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As Prime Russian Trading Partner, Germany Appears Crucial to Ending Crisis As Prime Russian Trading Partner, Germany Appears Crucial to Ending Crisis
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In the face of the diplomatic maneuvering over how to confront a bellicose Russia in Ukraine, one country appears to hold the key to any long-lasting entente: Germany, Europe’s economic powerhouse and one of Russia’s primary trading partners.In the face of the diplomatic maneuvering over how to confront a bellicose Russia in Ukraine, one country appears to hold the key to any long-lasting entente: Germany, Europe’s economic powerhouse and one of Russia’s primary trading partners.
Whether it is importing fuel from Gazprom or selling Mercedes-Benz to billionaire oligarchs, trade with Russia has played an important role in Germany’s emergence as an economic superpower over the last decade. Germany is now heavily reliant on Russia for its energy needs, importing more natural gas from Russia than any other country in Europe.Whether it is importing fuel from Gazprom or selling Mercedes-Benz to billionaire oligarchs, trade with Russia has played an important role in Germany’s emergence as an economic superpower over the last decade. Germany is now heavily reliant on Russia for its energy needs, importing more natural gas from Russia than any other country in Europe.
But Germany’s enhanced status on the world stage — combined with the end of the commodity boom and the onset of economic stagnation in Russia — has also shifted the balance of power. Some analysts argue that it is Russia that has the most to lose if economic sanctions are ever imposed.But Germany’s enhanced status on the world stage — combined with the end of the commodity boom and the onset of economic stagnation in Russia — has also shifted the balance of power. Some analysts argue that it is Russia that has the most to lose if economic sanctions are ever imposed.
This dynamic could offer insight into the role that the German chancellor, Angela Merkel, will play in any negotiations with the Russian president, Vladimir V. Putin.This dynamic could offer insight into the role that the German chancellor, Angela Merkel, will play in any negotiations with the Russian president, Vladimir V. Putin.
So far, German diplomats have tacked away from a plan, pushed by the United States, to impose sweeping sanctions and remove Russia from the Group of 8 developed economic nations. Instead, the German chancellor has called for a more diplomatic solution, preferring more limited actions like many of her European counterparts.So far, German diplomats have tacked away from a plan, pushed by the United States, to impose sweeping sanctions and remove Russia from the Group of 8 developed economic nations. Instead, the German chancellor has called for a more diplomatic solution, preferring more limited actions like many of her European counterparts.
But Ms. Merkel, a champion of closer ties between Ukraine and the European Union, has also shown a willingness to take a hard line with Mr. Putin. In recent months, Ms. Merkel has been particularly forceful on human rights issues. For example, she played a crucial part in the release of the jailed oil executive, Mikhail Khodorkovsky.But Ms. Merkel, a champion of closer ties between Ukraine and the European Union, has also shown a willingness to take a hard line with Mr. Putin. In recent months, Ms. Merkel has been particularly forceful on human rights issues. For example, she played a crucial part in the release of the jailed oil executive, Mikhail Khodorkovsky.
“The German attitude toward Russia has changed in a very substantial way,” said Anders Aslund, an economics expert on Russia, Ukraine and Europe at the Peterson Institute in Washington. “The tables have been turned.”“The German attitude toward Russia has changed in a very substantial way,” said Anders Aslund, an economics expert on Russia, Ukraine and Europe at the Peterson Institute in Washington. “The tables have been turned.”
Ten years ago, Mr. Aslund points out, it was Russia that was in ascendance, as high energy prices, robust economic growth and political stability made the country a darling for foreign investors. By comparison, the German economy was seen as dull and less than competitive.Ten years ago, Mr. Aslund points out, it was Russia that was in ascendance, as high energy prices, robust economic growth and political stability made the country a darling for foreign investors. By comparison, the German economy was seen as dull and less than competitive.
Now, Germany has a current-account surplus that amounts to 6 percent of gross domestic product — an important indicator of economic strength and competitiveness. And Russia is being lumped together with other struggling emerging countries and has witnessed a fast erosion of its once-sizable surplus.Now, Germany has a current-account surplus that amounts to 6 percent of gross domestic product — an important indicator of economic strength and competitiveness. And Russia is being lumped together with other struggling emerging countries and has witnessed a fast erosion of its once-sizable surplus.
There are two sides to Germany’s economic relationship with Russia: a reduced reliance on the country as an export market, countered by energy imports that remain strong.There are two sides to Germany’s economic relationship with Russia: a reduced reliance on the country as an export market, countered by energy imports that remain strong.
While companies like Mercedes and Volkswagen are significant exporters to Russia, over all it ranks 11th, behind Poland, as a market for German goods. In fact, many of Germany’s top exporters have for years been focusing on China and other more dynamic markets in Asia.While companies like Mercedes and Volkswagen are significant exporters to Russia, over all it ranks 11th, behind Poland, as a market for German goods. In fact, many of Germany’s top exporters have for years been focusing on China and other more dynamic markets in Asia.
Jörg Howe, a spokesman for Daimler, the parent company of Mercedes, said that at the moment the company did not expect the crisis to affect sales of its cars. He described Russia as an important market, though not on the same scale as China, Germany or the United States.Jörg Howe, a spokesman for Daimler, the parent company of Mercedes, said that at the moment the company did not expect the crisis to affect sales of its cars. He described Russia as an important market, though not on the same scale as China, Germany or the United States.
“The situation is so fluid and volatile and fast-changing it would be irresponsible to speculate,” said Dieter Zetsche, chief executive of Daimler, speaking during a company event in Geneva. “It’s far too early to make any comment.”“The situation is so fluid and volatile and fast-changing it would be irresponsible to speculate,” said Dieter Zetsche, chief executive of Daimler, speaking during a company event in Geneva. “It’s far too early to make any comment.”
Russia has become a more difficult country for business during a time of increased financial and corporate scrutiny, making German companies less excited about investing in the country. Russia ranks near the bottom in global surveys that assess levels of corruption and how easy it is to do business, said Mr. Aslund.Russia has become a more difficult country for business during a time of increased financial and corporate scrutiny, making German companies less excited about investing in the country. Russia ranks near the bottom in global surveys that assess levels of corruption and how easy it is to do business, said Mr. Aslund.
The worsening political situation with Ukraine has already hurt trade with Germany, which fell to 76.5 billion euros ($105 billion) in 2013 from 80.5 billion euros ($111 billion) in 2012.The worsening political situation with Ukraine has already hurt trade with Germany, which fell to 76.5 billion euros ($105 billion) in 2013 from 80.5 billion euros ($111 billion) in 2012.
Still, some 6,000 German companies are active in Russia, and it is an important market for midsize companies like Martin Kannegiesser, a firm in Vlotho, Germany, that supplied industrial laundry equipment for the Sochi Olympics. And there is clearly concern that the conflict in Ukraine could further hurt trade, as the market jitters on Monday underscored. German stocks were off more than 3 percent for the day.Still, some 6,000 German companies are active in Russia, and it is an important market for midsize companies like Martin Kannegiesser, a firm in Vlotho, Germany, that supplied industrial laundry equipment for the Sochi Olympics. And there is clearly concern that the conflict in Ukraine could further hurt trade, as the market jitters on Monday underscored. German stocks were off more than 3 percent for the day.
From an economic perspective, Ukraine is much less important to Germany than vice versa. German foreign direct investment in Ukraine stands at about $6.3 billion, a relatively modest sum that still accounts for more than 10 percent of the total in Ukraine, according to the German Foreign Ministry. Germany is the second-largest foreign investor in Ukraine behind Cyprus, which is a transit point for Russian money.From an economic perspective, Ukraine is much less important to Germany than vice versa. German foreign direct investment in Ukraine stands at about $6.3 billion, a relatively modest sum that still accounts for more than 10 percent of the total in Ukraine, according to the German Foreign Ministry. Germany is the second-largest foreign investor in Ukraine behind Cyprus, which is a transit point for Russian money.
Still, Germany does not have the upper hand entirely in its relationship with Russia. About three-quarters of the gas and oil that Germany imported in 2013 came from Russia. The country also acts as a major gas transit hub for countries like France.Still, Germany does not have the upper hand entirely in its relationship with Russia. About three-quarters of the gas and oil that Germany imported in 2013 came from Russia. The country also acts as a major gas transit hub for countries like France.
If there was a long-term shutdown of Russian gas, Germany would not be the only country to suffer. Prices would increase and supplies would be squeezed for countries like Turkey and Italy that also rely on Russian energy imports.If there was a long-term shutdown of Russian gas, Germany would not be the only country to suffer. Prices would increase and supplies would be squeezed for countries like Turkey and Italy that also rely on Russian energy imports.
“Germany in particular is dependent on Russian gas,” says Trevor Sikorski. an analyst at London research firm Energy Aspects. “Germany in particular is dependent on Russian gas,” said Trevor Sikorski, an analyst at the London research firm Energy Aspects.
Still, analysts point out that as energy sources multiply and gas storage levels remain high in Europe, the prospect of a long-lasting energy crisis as a result of the recent turmoil seems fairly remote.Still, analysts point out that as energy sources multiply and gas storage levels remain high in Europe, the prospect of a long-lasting energy crisis as a result of the recent turmoil seems fairly remote.
This shift in status notwithstanding, Germany has taken pains to play an engaged and nuanced diplomatic role that reflects not just its economic heft in the region, but its ability to bridge the widening chasm between Russia and the United States. It is a sensitive balance for the country, which, unlike France, has tended not to take aggressive diplomatic stands on pressing global issues.This shift in status notwithstanding, Germany has taken pains to play an engaged and nuanced diplomatic role that reflects not just its economic heft in the region, but its ability to bridge the widening chasm between Russia and the United States. It is a sensitive balance for the country, which, unlike France, has tended not to take aggressive diplomatic stands on pressing global issues.
But Germany’s economic power is on the rise, lifted by export success in Asia and a calming of the debt crisis in the euro zone. So economists like Mr. Aslund say the next trick — and it is a challenging one — will be for Germany to leverage that influence into a lasting diplomatic agreement between Russia and Ukraine.But Germany’s economic power is on the rise, lifted by export success in Asia and a calming of the debt crisis in the euro zone. So economists like Mr. Aslund say the next trick — and it is a challenging one — will be for Germany to leverage that influence into a lasting diplomatic agreement between Russia and Ukraine.