Germany Facing Dependence on Russian Market and State Orders

Russian President Dmitry Medvedev received German Chancellor Angela Merkel on August 14 at his Sochi residence. This meeting accelerated the implementation of qualitatively new economic projects in key industrial sectors, agreed barely one month earlier in Munich by the two leaders in the framework of Russian-German inter-governmental consultations (EDM, July 24).

The overall process of "interconnecting" Germany’s economy with that of Russia is gaining momentum, headed incrementally toward structural integration in strategic sectors. This process is potentially fraught with a historic power shift in Europe, the first effects of which can already be discerned. Yet the process seems unnoticed by U.S. policy makers and has yet to be analyzed for its potential impact on NATO, trans-Atlantic relations generally, and European security and politics.

The new projects’ essence is the arrival of Russian state and oligarchic groups in Germany’s manufacturing industry for the first time. These are poised to take over some major German enterprises hit by the global crisis. Opportunistic pre-election calculations by both parties in the German coalition government (see article above) are unnecessarily accelerating the implementation of these plans.

These handovers also amount to de facto de-privatization in favor of Russian state or state-connected entities, aided by German government-offered credits or guarantees.

Against the backdrop of over dependency on Russian gas and oil, Germany is beginning to slide into dependency on the Russian market for German exports, German jobs, and Russian state orders for stricken German enterprises. This incipient trend seems politically accepted and strategically rationalized by the German government.

Germany’s Christian-Democrat and Social Democrat coalition government (however divided in this crisis year and German election year) is acting in bipartisan consensus on the "strategic partnership" with Russia as a long-term project. The German side embarked on this process jointly with the Russian side at the dawn of the Putin era. Germany, however, has lost control of this process (if it ever really controlled it). Drawn increasingly into dual dependence on Russian energy and the Russian market, Germany is now beginning to face a third type of dependence: the exposure of German jobs to economic fluctuations in Russia and Russian state orders.

As an export nation, Germany relies heavily on the Russian market in strategic sectors such as steel, machinery, and transport vehicles. Germany’s large industrial concerns have traditionally played the leading role in exports to Russia. More recently, however, German medium-sized and small enterprises have rapidly increased their exports to Russia in a wide range of sectors. This development has significantly broadened Germany’s national stake in the trade with Russia. By the same token it has widened the German political constituencies interested in special relations with the Russian authorities.

The financial crisis has halted and reversed the growth in German exports to Russia since mid-2008, threatening German jobs in significant numbers for the first time. By the same token, it has for the first time inspired German-Russian decisions at the top inter-governmental level for joint anti-crisis measures. Thanks mainly to intervention from the top the crisis has been turned into an accelerator of the German-Russian special partnership.

Thus, Russian government-connected groups are entering Germany for the first time beyond the energy sector, in manufacturing sectors: Sberbank and GAZ in the automobile industry, a Gazprom-affiliated group in shipbuilding, and Sistema’s oligarchic owners in the German semiconductors industry (EDM, July 24 and above). The Russian takeovers are being presented in Germany as part of the government’s anti-crisis measures. This argument, however, is in the process of changing already, as seen at the Sochi meeting.

At their meeting, Merkel and Medvedev noted the signs of economic recovery in Germany (and elsewhere in the West). Accordingly, they offered a new rationale for the Russian takeovers: these would strengthen the two countries’ partnership in the post-crisis period, on a long term basis (Interfax, August 14, 15; Financial Times Deutschland, Sueddeutsche Zeitung, August 15 – 17).

According to the latest German forecasts (Handelsblatt, August 14), economic recovery in the West should soon increase the demand for Russian fuels and raw materials, boosting Russian export revenues again. Its solvency thus restored, Russia is expected to resume its industrial and infrastructure development in the "modernization partnership" with Germany.

The government has invited those Russian takeovers in German industry, despite their questionable merits, under the pressure of short-term considerations: the financial crisis and a competitive scramble by both parties to be seen as saving industrial jobs ahead of next month’s parliamentary elections. Meanwhile, the crisis is easing in Germany; and the elections will very soon be over. However, the entry of Russian state and oligarchic capital in German industry entails consequences for the long term and may well have opened a new avenue for Russian political influence in Germany.