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Germany Inc. Says Time’s Finally Up for Putin After Crash

By Arne Delfs, Brian Parkin and Alessandro Speciale
July 29, 2014 11:14 AM EDT 235 Comments
Angela Merkel, Germany's chancellor.
Photographer: Krisztian Bocsi/Bloomberg
Angela Merkel, Germany's chancellor.

Germany’s business and political leaders are lining up to support a tougher stance on Russia, giving Chancellor Angela Merkel critical backing as she pushes her European Union counterparts to expand sanctions.

Industry group chiefs and lawmakers from Merkel’s governing coalition are expressing the need for deeper measures targeting Russia’s economy following the downing of Malaysia Air (MAS) Flight 17. Public opinion has also shifted, with a majority of Germans now favoring wider actions against Russia.

“This shooting down of a plane is really a turning point,” Martin Wansleben, head of the Association of German Chambers of Commerce and Industry, said in an interview. “It’s such an outrageous act that one must give a clear response.”

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At stake for Germany is trade with Russia worth almost $88 billion last year and a complicated relationship resulting from their shared history. Nazi Germany attacked Russia in 1941 and as many as 27 million people died in the Soviet Union during World War II. Relations with Russia are tinged with guilt because of this death toll, as well as gratitude toward Soviet leader Mikhail Gorbachev, who allowed the opening of the Berlin Wall in 1989 and the peaceful reunification of Germany.

At the beginning of the conflict between Russia and Ukraine, many in German society struck a more conciliatory tone toward Russia than elsewhere in Europe. Then came the July 17 downing of Flight 17 in eastern Ukraine, which the U.S. says was probably the result of a Russian-supplied surface-to-air missile fired by rebels. All 298 people on board died. Russian President Vladimir Putin denies his government is helping the separatists. EU governments agreed today to curb Russia’s access to bank financing and advanced technology.

Fed Up

“You can sum up what the polls are saying quite simply: the Germans are truly fed up with Putin,” said Gero Neugebauer, a political analyst at Berlin’s Free University. “While frustration has grown over months in Germany, it showed little sign of developing into the kind of support we’re now seeing for sanctions. MH17 changed that.”

Subject to Sanction

German business leaders -- who had in recent months publicly expressed skepticism regarding sanctions, including the chief executive officers of Siemens AG, ThyssenKrupp AG and Adidas AG -- have either stayed quiet during the latest talks or come out in support of a harder line. Siemens, Adidas and ThyssenKrupp representatives declined to comment.

“Politics sets the framework, which we have to adhere to,” Daimler AG CEO Dieter Zetsche told Bloomberg at a company event in Berlin. “To speculate about potential changes and impacts wouldn’t be appropriate.”

Industry Support

Three of the country’s key industrial groups -- the Federation of German Industries, the Committee on Eastern European Economic Relations and the German Engineering Federation -- now say they’ll support harsher measures against Russia should the EU approve such actions.

“As painful as further economic sanctions will be for European business development, German exports and individual companies, they can’t -- and may not -- be excluded as a way to pressure the Russian government,” Ulrich Grillo, president of the Federation of German Industries, wrote in newspaper Handelsblatt. “The conduct of the Russian government must have noticeable consequences for Moscow.”

Doing so, will have an economic price. Russia ranked 13th among destinations for German exports in 2013, accounting for $37.9 billion in sales, according to data compiled by Bloomberg. Imports from Russia totaled $50 billion, making Russia Germany’s eighth-biggest supplier of goods. Oil and gas accounted for about three-fourths of the imports.

Economic Uncertainty

“It may very well be that the entire German economy is affected because the greatest risk, the biggest cost factor, is really the uncertainty,” Marcel Fratzscher, president of the Berlin-based DIW economic institute, said on ZDF television today. “The high degree of uncertainty makes it extremely difficult for companies to make investment decisions and that affects the whole European and the entire German economy.”

The head of the German Engineering Federation said Russia is the fourth-largest export market for the country’s machine building industry and that the sector is preparing for the inevitable direct impact that any stiff embargo will have.

The federation “explicitly recognizes, that Berlin and Brussels have for a long time endeavored to avoid hard and massive sanctions,” Hannes Hesse, the group’s chief, said in a statement to Bloomberg. “In light of the latest escalation, new sanctions were virtually unavoidable.”

Public Support

The wider public shares that view. Fifty-two percent of Germans back tougher measures against Russia even if that means the loss of “many” jobs in their country, weekly magazine Der Spiegel reported July 26, citing a TNS-Infratest poll it commissioned. A survey in March put support for sanctions at about 25 percent.

“Sanctions are right, but not enough,” said Harald Hein, a 60-year-old administrative employee at a bank in Frankfurt. “On the other hand, I can see the problem that Russia can stop its gas, its oil. It’s difficult, but nothing is cheap, you always have to pay a price.”

Germany imports more than a third of its oil and gas from Russia and is the European Union’s top exporter to Russia. Germany should consider curbing Russian gas purchases in response to Putin’s actions in Ukraine, Michael Fuchs, a CDU deputy leader, told Deutschlandfunk radio.

“It’s not acceptable that the Russians first annex territories -- Crimea -- and then on top of that have some militia fighting a proxy war in eastern Ukraine, which then leads to civilian planes being shot down,” Fuchs, a former head of the country’s exporters association, said yesterday.

Chic Houses

Social Democratic Party Chairman and Vice Chancellor Sigmar Gabriel has also come out in favor of a much tougher stance on Russia, saying that the EU must move against Putin’s oligarchical allies “with their chic houses in European capitals” by freezing their bank accounts.

“We need to have in our sights those on whose shoulders the Russian government stands,” Gabriel said July 27 in an interview with ARD Television.

Still, some in Germany are urging further caution on Russia. The telephone survey of 1,000 voters for Spiegel taken on July 23-24 showed that 39 percent of respondents opposed wider measures. The poll had a margin of error of as much as 3.1 percentage points.

“If the economy is hurt by sanctions then this would not be a good thing, especially if consumers are those paying the price,” said Mariam Rudolfs, a 25-year-old legal clerk in Frankfurt. “It would not be right.”

As the standoff with Russia intensifies, German industry is preparing for the long haul.

“As the crisis began, many had the hope, that in three to six months, one would be able to return to the order of business,” Wansleben said. “But this expectation has not been fulfilled. We don’t currently see a light at the end of the tunnel.”

To contact the reporters on this story: Arne Delfs in Berlin at adelfs@bloomberg.net; Brian Parkin in Berlin at bparkin@bloomberg.net; Alessandro Speciale in Frankfurt at aspeciale@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net Leon Mangasarian

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