Schröder's Russia Trip to Highlight Economic Ties

Last month, Germany came together with France and Russia in the United Nations Security Council to oppose military action to oust Iraqi dictator Saddam Hussein. Though the trio failed to stop the United States from going to war, the new the alignment of German-Russian political interests follows a similar convergence in economic relations.

Schröder’s trip to Putin's hometown had been scheduled as part of the third so-called ‘Petersburger Dialogue’, a bilateral meeting of Russian and German politicians and businessmen to discuss relations between the two countries. But with war in the Persian Gulf, French President Jacques Chirac will join the two leaders over the weekend to push for a central United Nations role in postwar Iraq.

Putin, a fluent German speaker from his KGB days in East Germany, has built a warm personal relationship with Schröder, allowing cultural and business ties between the two nations to flourish in recent years.

Besides discussing Iraq, Schröder will receive an honorary doctorate from the local university and will also attend festivities celebrating 150 years of Russian business ties by the German industrial giant Siemens.

Russia’s largest investor

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.

“German-Russian trade has developed extremely well,” said Andrea von Knoop, the head of a German business in Moscow. “Considering the market’s huge potential, we really believe things can still increase even more.”

She said German exports to Russia grew by a massive 54 percent in 2001 and by another 11 percent last year to total €11.4 billion. To keep things in perspective, exports to France, Germany’s most import trading partner, were seven times larger. But that just makes people like von Knoop more positive about the future potential of German-Russian trade.

“Now is the time to jump in here,” said von Knoop. “In the next couple of years the competition will noticeably increase – not from foreign competitors – but from the domestic players.”

As Western Europe’s larger economies have stagnated in recent years, Russia’s appears to have finally found its feet. Growth has been brisk after the hard years following the collapse of the Soviet Union and the domestic financial crisis of 1998. And Moscow hopes to cement its market reforms by joining the World Trade Organization in the coming months.

WTO dispute

The European Union has help up Russian WTO membership due to a dispute over energy pricing. The E.U. says Russia subsidizes energy costs for its domestic industry to the tune of €1.5 billion each year.

But some observers think France and Germany may now be willing to look the other way on the issue to reward Moscow for supporting their anti-war position on Iraq.

“Russia’s threatened veto against the American-British attack on Iraq strengthened the position of the war opponents in the European Union,” wrote Katja Tichomirowa in the Berliner Zeitung newspaper. “France and Germany could reward Russia by compromising on the WTO membership issue.”

Such a move would certainly help cement what could eventually become an E.U.-Russian counterweight to a currently unrivaled American superpower. And that’s something some people have already begin to contemplate.

“If Germany in the future wants to work more closely with Russian and France on important and strategic political and moral questions, we must and will accept that,” said Jeffery Gedmin, the director of the Berlin office of the Aspen Institute, an American think-tank.