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Putin and Merkel Tango in Moscow, Gazprom Stirs Up Old Ghosts, But Deals Are Signed

Last week, the German Parliament passed a resolution that asked Chancellor Angela Merkel to needle Russian President Vladimir Putin about the resurgence of repressive, antidemocratic tendencies in Russia. It did not go unnoticed at the Kremlin. And it paved the way, so to speak, for her trip to Moscow on Friday—to re-cement their “strategic partnership.”

Complaints about the resolution filtered back to the point where Foreign Minister Guido Westerwelle, just before departing for Moscow, warned his countrymen not to overdo their criticism of Russia. It’s in the interests of Germany, he mused, to expand the “strategic partnership”; Russia was needed as a geopolitical and economic partner.

Indeed. Merkel arrived in Moscow with her entourage that included eight ministers and corporate chieftains by the planeload—she doesn’t leave home without them. With Merkel and Putin looking on, these chieftains and their Russian counterparts signed contracts for billions of euros, a ritual that German chancellors have to perform when abroad. It’s part of Germany’s mercantilist foreign policy. Siemens CEO Peter Löscher bagged perhaps the biggest deal, a declaration of intent to deliver 695 electric locomotives for €2.5 billion ($3.2 billion) to Russian Railways (RZD), an elephantine state-owned company with 950,000 employees.

That’s what really mattered. Criticism of Russia—carefully calibrated and range-bound—would be for consumption at home, where anti-Russian sentiment has been rising. With elections coming up next year, Merkel, the consummate political animal, is treading a fine line: deliver a bland rebuke that would barely satisfy voters in Germany and help arrange deals that would fully satisfy German industry.

The initial meeting was at the concluding session of the annual Petersburg Dialogue, a four-day forum, this year titled ominously, “Russia and Germany: the Information Society Facing the Challenges of the 21st Century.” So the first question from the audience was posed by a Russian participant: what about the recent deterioration in the Russian-German relationship—a reference to the resolution—and its consequences on economic cooperation?

A government had to be able to digest criticism, Merkel said in response. Yes, some of the recent laws the State Duma had passed “irritated” her. “I cannot see that they further freedom,” she said. “We ask ourselves if that is good for the development of Russian society or not.” But that didn’t change the intense relationship between both countries. “If I were offended every time I opened the paper at home, I couldn’t be chancellor for three days,” she said. Putin smiled.

It kicked off a bizarre tangle of questions and answers, comments, attacks, and counterattacks, fact-based or not, that carried over into a panel discussion and press conference. Putin claimed that Germany had been criticized by human rights groups because some of its states didn’t have laws for the protection of information. Which baffled attendees. And about Merkel’s statement—incomprehensible, given current conditions—that Europe always tried to speak with one voice, Putin retorted: “That’s called a cartel.” Even the Pussy Riot case came up.

A representative from Gazprom, the giant state-owned Russian natural gas company without which no German-Russian meeting is complete, and on which Germany depends for much of its natural gas, complained about the “gloomy atmosphere” in the relations between both countries that was hindering making deals.

The meeting was a far cry from when Gerhard Schröder was still Chancellor. He’d raised the “strategic partnership” to new heights through his close personal and political relationship with Putin. For example in November 2004, he described Putin as a “flawless democrat,” which stirred up a ruckus even in Germany. He also championed the Nord Stream gas pipeline that would pump gas from Russia directly to Germany via the Baltic Sea, without crossing other countries, a very costly project. Gazprom controlled the Nord Stream consortium. A deal was signed in October 2005. It included a loan guarantee by the German government of €1 billion. That’s how close German-Russians relations were.

On November 22, 2005, Schröder got kicked out of office. Days later, Gazprom appointed him Chairman of Nord Stream AG, causing another ruckus in Germany; it was clear what his intentions had been all along, now that he was on the lavish payroll of the Russian government. Turns out, the Baltic pipeline would allow Russia to cut off gas to countries its other pipelines crossed on their way to Germany, while still supplying Germany—a powerful political weapon against those countries. The “strategic partnership” had made it possible.

Gazprom is deeply involved in the rest of Europe as well. For example, why would France suddenly prohibit shale gas exploration? Sure, there are environmental issues. But French governments have had, let’s say, an uneasy relationship with environmentalists. Its spy service DGSE, sank Greenpeace’s flagship, the Rainbow Warrior, killing one person. No, there must have been another reason. Read... Russia’s Gazprom Tightens Its Stranglehold On Europe: The Natural Gas War Gets Dirty.

With the euro debt crisis came absurdities. Now the currency is creating artificial problems between peoples. And by being “irreversible,” as ECB President Mario Draghi had said, it has become a curse—and a religious dictum that must not be questioned regardless of how much havoc it may ultimately wreak. Read...  The Curse Of The “Irreversible” Euro.

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Reader Comments (4)

Problem with the European energy policy is that effectively there isnot one (the ones there are are basically unrealistic). They want certain, affordable and green energy and donot make the necessary choices as these 3 things simply donot seem to combine.

Basically Russia has much more to offer to Germany than the South of Europe (probably a no growth area for the next 2 decades at least, run out of money, governance problems, social unrest and nothing of value in the ground). Russia is corrupt but not substantially more as some of the Souths and it has all the stuff in the ground plus much more growth capacity (both GDP per capita wise as marketshare, markets are much less developed yet) Will be interesting to see how this develops.

The way Western parliaments react is hardly less naive than most of the European population does. All think that countries are or should be organised as at home. The US can probably afford it (still costs a lot of money) very doubtful if Europe can especially as the organic soybean eaters from Europe are usually substantially more irritating than those from the US and there are clearly more of them in government/parliaments as well.

Anyway. No nukes and no coal because of enviromental reasons means gas. Even if shale works the licenses required (plus protest and courtcases) will constitute a major problem. So they will get stuck with Gazprom see no other option. Seems safer than Arab countries. And you have to plan very long term because of logistics it is no oil or coal that can much more easily be transported. Or may be a split (looks to happen now) but with most from Russia (as it looks long term the safest). Anyway more fun to business with them than with the Arabs. Only large company with booz on the table in boardmeetings at least in the good ol' days.
November 17, 2012 | Unregistered CommenterRik
Schroder was right to champion the Nord Stream gas pipeline. Gas deliveries should be much more reliable in a route where Russia does not have to deal with transit countries. The fiasco of Ukraine in 2009 gives a very good example of the problems.
November 17, 2012 | Unregistered CommenterMEJ
MEJ - Agreed, there were pros and cons for the Nord Stream pipeline deal, and sound logic may well have been the deciding factor - but Schröder blew up any notion of sound logic when he started working for Gazprom right after being voted out of office. To Germans, this smelled really bad.

Rik - and don't forget Norway. It's becoming a significant supplier of NG to Germany. But even during the Cold War, Russia was a reliable gas supplier. It's just that energy dependence on one country is a horrible vulnerability.
November 17, 2012 | Registered CommenterWolf Richter
Dutch have some of the stuff as well (might want to sell speeded up if shale spoils the market worldwide) but as I understand in combination nowhere near enough to cover demand. Plus the move from nukes combined with CO2 restrictions basically leaves gas as the only alternative leading to a huge increase in demand.
Basically the CO2 restriction imposed on themselves look imho simply unsustainable (they simply cannot (specifically socially)afford them and think the energy supply is safe).
Either high on CO2 or nuclear or expensive or uncertain (and often more than one of those). Like in Germany now this will hit spending power of the average Heinrich (as it starts to do now and that is only partial move away from Nukes yet) and create social political problems. Simple maths (someone will have to pick up the extra bill and that one is always the end user), but apparently eating organic soybeans limits your ability to make simple calculations or it might be the waves coming from all those solarpanels.
Russia needs the cash as hard as Europe needs the gas. But they are also diversifying (to their East).
Donot see much in going further into Siberia/Azerb at least pipeline wise. Via Russia looks by far the safest option anyway for a pipeline and cutting it of will be very easy if it is necessary and people are playing hardball. Donot think it worth the investment.

Fully agree with MEJ Schroder did the wise thing. You might not like the Russians but you need their gas and the transit countries look highly unreliable. Belarus could be the 21st Century Albania, Ukraine will remain a mess and Poland will focus on its own national interests first and that of the EU second at best. Poland and similar countries still havenot found a sustainable way to live with Russia. Still see it as the oppressor and face to Europe and the US but at the same time lives next to the Ruskies and want cheap gas from them. Simply doesnot add up.
November 17, 2012 | Unregistered CommenterRik

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