Little Love for Sanctions: Ukraine Crisis A Tightrope Walk for German Businesses

Published on Spiegel Online International, by SUSANNE AMANN, FRANK DOHMEN, JÖRG KRAMER, PAUL MIDDELHOFF AND BARBARA SCHMID, April 30. 2014.

As Moscow continues to escalate the situation in Ukraine, public and political pressure is turning against German companies who do business with Russia. The countries’ economic ties make disengagement next to impossible.
Clemens Tönnies usually says what he thinks. When, on a February morning, he climbed into a private jet with his wife Margit to fly to the Olympic Games in Sochi, he described his views on Russia to a reporter with Sport Bild magazine: It has “bothered him, how negatively this country has been portrayed … //

…  Businesspeople Oppose Sanctions:

Given the ways business-world figures and politicians have been audibly grumbling at each other for weeks whenever the issue of how to deal with Russia in regards to the escalation in the Ukraine arises, the hubbub isn’t exactly surprising.
On March 21, the EU heads of state and government declared that all Russian steps aiming to further destabilize Ukraine would “lead to additional and far-reaching consequences” — meaning strict economic sanctions. But Russia has ignored agreements and arrangements and, thus far, not much has happened in terms of consequences — creating a dilemma for both politicians and businesspeople.Although all sides argue that international law is more important than profits, politicians appear to be having a difficult time agreeing to far-reaching and painful sanctions, given Europe’s energy dependence on Russia. The business community, it’s also clear, has no interest in such punitive measures.
At the East Forum in Berlin in April, Eckhard Cordes, chairman of the Committee on Eastern European Economic Relations, an organization representing German business interests in the east, received applause for one sentence in particular. “We won’t let the constructive work of the last decades be ruined for us,” he said in reference to the threatened sanctions, and called for politicians to solve the crisis at the negotiating table as quickly as possible.
Cordes seems to be voicing the feelings of many German businesspeople. Germany, after all, has noticeably closer connections to Russia than other European countries — last year’s trade volume was €76.5 billion ($106 billion), and Germany is Moscow’s third-largest trading partner. The Germans export machinery, electrical equipment and cars to Russia, and import gas and oil in return. There are 6,000 German companies in Moscow — more than all those from all the other EU states combined. The Russian market, as difficult as it may be, is giant and lucrative.

A Delicate Path: … //

… Gazprom: A Complex Giant: … //

…  Delicate Relationships: … //

… I Have Promised Putin:

Given this type of economic interdependence, the accusations leveled against meat manufacturer and the head of Schalke’s supervisory board Tönnies — namely that he wants to expedite the construction of a meat plant in Russia by having his football players visit the Kremlin — seem almost naïve. As it turns out, Tönnies’ Russian business is considerably larger than previously known. Tönnies grossed almost €6 billion in the past year. Fifty percent of that came from exports — of which Russia, being one of the biggest markets for pork, made up 10 percent.
Tönnies has also, it turns out, long been personally involved in Russia, where he already has eight feeding facilities for pigs, and three others under construction. He wants to be able to feed, slaughter and butcher up 1.5 million animals per year. This, Tönnies admits outright, is a fulfilment of Putin’s wishes. “I have promised Putin that I would also become active in Russia.”
Russia is dependent on businesses like Tönnies’. The country has an enormous need for food products, which it can barely fulfill on its own. The same is true for all other branches in which German companies are investing there: The giant country not only requires goods, but also a transfer of technology, investment capital and jobs.

Economy in Jeopardy:

It wasn’t until last Friday that the US ratings agency Standard & Poor’s lowered Russia’s creditworthiness rating to BBB-, only one notch above the term “junk” intended to indentify speculative investments. The ratings agency justified its decision by pointing to the massive crisis-induced capital drain in the first three months of the year.
German exports also decreased by 10 percent in January and February in comparison to the previous year. Because of the weak price of the ruble, many Russian state companies have switched to Asian suppliers. Putin simultaneously raised the pressure by allowing Gazprom to suddenly bring Ukraine to account over $11.4 billion in broken gas contracts.
All of this shows how difficult it is to determine who has the upper hand when it comes to business in and with Russia. At any rate: It’s become much more complicated for the German business community to find its way through the network of political pressures, interwoven economic relationships and public opinion, while balancing its own interests. Tönnies will have learned that by now.

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