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Lufthansa Cornered by Russia

lufthansa1107.jpgHow much damage to Berlin and Moscow’s privileged relationship has been caused by Russia’s bullying of German airline Lufthansa? Last week we initially reported on the air cargo scandal, publishing a translation from the German press about how the Russians muscled the German airline into relocating their Asian cargo hub from Kazakhstan to Siberia by banning flyover permission. Now we are beginning to see some political fallout, and it looks like Moscow may have overplayed its hand.

Germany was in no mood to take this “economic blackmail” lying down, and for a period banned Aeroflot from the Hahn airport, which is near to Frankfurt. Others, such as the Christian Democrats, called for more dramatic countermeasures, such as blocking Russia’s accession to the WTO. MP Guenther Krichbaum told German television that “Whoever uses such instruments in trade and economic policy is not suitable for WTO accession, neither in the short term nor in the mid-term,” and also compared the incident to Russia’s ban on Polish meat exports, saying that it was another tactic to sow divisions in the EU.Given that Germany is Russia’s key instrument in its campaign to disaggregate a common European energy policy via the Nord Stream pipeline (thanks to the tireless advocacy of their employee Gerhard Schröder), it is somewhat surprising that they are cornering Lufthansa with such hostile business tactics. If this is how today’s Kremlin treats its best friends, you really wouldn’t want to be an enemy.But has Russia overplayed its hand? Clearly their strategy to ban flyover rights is intended to muscle Lufthansa into signing a lucrative agreement to establish a major refueling hub in Siberia (it’s a pity they couldn’t have tried to win this contract through traditional competition, and resorted to political force). It remains to be seen if the airline will keel over to this pressure, but for the moment, the latest comments from CEO Wolfgang Mayrhuber indicate that the airline isn’t planning on moving its hub.The blackmail of Lufthansa communicates a clear message: Russia doesn’t think it owes Germany anything, even if the Social Democrats (SPD) are among the most vocal advocates of Russia’s interests in Europe. This dispute shows that some stakeholders in Germany are making a false assumption that their backing of Nord Stream and sacrifice of European energy security gives them a preferential relationship with Russia – providing exemption from the usual hostility in government-business relations. Therein lies the rub in major business deals with this government: although it may appear that a state or corporation improves their lot through these agreements, the truth is that they become hostage to their commitments, and far more vulnerable to such bullying as experienced by the seemingly unrelated dispute over Lufthansa’s flyover rights/cargo hub. I fear that E.ON will likely be one of the companies to discover the bitter end of how this theory plays out.Although the air cargo dispute has not yet come to close, if Lufthansa does relocate its hub to Krasnoyarsk or Novosibirsk, let’s hope there aren’t any more arrests of executives on the snowy runways.(FYI – see my article “Careless and Ignorant” for my take on the Berlin-Moscow relationship)