Russia trade ties weigh on Germany in Ukraine crisis

Germany has tried to defuse the Western standoff with Moscow over Ukraine, but analysts say its voice is muted by fears of endangering its vast economic ties with Russia. Europe's top economy buys around one third of its oil and gas from Russia and has extensive trade and investment links with the population giant to the east. Nervous German industry lobbies have warned Chancellor Angela Merkel that sanctions against Russia could spark a trade war that would cost jobs and billions of euros. While Foreign Minister Frank-Walter Steinmeier has engaged in shuttle diplomacy and preached dialogue, critics say the good-cop approach is seen as weakness by the Kremlin. "Germany is the main brake on a tougher stance toward Russia," said Stefan Meister of think-tank the European Council on Foreign Relations. "What we see at the moment is the limits of German influence on Russia, the limits of the collaborative approach that Germany has maintained for many years." Merkel, who grew up in the communist East Germany and speaks Russian, has made repeated phone calls to Russia's Vladimir Putin, a former KGB agent who speaks German. The German chancellor, who has known Putin longer than any other Western leader, has harshly criticised Russia for sabre-rattling and violating international law in Ukraine's Crimea region. But when it comes to hurting Russia with stinging sanctions, as proposed by Washington and some EU partners, Germany has backed off and urged caution. Berlin also appeared hesitant to pull out of advance talks for the Russia-hosted G8 summit in June and opposed kicking Russia out of the big-powers club altogether. Keeping open the channels of communication, Merkel's vice chancellor Sigmar Gabriel met Putin Thursday for closed-door talks that German officials explained were scheduled weeks ago. - Kremlin 'sees dialogue as weakness' - Meister said the "partnership approach" of seeking to engage and gently nudge Russia towards liberal democracy had failed because "the Putin system is immune to it". "It has no interest in political change. The search for compromise is seen as a sign of weakness by Russia." Meister stressed that Germany's complicated Russia policy is also subject to "massive pressure from the business side". Germany's industrial lobby warned this week that punishing Moscow could spark retaliation that would hurt Europe just as it slowly emerges from a years-long downturn. "Threats are damaging to all sides," cautioned the Eastern Committee of German Business, warning that more than 6,000 German companies do business in Russia and that 300,000 German jobs rely on links with the country. "If a spiral of mutual economic sanctions kicks off now it will threaten to severely damage the European economy," said the group's chairman Eckhard Cordes. German economic titans including car maker VW and retail chain Metro are heavily invested in Russia. Two-way trade topped 76 billion euros ($104 billion) last year. - 'Massive economic fallout' - Some observers argue Germany should take a more assertive stance, that the economic danger is overstated and that Russia has far more to lose than Europe. "German-Russian trade constitutes about four percent of Germany's overall trade portfolio ... less than between Germany and Poland," said Joerg Forbrig of the German Marshall Fund of the United States. "We're making an elephant out of a trade partner that is one of many and that is by no means the most important one for our economy. "This is used to justify that Germany cannot steer a harsher line, perhaps even impose economic sanctions on Russia, because there would be massive fallout on the German economy. That simply is not warranted." He pointed out that many Eastern European countries, despite vastly greater Russia trade links and energy dependency, "are willing to take a principled position, because they clearly see the threat". German politicians and diplomats, he said, remain broadly committed to the decades-old tradition of "Ostpolitik", of opening up to the Cold War-era Eastern Bloc. "To step out of this shadow of history is apparently very difficult for the German political class to accept," he said. "Germany is basically just not ready for what the Russians are proposing, which is confrontation."