SPECIAL OPINION V. Kotenev. Russian-German economic rela

RUSSIAN-GERMAN ECONOMIC RELATIONS IN THE FAST-PACED WORLD

The beginning of this year put the world in a nearly pre-war situation affecting the global markets at once. The reason is well-known: by order of the President of the USA one of the leaders of the Islamic Republic of Iran General Qasem Soleimani was killed in Bagdad together with 10 military men from Iran and Iraq. Many were puzzled with the question: what is going to happen after this precedent when one country without approval of any other, without permission of the UN can now liquidate undesirable people and even whole groups on the territory of another sovereign country?

Iran’s missile counterattacks on American military bases in Iraq turned out to be quite deliberative and precise. It allowed Washington to “save face” avoiding a large military conflict. However the critical voltage led to the tragedy of the Ukrainian airplane crash and the loss of many innocent lives.

Despite the fact that the EU official bodies lined up with the actions of the American administration many people in the business circles of Germany were talking quite openly about the volatility and the forceful unilateral character of the US actions. Germany has long been worried about the threats of sanctions and the sanctions imposed by Washington towards the EU and some European companies. And even some American public figures declare now that the sanctions against the project “Nord Stream2” are directed not against Gazprom and Russia but more against the European companies participating – financially and technically – in the construction of this object important for the energy security of the whole Europe. The sanctions hit one of the backbones of the German economy – automobile production as well as agriculture and processing sectors.

Almost every communication with the European entrepreneurs begins with their complains of the “terrible Trump”. At the same time more and more people believe that if Donald Trump wasn’t the American President the Americans would still consider the European and first of all German industry as one of the bitterest rivals and not only as a partner in NATO and a like-minded liberal. Part of business society calls to turn to other markets first of all in the East. However on the one hand Germany fears the Chinese incentive “One Belt One Road” cursed as a Chinese overwhelming expansion by the Western mass media who secretly salute the trade war launched by Washington towards Beijing, and on the other hand the political class in Germany is not ready to change the sanction regime against Russia. And they keep trotting out the requirement that Russia leaves Donbass as if after that all sanctions would be removed. At the same time there is still no answer to the question: What is going to happen if Donbass returns to Ukraine but the sanctions remain.

The sentiments in the East and in the West of Germany are clear. Recently Michael Kretschmer, Prime-Minister of the federal land Saxony, Angela Merkel’s team-mate, demanded to remove sanctions against Russia as ineffective and counterproductive for the German economy. The Saxony industry has long been asking for broader economic cooperation with our country.

Another latter example: Sigmar Gabriel, a prominent social democrat, former Vice-Chancellor has been recently elected to the Board of Directors of the largest German bank Deutsche Bank. Mass media reacted immediately: what if it’s a crack-down on democracy, a corruption scheme, and what does Gabriel know about banking management? Deutsche Bank CEO Christian Sewing in his announcement tried to calm down the irritated critics. He said that Gabriel’s priceless experience as the Minister of Economy, Foreign Minister and Environment Minister will contribute to the effectiveness of the credit institute. He also pointed out that Gabriel’s trans-At

Ambassador i.r. of the Russian Federation, Managing Director, EURASIAN Strategic Consulting GmbH Vladimir Kotenev,

lantic ties and his knowledge of Asia will also be useful on his new position. This evidences that many West-German managers and entrepreneurs do not consider the markets of Russia and CIS as priority. While those industrialists who realize the importance of these markets for the EU countries believe that in the current situation the drivers of our relations can be France and Italy but unfortunately not Germany with its discretion contained by the outgoing era of Merkel.

At the end of the last year the International Economic Senate of Berlin was summing up the results of its work and working out lines for 2020. The ideas announced at the annual meeting of this German industrial club and the sentiments reflect political and economic controversies prevailing in the German society.

The main focus today is green economy with a shift from traditional energy to the renewable sources of energy. In the nearest years Germany is going to drop nuclear energy and start dropping coal and brown coal energy. The replacement of gas-engine with electric motor is becoming the hottest topic in the auto industry. It can lead to historic changes in the German industry but at the same time to its meltdown as some critics say. The senators are concerned with the economic positioning of Europe between the democratic but aggressive America and the heavy-handed China and Russia. Among other concerns is the policy of the European Central Bank keeping deposit rates close to zero. The key message was that economy must produce its own ideas and influence politics.

As we remember five years ago the Senate and the Financial & Banking Association of Euro-Asian Cooperation (FBA EAC) signed a cooperation agreement. German entrepreneurs and financial experts participated in Moscow forums of the Association discussing different ways of effective cooperation. And we promoted some ideas from the Russian side at the annual meeting of the Senate.

For example the long-discussed space from Lisbon to Vladivostok. Unfortunately neither party has taken any effective steps to give substance to these incentives. Twenty years ago Russia moved towards the European Union in many positions. We had a cooperation agreement, we were forming a road map, harmonizing the legislations, discussing a non-visa regime and a joint three-sided control over the Ukrainian gas transport system to ensure not only the energy security of Europe but also a sustainable development of the economy of Ukraine. However at that time a massive American expansion started in the Middle East, in Europe (former Yugoslavia) and then in Eurasia. As a result our relations with the EU in the last 10 years have been driven back.

The example of trade between Russia and Germany evidences that in 2010 its volume amounted to 60 billion Euros and in 2015 it dropped nearly two times. And only in the last 2-3 years it has started gradual but sustainable growth. Before the Ukraine crisis the EU accounted for almost 60% of the Russian trade turnover. According to West-European economists the losses of mutual sanctions reach billions of Euros with the EU countries lose even more than Russia. If we want to reverse the trend and strengthen the positions of both the EU and the EAEU on global markets we need not only to return to previous positive achievements but also go further in our economic and investment cooperation.

So what does Europe think of new challenges and threats?

Seemingly in the summer 2019 climatic sentiments were prevailing: instead of lessons the students went to the demonstrations, activists were blocking the traffic in the largest European cities, the Green Party in Germany was deciding who they can be proposed as the

next Chancellor. However the latest polls show that people are concerned with their social security including pensions, illegal migration and integration of labour migrants to the European society, and only then with climate changes on the planet. Moreover Ms. Annegret Kramp-Karrenbauer, the Chair of the most influential German party Christian Democratic Union, Minister of Defense also considered as a possible successor in Merkel’s office has recently presented her vision of security in Germany and Europe in general. And as the main threats she stated international terrorism, Chinese expansion and Russia’s aggressiveness.

Let’s try to puzzle out how real these threats are.

Ecology. As it is well-known Russia is not only the largest country in the world by its territory, but also has colossal natural resources – drinking water, wood, certain sorts of peat applicable in agriculture to improve crop yield and, of course, petroleum commodities. Russia is carrying out a number of projects with Germany for the development of national parks. Meanwhile even investment environmental projects meet challenges when German banks refuse to finance them due to sanctions.

At the same time there is a positive cooperation example: the work of the Austrian group company Mondi, one of the leading world producers of packing in Russia. In the Republic of Komi only Mondi rents 2 million ha of forest working in the wood processing and the production of paper and carton, heat and electric energy and makes up for the deforestation with new wood lines. Russia needs advanced technologies and recycling plants for urban and industrial waste. This is a colossal domain for investment and commercial opportunities for the European high-tech companies.

Energy.Pivot of economy and industry. The investment opportunities in these sectors are truly exhaustless. As we know energy companies from Germany, France, Austria work successfully and profitably in Russia. Thanks to the pipeline oil supplies from Russia the EU ensures its energy security. We have already mentioned the gas transportation system of Ukraine. It is an important link between gas transportation systems of Russia and the EU. Today some EU politicians make the gas transit from Russia through Ukraine a condition for the construction and future work of the pipeline “North Strem-1”. And in order to cut this Gordian knot it is necessary to return to the negotiations about the participation in the gas transportation systems of Ukraine of European and Russian energy companies to control and upgrade it. This will demand considerable investments from all parties but will help us to solve many economic and maybe political problems on the continent together, will allay fears of Russia’s aggressiveness.

Agriculture. It is well-known that economic sanctions of the EU against Russia and Russia’s reprisals especially regarding food have led to considerable growth of agricultural production in our country. However regardless of bans on particular products and companies there is active cooperation in cattle breeding, processing and storage of agricultural products. But here we are just at the outset.

Cooperation in the crop farming might be even more interesting. Russian scientists contemplate that farming enormous cultivation areas, processing of products into the industrial alcohol which can be used as a fuel for agricultural machines, auto transport and even motor ships allows to create a new sector of renewable energy and save natural resources such as oil, gas and coal for chemical, pharmaceutical and other productions.

Transport. For several years we have been promoting new Russian high voltage wires and span wires for the railway contact system to the European market. They are of better quality than many Western analogues, besides Russia produces them faster and cheaper. Such products could help Europeans save huge money for the modernization of electric routes and railway equipment. Real estate. Europe often looks into the trends of Russian investments in the real estate in the European Union states especially in France, Germany, Austria and Italy. This area has become an important part of relations between the EU and the EAEU and we can see the activity of investors from Russia, Kazakhstan and Ukraine. However mutual sanctions, restrictive measures of some European governments, social tenses and the attempts of state regulation of the rent often reduce the interest of investors from the East.

Now some words about the Europeans’ fears of the Chinese economic expansion. The Chinese initiative One Belt One Road implies the development of new sea and land routes. It aims to enhance the cooperation and turnover with all Eurasian countries. Kyrgyzstan, Kazakhstan and Belarus are already carrying out this cooperation. These countries also express fears of the dominating Chinese companies in some sectors of industry and transport. While back in 2015 Russia and China signed a declaration of the interconnection between the EAEU and OBOR (initiative also known as the “Silk Way”). What stops Russia from launching the expert consultations on the EU involvement into the process while the roles are being distributed and the participants are being defined? Combined these potentials can implement crucial infrastructure projects, form new markets and become a driver of global economy growth. And my own experience in combining the efforts of the Russian and German transport and logistic companies and the willingness from both sides to work and cooperate on the Chinese market shows: building Eurasian structures is a promising thing.

In general it is easy to notice that regardless of the “Russian threat” there is a sensible vector headed not to a standoff but to fruitful cooperation between the Russian Federation, Europe in general and Germany in particular. And the Eurasian space can become a good platform for fruitful relations.

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