Berlin: German industry groups have stepped up their warnings about isolating Russia in a sign of mounting concern that Moscow’s diplomatic showdown with the West over Georgia could damage business relations.
Germany’s economic ties with Russia are among the closest in the world. Its exports to Russia rose by 23% to €15.8 billion in the first half of 2008, the largest increase among Germany’s major trading partners, and about 4,600 German firms have a presence in Russia.
Moscow’s decision to recognise the breakaway Georgian regions of Abkhazia and South Ossetia as independent states has increased fears of a political backlash that would damage ties and reverse the business gains of past years.
“German industry is worried,” said Klaus Mangold, chairman of the Committee on Eastern European Economic Relations at Germany’s BDI industry association.
“It is important for the politicians not to give Russia the cold shoulder. Everything must be done to stop the spiral of escalation,” he said, warning against punishing Russia by excluding it from the World Trade Organisation or scrapping EU-Russia talks on a new strategic partnership pact.
The Bundesbank estimates that German direct investment in Russia totalled €14 billion last year, up from €11.2 billion in 2006, thanks to big investments by energy group E.ON-Ruhrgas and car manufacturer Volkswagen.
Mangold’s committee published a paper in May on German-Russian economic cooperation which forecast a bright future for German industry in fields such as energy, high technology, aerospace, telecommunications and health care.
Mindful of German economic interests, Chancellor Angela Merkel was initially hesitant to blame Moscow when its forces rolled into Georgia in early August in response to Tbilisi’s attempt to reassert control over South Ossetia.
Tbilisi’s tone towards Russia has grown more forceful in the past two weeks.
She sharply condemned Russia’s recognition of the two Georgian regions and members of her Christian Democrats (CDU) are pushing for a tough line.
Eckart von Klaeden, a foreign policy spokesman for the CDU and a Merkel ally, told German television on Wednesday that it was impossible to separate political and economic relations, and criticised Russia’s record in treatment of Western firms.
Leading German firms that do business with Russia, including E.ON, chemicals group BASF, airline Lufthansa and travel group TUI, played down the consequences of the diplomatic standoff on their business.
“Russia has been a reliable source of gas for 35 years,” a spokeswoman for E.ON Ruhrgas said. “Our contracts reach out to 2036 and have survived tough times like the East-West conflict, oil price crises and the fall of the Soviet Union.”
German manufacturers attending a car show in Moscow this week showed few signs of concern. Volkswagen announced it was considering expanding production at its Kaluga plant in Russia to keep up with demand in Europe’s fastest—growing car market.
However, Tobias Baumann of the German Chambers of Commerce and Industry said: “Political developments were becoming a major worry.”
“Russia is running the risk of isolating itself,” he said adding, “From the point of view of German industry, that would be a disaster.”