German elites split, forced to betray long-time Russian partners

© Reuters/Tobias Schwarz

CIA spy in Germany

Few countries have invested more heavily in Russia than Germany has, rushing in to exploit new trade opportunities that opened up after the Cold War ended. More than 6,000 German companies set up operations there, and Russia became a major customer for German cars, pharmaceuticals and machinery.

But now the rush is going in reverse. The announcement last week by the German chemical giant BASF that it had canceled a planned deal with Gazprom, the Russian energy giant, involving natural gas extraction and distribution, was the latest example of how German companies are delaying projects and investment.

Opel, the car-making unit of G.M. based in Germany, has laid off workers at its plant in St. Petersburg; Volkswagen shut down an auto plant in Kaluga intermittently because of poor demand; and Fresenius, a health care company, canceled a joint venture with Russian partners.

More than a third of German companies with operations in Russia are likely to cancel investment projects, though only a small number of German companies have abandoned Russia completely, according to a survey this month by the German-Russian Chamber of Commerce.

The conflict in Ukraine has rattled Germany's leaders as perhaps no others outside Russia. It is not just business that has been put on hold: Countless forums for partnership like major political gatherings have been trimmed back or put on ice. Although Germany's politicians continue to lead diplomatic attempts to ease the Ukraine crisis, trust in Moscow has evaporated. Everyone knows that it will take a long time to repair a rift that has revived fears of a new division of Europe - roughly, pitting Russia against the European Union - and markedly reduced commerce once considered a reliable source of growth.

The impact on Russia is broader, because it is much more dependent on German goods and investment than vice versa. Russia is hobbled by economic sanctions for its intervention in Ukraine, the devalued ruble and a severe drop in the price of oil, its main export. Russia is expected to suffer a steep recession next year, while Germany is forecast to grow 1 percent.

But Russia's problems have helped slow Germany's momentum. Exports to Russia fell 22 percent through October compared with the same period a year earlier. Ten percent of all German companies export to Russia, and the lost sales are another setback at a time when Germany is struggling to improve economic growth.

The uncertainty hanging over Germany's strong business ties with Russia, which are more than double the value of Russian trade with the United States, is in marked contrast to the optimism and relative stability of recent years. And it has been reflected in increasingly acrimonious exchanges in Germany's political, diplomatic and intellectual elite over how to shape relations with Moscow.

Last weekend, the two most prominent Social Democrats in Chancellor Angela Merkel's grand coalition government of center right and center left - the party leader, Sigmar Gabriel, and the foreign minister, Frank-Walter Steinmeier - voiced concern that sanctions might hobble the stricken Russian economy, and they opposed tightening them.

Ms. Merkel, clearly frustrated with the behavior of President Vladimir V. Putin of Russia, has so far taken a harder line. But the potential for conflict within Ms. Merkel's government complicates her efforts to use Germany's close ties with Russia as leverage to fashion a solution to the crisis in Ukraine.

Business groups, normally strong backers of Ms. Merkel's Christian Democrats, have agreed with the Social Democrats on Russia and warned against using economic means to put pressure on Mr. Putin.

"Sanctions are not the proper means to resolve this political crisis," Eckhard Cordes, a former Daimler executive who is chairman of the Committee on Eastern European Economic Relations, which represents companies doing business in the former Soviet bloc, said in an email.

"The West cannot have an interest in destabilizing the Russian economy or Russian politics."

The number of German companies abandoning Russia remains small, about 3 percent of the total, according to the German-Russian Chamber of Commerce.

Most companies hope that the Ukraine crisis will blow over, and they will be able to return to business as usual.

The economic fallout has had political repercussions in Germany, where memories linger of the carnage that the Nazis and Soviets inflicted on each other during World War II. Fear of renewed tension or even conflict is palpable, and understanding for Mr. Putin is greater than in the United States.

Political tensions are likely to intensify as sanctions against Russia come up for renewal in March, a year after Moscow annexed Crimea.

"Anyone who believes that forcing Russia economically to its knees will lead to more security in Europe is wrong," Mr. Steinmeier, the foreign minister, told the weekly newsmagazine Der Spiegel. Having Russia's economy in chaos "cannot be in our interest," he added.

Mr. Gabriel, the leader of the Social Democrats, said pointedly that calls for intensifying sanctions were wrong.

Gerhard Schröder, Ms. Merkel's predecessor as chancellor and an avowed friend of Mr. Putin, was among 60 prominent signatories of an appeal entitled, "Again War in Europe?/Not in Our Name."

That appeal drew a blistering response from Bert Hoppe, a writer from former East Germany, who accused the signatories of paying scant attention to Ukraine's desire for independence and acknowledging only Russia as the architect of Nazi defeat and later reconciliation with Germany.

These are well-worn arguments. That they have resurfaced will not make it easier to re-establish the close ties that many Germans and Russians had taken for granted in the 25 years since the Berlin Wall fell.