The German Chancellor had lost the election. His victorious opponent had, during the election campaign, criticized him for his over-cosy relationship with the Russian president. Analysts predicted that relations with Russia would cool under the new Chancellor.

That was 1998, and the new chancellor was Gerhard Schroeder. As we know, Germany’s relations with Russia became, if anything, even warmer under Schroeder’s reign. Helmut Kohl’s banya-diplomacy with Yeltsin was replaced by Schroeder and Putin going to each other’s birthday parties and Schroeder even adopting a Russian child.

So we could be forgiven for a little scepticism when we hear analysts once again predicting a cooling of Russo-German relations, and new Chancellor Angela Merkel saying Germany’s eastern policy would no longer go over the head of Poland.

I didn’t see any Poles at the official opening of construction of the North European Gas Pipeline last Friday in Cherepovets, though I did see plenty of German gas executives and Merkel’s own economics minister downing the vodka and looking very pally with the German-speaking Alexei Miller and his Gazprom team.

It emerged in Cherepovets that Gerhard Schroeder would be president of the board of the pipeline consortium. This has caused a big stink in the German papers, who agree that Schroeder making money from a project he approved just before leaving government is an obvious conflict of interest.

The Washington Post was even more indignant, saying Schroeder’s acceptance of the post cast doubt on his whole policy of Kremlin appeasement. I wonder what they say if Donald Evans takes the job at Rosneft.

While there is an obvious conflict of interest in Schroeder’s acceptance of the Gazprom job, I find it unlikely that financial reward was his primary motive in this instance. It seems to me that Schroeder sees his policy of rapprochement with Russia and his personal relationship with Putin as one of the great achievements of his Chancellorship. And he wants to continue the work of integrating Russia into Europe, by helping to oversee the project which will, more than any other, connect Russia and Germany. And then, when Putin himself leaves office in 2008, the two chums could work together on trans-national gas projects. What fun they’ll have!

In any case, Germany’s special relationship with Russia goes much deeper than Schroeder’s special relationship with Putin. The fact is, while many foreign businesses have expressed unease about the state’s increasing power and occasional arbitrariness in the Russian economy, German companies have if anything deepened their engagement with Russia as it becomes more authoritarian and economically state-controlled.

German investment banks – Deutsche Bank and Dresdner Bank - have been first in line to assist the state in its re-configuration of the energy sector to a more state-controlled model, including helping in the evaluation and sale of Yuganskneftegaz. Dresdner recently bought a minority stake in Gazprombank, which controls Gazprom Media. E.on, BASF and Ruhrgas own stakes either in Gazprom or in Gazprom consortia. Bertelsmann owns a minority stake in Ren-TV. Siemens is looking to buy a stake in a state-controlled Power Machines. And so on.

Alexander Rahr, program director at the Korber Center Russia and the leading Russia expert in Germany, says: “There’s definitely a difference in how Anglo-Saxon companies and German companies do business in Russia. Anglo-Saxon companies have tended to team up with oligarchs, and to promote a pro-democracy agenda. German companies were very reluctant to work with oligarchs, and preferred to wait until there was more clarity in the direction Russia was going. That clarity came with the emergence of the strong state in the economy. German businesses were happy to enter the economy through the Kremlin, through Putin himself, and not to interest themselves in politics at all. And that method has worked.”

Rahr says that, at both the political and the economic level, Germans feel less unease about the strengthening of Putin’s power vertical than, say, the US or UK. He says: “Germans were a front state in the Cold War, and they fear an unstable Russia more than a stable one. What Germany wants to see first in Russia is security. Deep in their minds, they respect any element or force that holds Russia together.”

The US policy of pushing for democracy in the region, by contrast, appears provocative and even dangerous to some Germans, Rahr says. “There’s more realism in Germany, and an acceptance that we won’t see democracy in Russia in our lifetime.”

Perhaps Rahr is right. But there is a danger that this German expectation will become a self-fulfilling prophecy. It seems to me that German businesses, by cooperating so unquestioningly with the Kremlin, are actually helping the Kremlin hinder the development of democracy.

Why? Because firstly they have helped put ever more economic assets and cash-flows in the hands of the Kremlin, meaning United Russia holds all the cards in election campaigns, while genuine opposition parties are increasingly starved of funds.

But more importantly, German companies are increasingly accomplices in the state’s control of TV and TV news. By buying a stake in Gazprombank, Dresdner now owns a stake in Gazprom-Media, so can be held accountable for the censorship of the news on NTV. And Bertelsmann, remarkably, decided to buy a minority stake in Ren-TV, from where the news editor recently resigned in protest at censorship.

When it comes to the media sector, you can’t simply shrug and say ‘business is business’.

Have German executives watched Russian TV news? It’s a joke. The shows hardly ever mention a story that could be uncomfortable for the Kremlin, but always cover in gleeful detail any story which shows other countries in a bad light, and as much as 60% of all stories are Putin, Putin, Putin, and never anything but positive. TV news is, simply, a conduit for the presidential administration.

Such TV is not ‘simply business’. Let’s call it what it is - the manipulation of the Russian population through lies. If Putin’s policies are really so popular and democratic, as his supporters claim, then why this need to lie to Russians on a daily basis?

One can accept greater state control of the energy sector – why not, it’s quite normal for resource-rich countries. One can accept even the legal onslaughts on oligarchs, some of whom had it coming. But not this daily deception of Russian people. German companies’ support for this mass deception seems to me far more shameful than Schroeder’s new job.

Links

Click here for an English analyst predicting a cooling of relations with Russia under Schroeder.

Click here for a German analyst predicting a cooling of relations with Russia under Merkel.

Click here for German press reaction to Schroeder’s new job.

Click here for the Washington Post editorial on Schroeder’s new job.

For those who are interested, a book by Igor Bunich called The Party is Gold (1992) is an excellent chronicler of how the KGB, including Putin himself and his close associates Yuri Kovalchuk and Vladimir Yakunin, set up numerous joint ventures with Germans as minority investors in St Petersburg in the 1990s, using KGB and Communist party money. The German foreign investors included Matthias Warnig, the former Stasi spy and present head of Dresdner Bank Russia. This early period would seem to be when the present favoured model of ‘state-owned, KGB-controlled and with Germans as minorities’ was first cooked up.

Julian Evans is a British freelance journalist based in Moscow.

December 14, 2005