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Sanctions and strategy
Merkel Reaches Out To Putin

Angela Merkel has proposed that high-level trade talks be held between the EU and the Russian-led Eurasian Union in hopes of easing tensions over Ukraine—in part to tamp down on domestic critics that she is being unreasonably tough on Russia. It’s a precarious highwire act she is trying to pull off, the FT reports:

Ms Merkel insisted in her speech that EU sanctions would remain in place as long as Russia remained involved in east Ukraine and that nothing justified or excused the annexation of Crimea or Russian intervention in eastern Ukraine. She said: “Russia’s behaviour puts Europe’s peaceful order into question and breaks international law.”

But in a response to critics wanting her to be more accommodating towards Moscow, the chancellor emphasised that she and Mr Steinmeier would not stint in their pursuit of a negotiated solution. She said: “We need patience and stamina for our efforts to overcome the crisis.”

The FT goes on to explain that Merkel is under fire from Germany’s business community:

Business is also starting to complain about the impact of sanctions and the broader damage done to trade by the crisis. While the BDI and other umbrella organisations are sticking to the pledge they made to Ms Merkel in the spring to support sanctions, companies doing business with Russia are signalling their unease.

In fact, the whole German economy has fallen since the sanctions were put in place—it’s down by .2% last quarter—and manufacturing in particular has fallen sharply. According to another FT article, German exports to Russia are suffering the most:

German exports to Russia fell 16.6 per cent to €20.3bn in the first eight months of the year. Euler Hermes, the credit insurer, expects a full-year decline of 20 per cent, which would equate to a shortfall of €8bn compared with the previous year.

Ultimately, it’s important to remember that Germany was one of the holdouts on putting the sanctions in place in the first place. And with the first round of EU sanctions due to expire in March of 2015, Germany’s disgruntled businessmen may find allies in Austria, Italy, Bulgaria, Slovakia, Greece, Cyprus and Luxembourg for easing the pressure on Moscow. The next four months should be interesting to watch.

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  • FriendlyGoat

    To whatever extent it has happened or will happen, there is something troubling about Putin courting the personalities of Angela Merkel and/or Marine Le Pen with the business communities of Germany and/or France giving that scenario encouragement. What we might need instead, for instance, is a pro-peace woman leading Russia, but that’s not what we have.

  • jeburke

    Well, there goes NATO. Fat chance anyone would believe these same Germans would risk getting a hangnail or losing a single VW sald to defend Estonia. Probably, deep down, they’d rather split Poland with the Russians again.

  • S.C. Schwarz

    So, Putin wins. Is anyone surprised?

  • adk

    Why is the emphasis of this post only on Merkel “reaching out to Putin” on trade talks, but not on her message that the sanctions will remain in place? Germany’s business class has no appetite for sanctions so Merkel’s domestic options are fairly limited, but at least she didn’t cave in on the current policy. Meanwhile,Russia’s economy is rapidly deteriorating, Putin’s running on thin ice domestically, so it’s just a question of who blinks first, Putin or the West. Given how unbelievably weak all current Western leaders are, keeping at least the current sanctions is good news.

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