German companies thriving in Russia, pioneer “modernization partnerships”

Supported by the European Commission and the Russian presidential administration and managed by the German Council on Foreign Relations (DGAP), the EU-Russia Forum is an established platform for dialogue and political interaction between the European Union and Russia. It recently launched a new ’Trendmonitor’ series, which analyzes Russian and European public opinion on various aspects of EU-Russia relations. The first Trendmonitor, which was released in February 2011 on the basis of studies conducted by the Levada Center in Russia and the Forsa Institute in Germany, looked at how Russians and Germans see the “partnership for modernization” launched by the two countries in 2008. Alexander Rahr, director of the EU-Russia forum and of the Russia/Eurasia program at DGAP, discussed the main results of these studies with Modern Russia.   

Both Germany and the EU have established “modernization partnerships” with Russia. What do they consist of concretely? Are specific projects being implemented?

In my opinion, things have not changed much so far. A few years ago the EU-Russia roadmap aimed to create four Common Spaces. Today, even negotiations on the prolongation of the EU-Russia Partnership and Cooperation Agreement prove to be much more difficult than expected. The EU and Russia haven’t made any progress on the visa issue and there are political barriers everywhere. The West expects a rapid accession to the WTO from Russia, whilst Russia is not a member of WTO, the EU does not want to engage in an energy dialogue with Moscow. Furthermore, the EU has ignored President Medvedev´s proposals on a second Energy Charter as well as Prime Minister Putin’s initiative on creating a free trade area. The EU has also ruled out Russian membership of the OECD.

A breakthrough must be achieved with regards to investment in Russia. Both Putin and Medvedev have offered the EU new possibilities on the Russian market, where Russia expects more technical support from the EU for the modernization regime. Of course Russia also wants to achieve a reduction of barriers in energy issues with the EU.

Your report shows that Russian respondents clearly see Germany as their country’s preferred “modernization partner,” while an overwhelming majority of German respondents support the modernization partnership with Russia. This tends to confirm the notion of a “special relationship” between the two countries, particularly in the economic sector. What are the main reasons for this?

Moscow in particular sees Germany as an honest partner for its modernization agenda - indeed products labeled “Made in Germany” are sought after in Russia. With German support, Russia hopes to solve problems with the EU.

German companies are considered model partners for Russian companies. Russian employees in German companies in Moscow are very well protected and Russia supports German calls for strengthening the legal culture, because Berlin is seen as an honest intermediary. The term Ostpolitik has a positive connotation in the Russian language.

German companies are nevertheless facing increasing competition from Europe and Asia (particularly China) on the Russian market. Can the modernization partnership help them retain their privileged position there?

Berlin should use Prime Minister Putin’s sympathy for cooperation with Germany, for as long as Putin stays in power, Germany will always remain close to Russia. The competition from China should not be taken too seriously, because for Russians, China remains a distant culture, while Germany is regarded as a model of civilization. However, Putin has demanded that Germany not only makes money on the Russian market by selling food and mechanical products there, but also strengthens its presence in domestic Russian production. There are good pilot projects but a breakthrough has not yet been achieved. Apart from the energy sector, cooperation should be deepened in high-tech industry as well.

Russia has various issues to address as it modernizes: not only diversifying and upgrading its economy, but also strengthening its legal and institutional framework, fighting corruption, promoting research and development and so forth. In which areas can Germany help most?

Russia-Europe relations have reached an impasse on the subject of values. Germany recognizes the problem and is looking for pragmatic ways to break the deadlock. Berlin offered Moscow a dialogue on legal issues and Germany has presented itself as a partner for modernization of the Russian legal system. In particular it wants to conduct a dialogue on commercial law in Russia. Should a legal dialogue succeed, European businesses will find more legal security in Russia.

Looking at it the other way around: What, concretely, are the benefits of the modernization partnership for Germany, and German companies in particular? Can you name specific examples?

Regrettably, the Opel deal was not concluded and the joint project of liquefied gas tankers for the transit of gas in the Baltic Sea did not come to fruition either. Nor did Infineon go to Russia in the end. At the moment it looks as if French and Italian companies have overtaken their German counterparts, though in my opinion this situation will change in Germany’s favor again.

German and Russian companies have nevertheless become key partners in the energy sector. Nord Stream could not have been built without EoN and Wintershall. Today there is still some resistance to this pipeline in the EU, but in the end the EU will be grateful to Germany for having secured such energy flows from Russia. In the future, German companies will also help Russia modernize its energy production. There is hope that through strategic partnerships with Gazprom, German companies would be able to firmly establish themselves on Russia’s vast energy market. In turn, Gazprom and other Russian companies would also benefit from modernization partnerships with German firms by gaining access to EU markets. Of course, Russian companies would need to adopt Western standards if they want to work in the EU, while German companies would need to adapt to some Russian practices. I am sure Russia will eventually achieve its objective of establishing a common free trade zone with the EU – particularly if its modernization partnership with Germany proves successful.