Slackening of Russian-German Special Relationship

In official reporting, there was nothing unusual about President, Dmitry Medvedev’s, working visit to Germany last weekend, except perhaps the rather short notice. German Chancellor, Angela Merkel, greeted him in her official residence in Meseburg outside Berlin and politely expressed agreement on a wide range of issues, from the forthcoming G8/G20 summit in Canada to sanctions against Iran. There was, nevertheless, a particular significance in this trip, which came only a few days after the Russia-EU summit described even by the mainstream Russian media as hollow and unsuccessful (Rossiyskaya Gazeta, June 3). Receiving a lukewarm response to his persistent requests for a visa-free travel agreement, Medvedev also discovered that he would no longer meet with rotating EU presidents, trying to make their mark in the annals of diplomacy, but with the same Eurocrats, who could not deviate from the common position (Vremya Novostei, June 2).

Facing certain deadlock on negotiating a new Partnership and Cooperation Agreement with the EU, Medvedev wants to reinvigorate bilateral relations with key European states, which has always been a main priority in Russian –as well as Soviet– foreign policy. Germany is certainly second to none in the scope of bilateral ties, but Medvedev has found that Merkel is actually not that keen to cultivate it, as her domestic political troubles deepen in parallel with the Greek fiscal disaster (RIA Novosti, June 1). The hopes that Russia with its vast financial reserves and expanding consumer demand could make a significant contribution to economic recovery in the Euro-zone are long gone, and now European investors hold a rather sober view on the prospects of returns on the depressed Russian market (www.gazeta.ru, May 2). Medvedev expressed confidence that the crisis in the Euro-zone would be overcome, but it is clear that Berlin could not count on any support from Moscow, which, however, could be massively affected by a new financial earthquake.

Energy was once the key substance in the Russian-German “special relationship,” but now the gas business does not generate any positive political momentum despite the much reduced risk of supply interruptions. The construction of the Nord Stream pipeline is proceeding on schedule but the long emotional debates around this project now appear irrelevant as the key question is no longer about whether Gazprom would have enough gas to pump into it (which is still doubtful) but whether demand for this gas can be created (Kommersant, June 3). Germans still value the traditional partnership with Gazprom, despite developing serious doubts about the life expectancy of this monopolistic dinosaur. Indeed, the Russian “champion” cannot reduce its production and administrative costs –or compete with the abundant liquefied natural gas on the saturated European market, while monitoring with incredulity mixed with panic the explosive growth in production of “unconventional” gas (Vedomosti, June 3). German giants like E.ON and BASF are not ready to go as far as Italian ENI, which appears ready to dissolve its joint venture with Gazprom in building the South Stream pipeline and is exploring opportunities in Azerbaijan and Turkmenistan, but they put pressure on Gazprom’s most sensitive point –prices– and indicate diminishing interest in long-term contracts (RBC Daily, June 4).

Modernization of the gas infrastructure in Ukraine could have been a hugely important joint project between Gazprom and German companies, but it is not –and by mutual consent. Moscow assumes that President, Viktor Yanukovych, who agreed to extend the lease on the Sevastopol naval base in exchange for a 30 percent cut in gas prices, has no viable option other than Russia and will likely grant new concessions. Yanukovych, meanwhile, has refused the offer of a “friendly” takeover of Naftogaz by Gazprom and is charting a more balanced political course after 100 days in office (Nezavisimaya Gazeta, June 4). Germany is content to see Ukraine prioritizing “brotherly” ties with Russia, because the scope of economic problems and political squabbles in this country appears insurmountable, while the EU has no spare resources to encourage its European aspirations. The issue of investing in Ukrainian pipelines is, nevertheless, certain to resurface, particularly when it becomes clear that Gazprom is unable to implement the ruinously expensive South Stream project (Vremya Novostei, June 4).

Medvedev keeps trying to engage German business in his plans for modernization insisting that Russia has “no other choice” and cannot “relax” even if oil prices were to continue climbing, arguing that “$140 per barrel would be a catastrophe; it would destroy all our incentives for development.” There is an increasing emphasis in the modernization discourse on attracting foreign investors, who, nevertheless, are aware that the promises to “establish a normal investment and business climate” do not convince the majority of Russian entrepreneurs to unpack their suitcases. The narrow focus on technical innovations which Russia seeks to insert in the program for partnership in modernization with the EU might appear pragmatic, but in fact it signifies a failure to curb the all-penetrating corruption, in which many Western companies, including German Daimler AG, are implicated (Kommersant-Guide, May 31).

It is only rational that investors do not take Medvedev’s word that the Skolkovo “wonder-village” will prove to be a “safe haven” for their money, but what is “strictly business” for them is very personal in high-level political dialogue. Many European leaders have been inclined to give Medvedev every benefit of the doubt, and Merkel has clearly preferred to do business with him rather than with his mentor Prime Minister, Vladimir Putin, who for her is too much of a Stasi character. The expectation was that Medvedev would gradually grow into the job and develop a taste for decision-making, and the modernization discourse that he has introduced is indeed changing the content of public debates in Russia. Opinion polls show that Russians are taking the president more seriously, but among the political and business elites the evaluations are changing in the opposite direction (Levada Center, May 27). Putin has asserted his power to keep loyal cadre in key positions, to manage cash flows and to crush discontent as he sees fit, so for Western leaders it makes only so much sense to discuss with Medvedev his grand ideas about a new security architecture.

--Pavel K. Baev