations between the U.S. and Russia do persist, and they remain essential for global crisis management. At the U.N. Security Council and in other multilateral forums, the U.S. and Russia have little choice but to work together on sustaining the U.N.’s dozens of peace missions, cross-border aid to Syria, peace negotiations in conflicts like Libya and Yemen and countless other projects. Even discreet bilateral diplomacy, such as the current negotiations over the imprisonment of WNBA player Brittney Griner and Paul Whelan (whose sister has publicly opposed the measure) could be imperiled by a designation.
Second, lawmakers should consider the implications for Russia’s war in Ukraine. While negotiations seem difficult to imagine after Russia’s recent escalatory actions, preserving space for the parties to get back to the table and negotiate an agreement Kyiv can live with must remain a top goal, especially given the still-uncertain odds that either side will win a hands down military victory. Designation will make that more difficult. Russia will surely want this sanction lifted before agreeing to any future peace deal, but a state sponsor of terrorism designation is notoriously sticky. To lift it, a future administration would have to win the support of a Congress influenced by mounting evidence of Russian atrocities and corresponding public sentiment.
The DW article originally linked by JoeW's comment says:
The designation is a largely symbolic condemnation of Russia's actions in Ukraine and beyond. The US government has so far resisted the label for Russia, citing potential unintended consequences under its legal system.
...
Musiol said it made more sense for the European Union to focus on initiatives that have real consequences, such as further sanctions on Russia, and weapons deliveries, economic aid and military training for Ukraine. Even as a symbolic gesture, offering the country EU accession candidate status was far more meaningful, Musiol said.
There is a saying that "You can choose your friends. You can't choose your enemies". Russia is a major nuclear state. The West will have to coexist, at least diplomatically, with it, unless Putin is magically replaced by a much nicer government which most consider quite unlikely in the short term.
Send some tanks, send some Gripens (they're the most appropriate fighter jets for the task due to dispersed airfield capabilities), send more $$$.
Don't do "SYMBOLISM" for the sake of it.
p.s. Terrorism was also originally intended to designate small, covert, actions against civilians in non-war circumstances. Often with a connotation of weak-vs-strong. The term really came into common use with the 1970s Palestinian attacks on Israeli nationals, ETA in Spain and IRA in UK. Though it had antecedents such as the anarchists in the early 1900s and pre-WW2 Nazi acts in places like Austria.
Whatever Russia's numerous war crimes are up to they are hardly covert and small. They resemble the way wars were waged against civilians by states, in much darker times, until about 50 years ago (The Blitz, Dresden, etc...). Along with even darker throwbacks to torture and wanton undisciplined brutality at scale, unfit for a civilized nation. But their alignment with the original meaning of the term "terrorism" seems tenuous.
