German-Russian Economic Integration

merkelmedvedev100808.jpgJack Ewing at BusinessWeek argues that Russia’s deep ties in the German economy are inhibiting the government’s response to war in the Caucasus and other international issues with Moscow:

The swift return to cordial relations was recognition of just how intertwined the German and Russian economies have become. Manufacturing everything from luxury autos to machinery to food, some 4,600 German companies are active in Russia and 70,000 German jobs depend on business with the country. Germany is also Russia’s largest trading partner, with $45 billion in two-way trade during the first six months of this year. Little wonder that the 25 German businesspeople who joined Merkel in St. Petersburg seemed anxious to forgive the events in Georgia and get back to doing deals with Russian partners. The biggest deal: an agreement allowing energy supplier E.ON (EONGn.DE) to acquire 25% of a huge Siberian natural gas field owned by state-controlled Gazprom (GAZP.RTS). The Düsseldorf-based utility traded control of a 3% stake in Gazprom valued at $5.4 billion, ending years of stalemated negotiations.

Merkel’s rhetoric on Russia is generally harsher than that of her Social Democratic predecessor, Gerhard Schröder, a pal of Prime Minister Vladimir Putin who now works for Gazprom. But Germany’s business lobby makes sure that Merkel never forgets how much their companies depend on the former Soviet state. “Whatever we can do to advise our government, we are doing,” says Klaus Mangold, a former Daimler (DAI) executive who leads the East European committee of the German Federation of Industries. In fact, Merkel rarely says anything that would damage German-Russian economic ties. “The economic cooperation is advantageous for both sides,” she told an audience that included Medvedev in St. Petersburg. Russia is also a crucial energy supplier: Germany buys 36% of its gas and 32% of its oil from the country.