Berlin, Moscow Seek to Boost Bilateral Ties

German Chancellor Gerhard Schröder headed to Russia’s fourth-largest city of Yekaterinenburg nestled in the Ural mountains on Wednesday for the sixth annual German-Russian summit.

Accompanied by a high-profile business delegation comprising the heads of energy giants E.ON and Ruhrgas, chief executives of Deutsche Bank and Lufthansa and Labor and Economics Minister Wolfgang Clement, it wasn't hard to discern the main thrust of the chancellor’s agenda.

Energy and business top the list of issues to be discussed with Russian President Vladimir Putin and his high-level entourage. Major bilateral projects include the possible construction of a Baltic Sea natural gas pipeline. Russia’s Gazprom, Ruhrgas and Germany’s Wintershall group reportedly want to sign an agreement for a feasibility study of a pipeline to bring Russian natural gas to western Europe. Both Putin and Schröder announced on Thursday that an agreement would be signed as soon as possible.

Other proposals include the inking of a €500 million deal between E.ON and Russian power company RAO EES Rossii to build a power plant in the Russian city of Schtschukin as well as a mammoth transport agreement that will lead to a speedy and comprehensive revamping of railway lines between the two countries.

Official sources say about five to eight corporate deals are expected to be sealed over the two days, amounting to a total business volume of two billion euro.

Berlin, Moscow share close economic ties

On Thursday President Putin said it was important to develop strong ties with Germany and described bilateral relations as having a "strategic character with long-term goals even in economic cooperation."

Chancellor Schröder lauded Russia's "breathtaking pace" of economic growth as well as "the reform course under the leadership of Putin." He added that the conditions for expanding trade and investment had tangibly improved in Russia and added political relations could "hardly be better."

Germany is easily the largest foreign investor in Russia, with private companies such as Siemens investing alone over €8 billion ($8.6 billion). Germany is also the country’s largest European trading partner: Whereas Germany provides capital and high-quality manufactured goods, Russia reciprocates with raw materials and energy products to fuel German industry.

Ahead of the German-Russian summit, chief executive of auto-maker DaimlerChrysler, Klaus Mangold praised President Putin’s reform course and said the German economy could participate increasingly in Russia’s improved business environment.

At the same time he cautioned that German industry had to prepare itself for strong competition from American investors in Russia, who had evinced increased interest in the country in recent years. "We were earlier in a situation, where we (Germany) exclusively dealt with Russia," Mangold told news agency dpa. "But that’s no longer the case," he said.

Apt location for high-profile financial deals

The location of the bilateral summit lends itself ideally to the weighty wheeling and dealing expected to be played out against the backdrop of the Ural mountains.

The 1.5-million strong city of Yekaterinenburg, about 1,700 kilometers east of Moscow on the border to Siberia, is a significant region for both trade and military on account of its strategic location between Europe and Asia.

With its sorrounding valleys rich in natural resources, the city is reputed to be the cradle of Russian industry. In recent years the region has attracted substantial foreign investment, in particular in the areas of high technology and the food industry. More than 20 German companies and over 50 German-Russian joint ventures are located in Yekaterinenburg, said to be one of the fastest-growing areas in Russia.

Warming political relationship

But high finance and investment won’t be the only issues on the summit agenda. On the political front, the two leaders as well as their respective foreign and interior ministers will discuss topics ranging from Iraq to the situation in Afghanistan and the signing of a transit treaty for the German ISAF peacekeeping contingent based in Kabul. The treaty will allow the German army to transport military equipment through Russian territory to Afghanistan for the first time.

In recent months, Berlin and Moscow have enjoyed a growing rapport ever since the two joined France in staunchly opposing the U.S.-led Iraq war. Both countries have also worked to renew ties with Washington, which were badly bruised because of their anti-war stance.

Both Schröder and Putin, who met two weeks ago in New York on the sidelines of the U.N. General Assembly, are also in agreement on the need for transferring power back to the Iraqis as quickly as possible and would like to see such a clause included in any new resolution passed by the U.N. Security Council. On Tuesday, Russia also indicated it would participate in an international donor conference in Madrid slated for later this month, to pledge money to reconstruct Iraq.

Schröder and Putin are also said to enjoy a close political friendship helped by the fact that the Russian leader speaks fluent German after having served as a KGB agent in former East Germany.

Hurdles mar thriving ties

But despite the burgeoning relationship between Moscow and Berlin, mild irritants still persist.

Though Schröder is not expected to openly express concerns about the four-year Russian military action in the breakaway republic of Chechnya, German Foreign Minister Joschka Fischer is expected to touch upon the issue with his Russian counterpart during the summit.

The two leaders will also discuss easing visa regulations in particular for students, artists and sportsmen from both countries, though Germany is not expected to endorse total travel freedom for Russian citizens to the European Union as desired by Putin.

The unresolved row over so called "looted art" is expected to be a slight stumbling block during the summit. Neither leader will concretely refer to it, but the return of the Baldin art collection to Bremen from Russia and the recent discovery of a Rubens painting, stolen by Soviet soldiers during their World War II occupation in Germany and still in the hands of a wealthy Russian businessman, are likely to throw a pall over the otherwise positive talks.