March 4 (Bloomberg) -- German Chancellor Angela Merkel has a portrait on her desk of Russian empress Catherine the Great, the Prussian-born princess who went on to expand Russia’s territory to the west and the south, including Crimea.
As President Vladimir Putin tests Europe’s resolve during the crisis over Ukraine, Merkel’s admiration for Catherine hints at the complex ties binding Germany and Russia together that give her sway over Putin yet constrain her response.
Merkel, who once told German television that Catherine had “accomplished many things under difficult circumstances,” has telephoned with Putin at least three times in the past week alone. That diplomacy reflects her role as the key conduit between east and west.
Merkel, 59, a Russian speaker whose political career began with the end of the Cold War, has additional leverage in the conflict over Ukraine on account of her status as the leader of Russia’s biggest EU trading partner in goods. The same ties make Germany the European Union country with the most to lose from any escalation.
“The German government wants to avoid drastic EU measures or sanctions on Russia,” Fredrik Erixon, director of the European Centre for International Political Economy in Brussels, said in an interview. “The main casualties of such moves would be German companies exporting to Russia or those in Russia.”
President Barack Obama and Merkel discussed Putin’s mindset in a phone call on March 2, a German government official with direct knowledge of the conversation said. Merkel said that she thinks Putin is acting very rationally, he simply has a completely different view of the world, according to the official, who spoke on condition of anonymity because the call was private.
Steffen Seibert, Merkel’s chief spokesman, declined to comment on the call at a government news briefing yesterday.
With 35 percent of German oil and gas imports coming from Russia and 6,000 German companies doing business there, Merkel is constrained even as her foreign minister threatened “consequences” over what he called Europe’s worst crisis since the Berlin Wall fell 25 years ago in November.
That ambivalence will play out at a summit of EU leaders on March 6 in Brussels, where Germany risks being at odds with countries such as Poland, whose Foreign Minister Radoslaw Sikorski has said the bloc may impose sanctions that hurt Russia’s hydrocarbon industry.
While Secretary of State John Kerry threatened Russia with possible sanctions, Merkel appealed for political dialogue in a phone call with Putin also on March 2. As Russian troops tightened their grip on Ukrainian territory yesterday, Germany said there is still a chance to ease the crisis. When Kerry raised the prospect of ejecting Russia from the Group of Eight nations, German Foreign Minister Frank-Walter Steinmeier questioned that approach, saying it would shut down an avenue of dialogue.
“The problem will be to get a Ukrainian partner to the table that Russia will accept,” Gernot Erler, the Foreign Ministry’s coordinator for German-Russian relations, was quoted as saying by the Focus Online news portal today.
Merkel, who grew up under Communism in East Germany and made trips to Moscow as a student, was reminded of the risk to exports that power Europe’s biggest economy yesterday as global stocks suffered their biggest drop in a month on Ukraine.
Stada Arzneimittel AG, Germany’s biggest generic-drug maker, which depended on Russia for 19 percent of sales in 2012, fell the most in three months on investor concern that the mounting conflict will crimp revenue.
Other German investments in Russia include Siemens AG, which built the fast train between Moscow and St. Petersburg, and BASF SE’s Wintershall Holding unit, Germany’s largest producer of crude oil and natural gas, which said Dec. 23 that it plans to further increase production of both energy sources in Russia.
BASF, the world’s largest chemical maker, agreed in 2012 to transfer its gas trading unit to Russia’s OAO Gazprom in return for stakes in two Siberian oil fields. More than half of Ludwigshafen, Germany-based BASF’s fuel will come from Russia when the fields go on stream.
Germany was the EU’s top exporter to Russia in 2012 with a 31 percent share, followed by Italy at 10 percent and France with 9 percent, according to EU data. Putin was the guest of honor in April at the annual international trade fair in Hanover, Germany, where Russia was the featured partner nation.
Economic sanctions on Russia would “neither be desirable nor effective or implementable,” Michael Harms, head of the German-Russian Chamber of Foreign Trade, or AHK, said in a phone interview from Moscow yesterday.
“Sanctions would only worsen the situation and in fact hurt Germany more than Russia, because it could easily replace goods from Germany with those from China,” he said.
While Merkel and Putin have clashed over topics from civil liberties and gas imports to art looted by the Soviets at the end of World War II, they have a shared history.
A Lutheran pastor’s daughter who faced discrimination at her East German school due to her father’s religion, Merkel learned Russian so diligently that she won prizes and a trip to Moscow. Putin is a fluent German speaker who served as a KGB officer in the East German city of Dresden during the Cold War.
The portrait of Catherine the Great on Merkel’s desk in the Chancellery in Berlin is a gift from before her time as chancellor when she headed the Christian Democratic Union’s parliamentary caucus. The 18th-century Prussian princess, who ruled Russia alone for 34 years, was a “clever strategist,” Spiegel cited Merkel as saying in the 2009 article.
At a German-Russian business forum in St. Petersburg in June, Putin said Russia welcomes German companies such as Siemens and Volkswagen AG and lectured Merkel at a joint news conference that Russia creates jobs in her country by buying German technology. Merkel said expanding trade while reducing Russia’s energy-based export surplus with Germany is one of her goals.
“Germany is the crucial European player in the Ukraine-Russia conundrum,” said Carsten Nickel, an analyst with Teneo Intelligence. “Despite an at times uneasy relationship with Moscow, Berlin has tried to play the role of a power broker between the Western alliance and Russia. Ever-closer economic ties between the two countries have further added to this.”
Russia stepped into the crisis in Ukraine after almost three months of protests toppled President Viktor Yanukovych, who had scrapped plans for closer ties to the EU under pressure from Moscow.
As Russia’s military deployment sent global stock indexes and the ruble plummeting, attention in Germany turned to any disruption of energy supplies. Russia is Germany’s biggest natural-gas supplier ahead of Norway and the Netherlands.
German gas reserves are “well filled” and Europe’s largest economy could withstand shortages, Economy Ministry spokeswoman Tanja Alemany told reporters in Berlin yesterday.
Even as EU foreign ministers agreed yesterday to consider halting trade and visa talks with Russia if there’s no “de-escalation” in Ukraine, Germany was holding back.
“In decades past we’ve had experience with sanctions and they weren’t always good,” Germany deputy Foreign Minister Michael Roth said in an interview in Berlin hours before the decision in Brussels. “We still see a chance” to resolve the conflict diplomatically, he said.
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