Little Love for Sanctions Ukraine Crisis A Tightrope Walk for German Businesses

As Moscow continues to escalate the situation in Ukraine, public and political pressure is turning against German companies who do business with Russia. The countries' economic ties make disengagement next to impossible.

By SPIEGEL Staff

A Gazprom employee is seen in the Russian company's main control room in Moscow.
AP

A Gazprom employee is seen in the Russian company's main control room in Moscow.


Clemens Tönnies usually says what he thinks. When, on a February morning, he climbed into a private jet with his wife Margit to fly to the Olympic Games in Sochi, he described his views on Russia to a reporter with Sport Bild magazine: It has "bothered him, how negatively this country has been portrayed."

Tönnies, a meat factory owner from Rheda, Germany, likes to spend a lot of time surrounded by Russian friends and partners -- and his three-day stay at the Olympics was no exception. There, he met multibillionaire Oleg Deripaska in his skybox at an ice hockey game, and was invited to a mountain hotel by Sberbank head and former Russian Economics and Trade Minister German Gref.

Although he wasn't able to meet with Russian President Vladimir Putin and Gazprom Chef Alexey Miller during his Russian sojourn, he did receive phone calls from the head of a German-Russian gas pipeline consortium and former Chancellor Gerhard Schröder and met with Marcus Höfl, the husband of German ski star Maria Höfl-Riesch and the long-time manager of Franz Beckenbauer. The president emeritus of the Bayern Munich Football Club is part of the network of Russia supporters -- he promotes sporting events in Russia and is paid for it by the Russian Gas Society.

But in the past few days, Tönnies has become noticeably quieter about his support of Russia. The likely reason: He had candidly told the Handelsblatt business newspaper in an interview that the Russian president had invited the players of FC Schalke 04, a traditional football club, to the Kremlin. Tönnies is the chairman of the club's supervisory board, which also has Russian state company Gazprom as its main sponsor. "We are sports people, and not global politicians," he said in response to critics of his travel plans in the midst of the Crimean crisis. This, in turn, created a storm of outrage, especially in the political world.

"To accept an invitation to the Kremlin in the current situation and allow oneself to be instrumentalized in this manner doesn't really show any tact," declared Peter Tauber, the general secretary of the conservative Christian Democrats. Others spoke of a "minion's visit to an autocrat," and argued that Tönnies has put the club in "the service of Putin's political propaganda." The fact that the interview was conducted in early April, and that the invitation was given in the fall and had been known about for a while, seemed irrelevant. Just one day after the publication of the interview, Tönnies announced that there were no current or future plans for a trip.

Businesspeople Oppose Sanctions

Given the ways business-world figures and politicians have been audibly grumbling at each other for weeks whenever the issue of how to deal with Russia in regards to the escalation in the Ukraine arises, the hubbub isn't exactly surprising.

On March 21, the EU heads of state and government declared that all Russian steps aiming to further destabilize Ukraine would "lead to additional and far-reaching consequences" -- meaning strict economic sanctions. But Russia has ignored agreements and arrangements and, thus far, not much has happened in terms of consequences -- creating a dilemma for both politicians and businesspeople.

Although all sides argue that international law is more important than profits, politicians appear to be having a difficult time agreeing to far-reaching and painful sanctions, given Europe's energy dependence on Russia. The business community, it's also clear, has no interest in such punitive measures.

Meat-factory owner Clemens Tönnies in an archive photo with Vladimir Putin in Dresden in 2006.
REUTERS

Meat-factory owner Clemens Tönnies in an archive photo with Vladimir Putin in Dresden in 2006.

At the East Forum in Berlin in April, Eckhard Cordes, chairman of the Committee on Eastern European Economic Relations, an organization representing German business interests in the east, received applause for one sentence in particular. "We won't let the constructive work of the last decades be ruined for us," he said in reference to the threatened sanctions, and called for politicians to solve the crisis at the negotiating table as quickly as possible.

Cordes seems to be voicing the feelings of many German businesspeople. Germany, after all, has noticeably closer connections to Russia than other European countries -- last year's trade volume was €76.5 billion ($106 billion), and Germany is Moscow's third-largest trading partner. The Germans export machinery, electrical equipment and cars to Russia, and import gas and oil in return. There are 6,000 German companies in Moscow -- more than all those from all the other EU states combined. The Russian market, as difficult as it may be, is giant and lucrative.

A Delicate Path

In the current political situation, finding the path forward is a high-wire act -- a fact that nobody understands better than businesspeople whose companies have been involved in the farthese reaches of Eastern Europe for several years.

Joe Kaeser was the first to discover how easily carefully crafted bonds can be ripped apart. In late March, the head of German multinational engineering giant Siemens met not only with Putin, but also with the head of the Russian national railway, Vladimir Yakunin, who is on the American sanctions list. After Kaeser commended his "trusted relationship" to Russian businesses, it didn't take long for him to be heavily criticized back at home for only caring "about money." Rüdiger Grube, the head of Deutsche Bahn, the German national railroad, decided to cancel his planned trip to Russia for the time being.

As comprehensible as these reactions may be, isn't it also understandable that businesses try to represent their own interests, even during politically difficult times? And can't that be a legitimate way of doing things -- at least until politicians build a clear framework of sanctions or other measures?

The reactions do seem a little sanctimonious. Business with Russia has never been simple, and definitely never unpolitical. Even before the beginnings of the current conflict, the Russian government wasn't known for its implementation of democracy and civil rights. Up until now, the issue was silently tolerated, because both sides were making profits.

Gazprom: A Complex Giant

But the relationship has been ambivalent all along. There's no better example of this than Gazprom, the largest gas company in the world, half of which belongs to the Russian state. Gazprom is often used by the state to exert pressure in international crises. The company owns television stations and newspapers and feeds Russia's coffers with its profits. And not only the Russians'. If you consider the profits Gazprom provides to German businesses, the outrage over Schalke's football players' €15 million-per-season sponsorship is almost pathetic.

The biggest profiteer and most zealous ally in political and economic conflicts is the German chemical giant BASF, or, more specifically, its Wintershallsubsidiary. The company does billions of euros in business in Russia, and has ownership shares in giant Russian gas fields. In return, the company has provided Gazprom with access to the German gas network and storage facilities.

It wasn't until a rapidly called press conference last Thursday that Wintershall head Rainer Seele positioned himself as an advocate of the Russian energy multinational. He then let loose statements like: "The Russians are dependable allies," "embargoes don't do anything for anyone" and "we shouldn't frivolously be putting years of built-up trust in jeopardy."

Delicate Relationships

At this point, Wintershall can do little without the Russians. In 2012, BASF allowed Gazprom to acquire its biggest gas subsidiary, Wingas. As a result, the Russians received not only the access to millions of German consumers they desired, they now control a large part of the German gas network and of the enormous natural gas storage facilities.

In return, BASF became one of the few foreign companies with direct holdings in the giant Russian gas fields in Siberia. For the chemical concern, this represents billions of euros in business -- and the chance to become part one of the world's largest gas producers. No surprise, then, that Seele doesn't have any problem speaking up for Russian interests to the German government, at the European Union level and in public.

Wintershall isn't alone. German energy supplier E.on has also profited from years of business with the Russian state company. As a result, E.on subsidiary Ruhrgas has made many billions of euros in profits. The idea was simple: The Russians would deliver the gas to the German border for a price pegged to oil. Given its position as Europe's biggest gas trader, Ruhrgas then added on a lavish distribution tariff.

E.on even had a percentage of shares in Gazprom, could make purchases in Russian gas fields and build refineries. E.on invested approximately €6 billion in facilities. Now it worries about its high investments because of the crisis.

These days, the relationship between the two companies is no longer as intimate. At one point, Gazprom head Miller demanded access to E.on's end customers and insisted on being able to purchase majority holdings in E-on's largest regional subsidiaries. Then E.on head Wulf Bernotat refused. Since then, E.on has no longer been a core favorite of the German companies with which the Russians like to do business. They instead directed their attentions to BASF subsidiary Wintershall, which had far less opposition to this kind of involvement.

'I Have Promised Putin'

Given this type of economic interdependence, the accusations leveled against meat manufacturer and the head of Schalke's supervisory board Tönnies -- namely that he wants to expedite the construction of a meat plant in Russia by having his football players visit the Kremlin -- seem almost naïve. As it turns out, Tönnies' Russian business is considerably larger than previously known. Tönnies grossed almost €6 billion in the past year. Fifty percent of that came from exports -- of which Russia, being one of the biggest markets for pork, made up 10 percent.

Tönnies has also, it turns out, long been personally involved in Russia, where he already has eight feeding facilities for pigs, and three others under construction. He wants to be able to feed, slaughter and butcher up 1.5 million animals per year. This, Tönnies admits outright, is a fulfilment of Putin's wishes. "I have promised Putin that I would also become active in Russia."

Russia is dependent on businesses like Tönnies'. The country has an enormous need for food products, which it can barely fulfill on its own. The same is true for all other branches in which German companies are investing there: The giant country not only requires goods, but also a transfer of technology, investment capital and jobs.

Economy in Jeopardy

It wasn't until last Friday that the US ratings agency Standard & Poor's lowered Russia's creditworthiness rating to BBB-, only one notch above the term "junk" intended to indentify speculative investments. The ratings agency justified its decision by pointing to the massive crisis-induced capital drain in the first three months of the year.

German exports also decreased by 10 percent in January and February in comparison to the previous year. Because of the weak price of the ruble, many Russian state companies have switched to Asian suppliers. Putin simultaneously raised the pressure by allowing Gazprom to suddenly bring Ukraine to account over $11.4 billion in broken gas contracts.

All of this shows how difficult it is to determine who has the upper hand when it comes to business in and with Russia. At any rate: It's become much more complicated for the German business community to find its way through the network of political pressures, interwoven economic relationships and public opinion, while balancing its own interests. Tönnies will have learned that by now.

BY SUSANNE AMANN, FRANK DOHMEN, JÖRG KRAMER, PAUL MIDDELHOFF AND BARBARA SCHMID

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peskyvera 04/30/2014
1. optional
What a bunch of fools you EUers are. Allowing war mongering USA to walk you right into WW3. Two world wars weren't enough? Supporting an illegal government in Kiev as dictated by 'Amerika'. Shame on you all!
1cjcarpenter 04/30/2014
2. German Leadership in the Ukraine Problem
This complexity is exactly why I think Germany must take the lead in setting direction for the U.S./E.U. in the Ukraine. Your government is, it seems to me, in the best position to really understand all dimensions of the problem, and has the greatest incentives to do so.
staraircargo 04/30/2014
3. Defcon 1 Reciprocal Sanctions Against Russia
DEFCON 1 RECIPROCAL SANCTIONS AGAINST RUSSIA These US sanctions against Russia listed below must be obeyed by ALL nations. Those countries that do not obey ALL these sanctions then the totality of ALL these sanctions would apply to them. This includes the EU countries as well as China. SANCTIONS 1. All countries receiving energy from Russia must pay for these energy supplies into a trust account and not directly to Russia. If Russia cuts off energy supplies to any country then ALL other countries must reduce their imports of Russian energy by the same amount including a total embargo. This includes China. Russia would be cut off from selling its gas to China – a DEATH BLOW TO RUSSIA. 2. All flights between Russia and all countries would immediately cease. All countries would close their borders to ALL Russians including rail and automobiles. If any country refused to ban Russian planes from landing, cut off all rail and highway access then the TOTALITY OF ALL THESE SANCTIONS WOULD APPLY TO THEM. 3. All Russians would immediately have to return home to Russia. This would include hockey players, sports stars, Russia’s UN and security Council delegations etc. 4. All banks worldwide would cease all contacts with Russia. This includes ALL contacts epically the SWIFT transfer system, letters of credit etc. Any country that refuses and the totality of these sanctions would apply to them. This means that their country would be totally cut off from the world banking system as well as ALL provisions of these other sanctions listed here. 5. All trade FROM Russia to all other countries would immediately cease. Any country that refuses and the totality of these sanctions would apply to them. This means that their country would be totally cut off from the world trading system. Any country that refused to cut off and stop trading in goods coming FROM Russia with a country that had refused to obey these trade sanctions and the totally of these sanctions would apply to them. All these Russian companies would be forced to layoff thousands of workers. 6. If Russia cuts off trade with any country shipping goods into Russia then all other countries including China would have to stop all its goods being traded into Russia. 7. The ruble will be traded at 100 rubles to $1.00 US. This would be the world ruble exchange rate. 8. Russia’s $600,000,000,000 US reserves would be valued at $100.00 US Russian Reserves = $1.00 US. This would reduce the monetary value of these reserves from $ 600 Billion to $6,000,000,000 The $540,000,000,000 US would be transferred from Russia to the Ukraine by the US Federal Reserve for payment of seizing Crimea. Any country that refused to accept this evaluation of Russia’s US/Euro held currency reserves then their reserves would be valued at $100 US = $1.00. 9. All Russian companies would be delisted from all world’s stock exchanges. These sanctions would totally isolate and destroy Russia’s economy.
lensive 04/30/2014
4. Politics subservient to business
The author seems to ignore what Russia is doing--and threatening to do: redrawing the boundries of Europe. As an American, I was shocked to discover how American businesses aided Hiter-during the war too. Profit uebr Alles is no way to do business--unless we subscribie to Hobbes' anarchic view of human nature and so throw out all ethical guidelines. Businesses must serve the state, not the state businesses. The head of Exxon infamously averred, "I don't care about America, I care only about Exxon." With oil spills, saftey infractions, environmental diasters one after another, are we then to allow these people with no ethics the power to decide foreign policy too (even more than they do now)?
juleabacall 05/01/2014
5. Ukraine
It is WASTE to Blame Russia. Ukrainians do not like the new Nazi affiliated gov that USA, NED put in. It is not Russia. It is Ukrainians!
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