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Merkel plays Russian roulette
Germany's frenzy of politically sponsored dealmaking involving Russian companies has raised eyebrows in Washington and across Europe
- By Bertrand Benoit, Daniel Schafer and Charles Clover, Financial Times
- Published: 00:00 October 28, 2009
- Image Credit: Illustration: Ramachandra Babu/Gulf News
When Angela Merkel was first elected German chancellor in November 2005, the country's eastern neighbours looked on in anticipation.
The pastor's daughter raised in communist East Germany had pledged to end the cosy rapport forged with Moscow by Gerhard Schroder, her predecessor, and put the interests of central Europe at the heart of her government's foreign policy.
Yet, four years on, as Merkel prepares to take office today for a second term, Germany and Russia are engaged in business dealmaking on a scale unimaginable even under the Russophile from whom she took over.
This month, a Canadian-Russian consortium led by Magna, the parts maker, agreed to take a majority stake in Opel, the carmaker formerly owned by General Motors of the US, with the German government putting up 4.5 billion euros (Dh24 billion) in loans and credit guarantees to back the deal — although this agreement looks shaky and could still fail.
In August, after energetic lobbying by Merkel, the cash-strapped Wadan shipyards close to her constituency in north Germany were sold to Igor Yusufov, Russia's former energy minister.
At a meeting with Dmitry Medvedev, Russia's president, that month, both leaders voiced strong support for the purchase.
In a third groundbreaking deal this year, Siemens ditched a nuclear joint venture with the French to enter an alliance with Russia's Rosatom.
As with Opel and Wadan, the decision of the German engineering group to go east received enthusiastic political backing in Berlin and Moscow.
This frenzy of politically sponsored dealmaking — unprecedented in the technology transfers involved and the opportunity for Russian companies to secure prized west European assets — has raised eyebrows in Paris, London and Washington, not to mention Warsaw, Kiev and Prague.
So now, as the Atlanticist Free Democratic party swaps seats with the pro-Russian Social Democrats (SPD) to become Merkel's junior coalition partner, how likely is Germany to revert to the sceptical course the Merkel of 2005 had promised?
Very unlikely, says Gernot Erler, deputy to Frank-Walter Steinmeier, the outgoing SPD foreign minister. "The new government will look after the interests of business, and business is very much in favour of this relationship."
Werner Hoyer, the FDP's foreign policy expert who is likely to become deputy foreign minister, says that in spite of its reputation, his party — whose leader, Guido Westerwelle, is to become foreign minister — wants to organise the stability of Europe in cooperation with Russia not against it.
"So for this reason, the perception that the FDP would pursue a tougher line with Russia is definitely wrong."
For his part, Schroder told a conference of investors in Moscow last month that the change of coalition in Berlin would not alter bilateral relations. The strategic partnership was, he said, "based on a very deep foundation".
The former chancellor remains involved in commercial activities between the two countries through his chairmanship of Nord Stream, a German-Dutch-Russian venture majority owned by Gazprom, the Russian gas giant, that is developing a submarine pipeline in the Baltic to ferry gas from Siberia directly to Germany.
The pipeline will bypass countries in between, making it the source of further third-party concern about the consequences of close industrial ties between Germany and Russia.
Diplomatic links
It was in an effort to overcome such concerns that Merkel in her first term initially focused on buttressing Germany's diplomatic links with its eastern neighbours.
In a noticeable departure from the indifference of the Schroder era, her aides would brief Polish diplomats before and after her trips to Moscow. When in Russia, the chancellor made a point of holding highly visible meetings with pro-democracy activists.
The chancellor has not shied away from criticising the unsolved murders of journalists and human rights advocates in Russia.
When the Kremlin moved to recognise the Georgian breakaway provinces of South Ossetia and Abkhazia last year, she called the decision "absolutely unacceptable".
"On the human rights issue and on international security, she has been a lot tougher than Schroder," says a close aide to the chancellor. "She's very clear that we can only maintain a partnership with a country that gravitates towards our values."
Vladimir Putin gave as good as he got. At their first meetings, Russia's president of the time would often show up late and accompanied with Koni, his Labrador — a gesture her officials think was designed to intimidate the cynophobic Merkel.
But during coalition negotiations with the SPD in 2005, she agreed to enshrine the goal of forging a "strategic partnership" with Russia, a concept devised under Schroder, in her government's policy roadmap.
In private, she blamed Ukraine for its disputes with Gazprom over gas deliveries. During the short war between Russia and Georgia, she also publicly warned against measures to isolate Moscow.
Last year's election of Medvedev, whereupon Putin became prime minister, helped Merkel in her course towards a cautious rapprochement.
"Merkel is not naive about Medvedev," says Hans-Henning Schroder of the German Institute for International and Security Affairs.
"She knows Medvedev and Putin come in a packet. But he makes the relationship more pleasant and, above all, easier to sell to the German media."
In public, Merkel justifies her position by insisting that none of the world's main problems, from climate change to the threat of a nuclear-armed Iran, can be solved without Russia. Moscow, she says, is essential to the security of Europe.
But there are other, more powerful, more urgent and more mundane grounds for Berlin's soft-handed rapport with Russia, chief among which is the two countries' intertwined economies.
"We get 45 per cent of our gas and 34 per cent of our oil from Russia," says Erler, who points out that Russia has no other market for its gas than western Europe. "This mutual dependency is a cornerstone of the notion of strategic partnership."
The economic ties have deep roots, reaching back into tsarist times. Even during the cold war, when political tensions sometimes ran high, commercial relations were maintained and expanded.
Yet those links have increased exponentially in recent years. German exports to Russia last year ran to 32 billion euros while imports, mainly of gas and oil, reached 36 billion euros.
Fastest-growing market
Not only is Germany Russia's largest export market but until the financial crisis Russia was Germany's fastest growing market, increasing by up to 20 per cent a year.
According to the Association of European Business in Moscow, Porsche sold more cars in Russia than in the US last year. Volkswagen is the biggest industrial investor in Russia while Eon, the energy group, is the largest investor in the energy sector.
In the East Committee of German Business, Germany also boasts the western world's most vocal, best-connected and most unashamedly pro-Russian lobby group. In addition to its political work, the committee trains Russian engineers and managers, and supports youth exchange programmes.
"Our engagement is long term and on a scale beyond anything that's being done in the UK, France, the US or Italy," says Klaus Mangold, the committee's president and Russia's honorary consul in Baden-Wurttemberg, one of Germany's main manufacturing regions.
The former Daimler executive is an eloquent advocate of Russo-German tie-ups, including the controversial Opel transaction: "Russian industry is 20 years behind western Europe. How can they ever hope to catch up without a degree of technology transfer? There's no alternative. You will see these deals happen in other areas."
These transfers are at the heart of the grand bargain whereby Russia obtains the technology it needs to make its outdated industry more competitive, in exchange for Germany's mighty exporters gaining unrestricted access to a market of 140 million people.
"Russia is one of the last remaining markets on our doorstep where we can expand," says Alexander Rahr at the German Council on Foreign Relations.
"The ice has been broken and we will see a lot more [such deals] in the next few years."
Wulf Bernotat, Chief Executive of Eon, disputes the view held in many European capitals that Gazprom is a bogeyman because of the influence it wields over the supply of gas to the continent.
"You are always talking about Russia but the real threat is coming from the European Commission," he maintains.
One recent motive force has been the brutal economic downturn. The Opel agreement and Wadan deal so appealed to Merkel because of the prospect they offered to save thousands of jobs before an election.
"It is remarkable that public opinion towards Russian investment has changed. It is now much more positive than before the crisis," says Jorg Bongartz, Chairman of the Board of Deutsche Bank in Russia.
This is not to say that the economic rapprochement with Russia has gone entirely smoothly.
The Opel-Magna agreement, for instance, has caused concern among rival German carmakers, which fear it may cut their future share of the Russian market.
"Magna is nothing more than a Trojan horse for the Russians — they will expand with new technology in their home market," an industry executive says.
But as Rahr puts it, the "dirigiste" element in the partnership, its reliance on the state as patron and sponsor, gives it strength.
"What the US and the UK do not like is that we Germans are quite happy to talk to the people in power. There is no stigma here about talking to the Kremlin in order to open doors.
"The UK and the US have been naive and premature with their purely market-based approach towards Russia. They have made deals with the oligarchs, without taking care of any political backing."
Additional reporting by Catherine Belton, Chris Bryant and Richard Milne
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