Russia-Germany: an Asymmetric “Strategic Partnership”

Publication: Eurasia Daily Monitor Volume: 6 Issue: 142

German Chancellor Angela Merkel (R) and Russian President Dmitry Medvedev (2R) watch as officials sign documents in Munich on July 16, 2009.

Russian President Dmitry Medvedev and German Chancellor Angela Merkel headed large governmental delegations for bilateral talks on July 16 in Munich. The process, known as Russo-German inter-governmental consultations, involves informal semi-annual summits at which leading business representatives join the cabinet ministers on either side. The Munich meeting reviewed ongoing cooperation projects and considered new ones.
Access to the Russian market is seen as critical to Germany’s export-oriented economy at any time. As an export nation, Germany’s reliance on the Russian market has developed in parallel with its overdependence on Russian energy supplies. The Russian market’s perceived importance increases during the ongoing recession, as global markets shrink and Russia has also significantly reduced its imports of German goods. In these circumstances, the German government agreed at this meeting on some measures to subsidize Russian imports of German goods.
Germany’s large industrial concerns have traditionally played the leading role in exports to Russia. More recently, however, German medium-sized and small enterprises (many of them family-owned) have increased their exports to Russia spectacularly in various sectors. The trend is particularly evident in exports of German machinery and installations for processing industries in Russia. This development has significantly broadened Germany’s national stake in the trade with Russia. By the same token it concentrates the German government’s attention to the interests of this influential constituency.
Under a framework agreement signed at the Munich meeting, Germany will provide a credit of 500 million Euros (more than $700 million) to finance Russian purchases, mainly of German industrial installations and machinery. Germany’s state-controlled Reconstruction Bank will transfer the funds to Russian banks, which would in turn loan the funds to importer firms in Russia. This measure is mainly designed to maintain the solvency of Russian customers for German medium-sized companies’ goods.
The inter-governmental meeting also considered an ambitious program for manufacture and delivery of Siemens trains and locomotives to the Russian Railroads state company. In parallel, Siemens is negotiating to establish a joint venture with Russia’s Rosatom for building nuclear power plants and electricity transmission systems. In March of this year, Siemens withdrew from its joint venture with the French nuclear power plant manufacturer Areva and proceeded to sign an agreement of intent with Rosatom instead. This move hurt the overall Franco-German partnership in Europe while highlighting the structural trend toward Russo-German cooperation. According to Russian Energy Minister Sergei Shmatko, the contract with Siemens is expected to be signed before the end of this year and will greatly improve Rosatom’s international competitiveness through technology transfers from Siemens (Die Presse, July 23).
The German government is tentatively looking at Gazprom to rescue the ailing German shipyards Wadan, in the Baltic ports of Wismar and Rostock. Under proposals under discussion, a Gazprom subsidiary would place orders for liquefied natural gas (LNG) tankers to be manufactured at those German shipyards. If implemented, this move would facilitate Gazprom’s entry into German and European LNG markets, with a corresponding increase in German dependence on Russian gas. The German government apparently feels that it must consider the proposal in this election-recession year, when job-saving is a top priority.
Reflecting that same short-term German priority, the Munich meeting discussed a Russian rescue of Opel, the German subsidiary of General Motors. Following GM’s bankruptcy in the United States, the German government recently consented to a takeover of Opel by a consortium with majority Russian ownership (EDM, June 4). Meanwhile, however, German misgivings are emerging in and out of government about the viability of the Russian-financed rescue plan.
In addition to these items on the inter-governmental agenda, some German industrial and energy corporations are seeking government support for ambitious joint projects with Russia. The government is politically sympathetic to some of these projects but their funding remains problematic. As outlined in the German press coverage of the inter-governmental summit (Frankfurter Allgemeine Zeitung, Financial Times Deutschland, Sueddeutsche Zeitung, Die Welt, July 17; Handelsblatt, July 17, 23), these proposals include:
Investing in Russia to capture associated gas from oil wells and pump that gas into Russia’s pipeline network (preferable to having it flared at the Russian wellhead); bringing Russia into the E.U.-backed Nabucco project (a move that would negate Nabucco’s strategic rationale); accelerating (i.e., presumably, funding) construction of the Nord Stream gas pipeline on the Baltic seabed, and making clear to Sweden through the E.U. that any further delays are unacceptable (Sweden has serious reservations about this Gazprom-led project); creating a consortium with Russia to operate and upgrade Ukraine’s gas transit system (originally a Russian proposal for Gazprom to control the Ukrainian system under a consortium’s guise); establishing a Russia-Germany Energy Agency (a move that could derail E.U. efforts to develop a common energy policy vis-à-vis Russia); and facilitating Russian investments in German industry (apparently by waiving the German government’s right to block such investments in certain situations under a 2008 law).
The Munich meeting occasioned President Medvedev’s third visit to Germany already in little more than one year – a frequency matching that of Vladimir Putin as president. Putin, who used to enjoy near-adulation in Berlin, has by now declined in the official esteem of all but vested interests in Germany. Instead, the government now seeks to cultivate the relationship with Medvedev, cast as a European figure and one who stands for rule of law in Russia.
The inter-governmental meetings twice a year have become routine in their amiable informality that they no longer dominate the media headlines. In Germany, the "strategic partnership" with Russia is approaching a normal status despite its poorly defined content and asymmetric character. Germany’s reliance on the Russian market for exports and on Russian energy supplies is not matched by any comparable Russian vulnerability. Moscow increasingly uses such asymmetries to influence German foreign policy.