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Sanctions on Russia could also hurt Germany

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Sanctions on Russia could also hurt Germany
Employees put the finishing touches on a new Passat in Volkswagen's factory in Kaluga, Russia in 2007. Photo: DPA
16:37 CET+01:00
As the EU rolls out sanctions against Russia for its military annexation of Crimea, there are fears damaged relations with Moscow and a weakened Rouble could take a toll on Germany's economy.

Russia supplies just over 30 per cent of Germany's natural gas, while Russian energy giant Gazprom sponsors German football team Schalke - currently third in the Bundesliga – to the tune of €10 million a year.

But Germany has a raft of other interests connected with Russia which also play a role in Berlin's desire to maintain a relationship with the Kremlin.

Germany is by far the EU's biggest exporter to Russia, responsible for 30 percent of all EU exports to the country in 2013 - a total of €36 billion.

The second biggest EU exporter is Italy with nine per cent - €10.8 billion.

And German firms have invested more in doing business in Russia than those of any other EU country, according to Die Welt newspaper.

German investments tied up in Russia total over €19 billion, much of it in the form of long-term projects like gas pipelines and car factories.

This situation makes taking back the investments very problematic, should relations between the two countries break down.

The strongest links are in car manufacturing and exports, where German manufacturers have been building a foothold in Russia's growing market for years.

BMW, Volkswagen and lorry makers MAN all have factories in Russia, with VW planning to invest around €1.8 billion in its Russian operations by 2018 according to car industry magazine Automobilwoche.

Over half of German exports to Russia in 2013 were vehicles and machinery.

And on Saturday Karl-Thomas Neumann, boss of car makers Opel, told Automobilwoche his company was "already feeling the stresses and strains from the changing course of the rouble".

Opel, which is owned by US corporation General Motors, sold over 80,000 cars in Russia in 2013.

Overall about 350,000 German jobs depend directly on trade with Russia, Eckhard Cordes, head of Germany's Committee on Eastern European Economic Relations, told Die Welt.

Audi CEO Rupert Stadler, meanwhile, called the fate of the rouble "a great challenge against the background of the political debate over Crimea".

He said Russian inflation could also pose risks. "It will be decisive how inflation develops in Russia and what effects it has on prices for consumer and industrial goods."

And some suggest if the diplomatic dispute around Ukraine continues to escalate, a "sanctions spiral" could ensue, resulting in Russia challenging European sanctions by closing off capital flow between itself and the EU.

But Christoph Schenk, an expert on Russian trade with KPMG, told Die Welt there was little danger of those bridges being burned.

“I would be very surprised if Russia limited its foreign trade,” he said. “That would be a surefire way to lose whatever trust it still has left with investors.”

SEE ALSO: Russia slams Germany for halting arms deal

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