One and a half years after the start of the Ukraine conflict, and twelve months after the introduction of economic sanctions against Russia, the economic consequences of the crisis are becoming increasingly evident. After a decline of German exports to Russia of 6.5 billion euros in 2014, the Eastern Committee of German Economy expects another slump of 9 billion euros in 2015. “The latest figures exceed even our worst fears. The negative development since the beginning of sanctions immediately threatened 150,000 jobs in Germany,” said Eastern Committee Chairman Eckhard Cordes in Berlin. Within the EU, the German economy has paid the highest price for the crisis by far. Especially medium-sized enterprises in the new federal states are affected.
During the first four months of 2015, the German exports to Russia declined by 34 percent, German exports to Ukraine fell by 30 percent. According to forecasts of the Eastern Committee, German exports to Russia will have halved by the end of 2015 compared to the record year 2012, and are now only at around 20 billion euros. Russia would thus range behind other countries such as the Czech Republic and Sweden ranked 15th on the list of Germany’s most important customer countries.
While the Russian economy increasingly avoids German imports by manufacturing the goods themselves, or by obtaining goods from countries which have not joined the sanctions, Germany remains dependent on Russian oil and gas. “While three years ago the trade balance with Russia was still nearly balanced, in 2015 bilateral trade in Germany is heading towards a deficit of 10 billion euros,” said Cordes. Worldwide, there is a comparable high trade deficit only with the Netherlands.
Despite the sanctions, and a current recession caused mainly by lower oil prices, Russia continues to have a balanced state budget, currency reserves of about $350 billion and a State reserve fund filled with $150 billion. Given these figures, the economic sanctions introduced one year ago, have worked increasingly counter-productively. “The economic relations between Russia and Germany and the EU are shrinking, while Russia is turning to partners such as China, India and South Korea. But with each broken business contact a political influence in Russia is lost,” warned Cordes. The EU has a tendency to overestimate the effect of sanctions on Russia and to ignore the negative side effects. But a change in the Russian Ukraine’s policy can’t be achieved this way. “Not a single problem will be solved with the enforcement of economic sanctions at EU level by end of January 2016. On the contrary: the danger that the fighting will erupt again in the Eastern Ukraine, is great, because people in the region have no economic prospects,” Cordes said. “In order for the peace process to finally gain momentum, the EU must intensify their trilateral talks with Russia and the Ukraine, which need to be accompanied by the easing of economic sanctions. We need to start the phase-out of the sanctions.”
The proposal of the Chancellor to speak with Russia and the Eurasian Economic Union on the creation of a common economic space in the long term, was judged positively by Cordes. “Countries like the Ukraine need both markets. The EU should, in principle, agree with the Eurasian Economic Union on the harmonization of trade rules. For this purpose, the Commission should obtain a negotiating mandate as soon as possible.” In his statement Cordes referred to the critical economic situation in Ukraine. Despite unilateral trade concessions as part of the Association Agreement the export of Ukraine to the EU was very slow to get off the ground, at the same time Ukrainian exports to Russia would then collapse massively. Therefore the current forecasts predict that the Ukraine will face a decline in gross domestic product by 9 percent by 2015. “Local and international investors are urgently requested to stabilize the Ukraine.” However, without a lasting peace in eastern Ukraine, it is very difficult, despite initial reform successes to attract large investors. Cordes suggested to work up and to eliminate the problems in the implementation of the peace agreement in a Minsk follow-up conference as soon as possible: “We must not stand idly by, as Minsk fails.”
The Eastern Committee is trying to support the reforms in the Ukraine with two projects: In the summer, the first 15 scholars of a new program for Ukrainian graduates will come to complete internships in German companies. In addition the East Committee has together with partners such as dena [German Energy Agency] established an “initiative energy efficiency in Ukraine” early 2015, which should support the energy related renovation of the Ukrainian housing and communal sector.
Source: Pressemitteilung des Ost-Ausschusses der Deutschen Wirtschaft from 26.6.2015
(Translation Current Concerns)
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km. The “Frankfurter Allgemeine Zeitung” was disparaging in a business conference on 26 June in St. Petersburg, Russia. The now solely anti-Russian German newspaper sensed “the attitude of many German entrepreneurs” as “worrying”. The newspaper criticized mainly young German entrepreneurs who are active in Russia. They hold the opinion according to the newspaper: “The whole conflict in Ukraine is based on the aggression of the Americans. Apart from Russia no one objects, if the Americans pursue their geopolitical interests. Russia, however, should have no own interests in the eyes of the West. However pragmatic as they are, the Americans bring themselves, in position again, to do business with Russia. The EU threatens to fall behind, after they have ignored Russia’s legitimate concerns for many years.”
Such quotations of the “Frankfurter Allgemeine Zeitung” stimulate the thinking in a different direction than the one intended by the newspaper. Is it not interesting that the European and especially German trade with Russia has fallen sharply, while there is growth in Russian-American trade? And it is interesting to see how German companies, as in Russia, are locally assessing the political developments.
The press release of the “Eastern Committee of German industry” is worth reading. Here you can read that those interested in trade also want peace. Indeed, a good European-Russian relationship would be a “win-win situation” beneficial in many ways. Reason enough to no longer to follow the dictates of Washington, but tread a different path. •
Since 1952 the Eastern Committee has represented the interests of the German economy in Eastern Europe. With the instruments of economic diplomacy in cooperation with the German Federal Government, it hosts talks between members of Eastern European governments and German companies and represents the interests of the German economy in bilateral fora. The Eastern Committee also organizes seminars, trade missions, conferences for mid-sized companies, parliamentary evenings and receptions and participates in international trade fairs.
The Eastern Committee stands for an intensification of economic relations with the assisted countries, an improvement of trade and investment conditions for German companies, support of market-based structures and the European unification process, the training and networking of young professionals and the support of the Eastern European and Central Asia expertise in Germany.
Five leading associations of German industry stand behind the Eastern Committee: the Federation of German Industries (BDI), the Association of German Banks (BdB), the German Insurance Association (GDV), the Foreign Trade Association of the German Retail Trade (AVE) as well as the German Confederation of Skilled Crafts (ZDH). In addition, companies and associations seeking membership may apply. The Eastern Committee has currently over 200 member companies - from mid-sized companies up to the DAX listed companies. (Status: June 2015)
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