Drang nach Osten

For almost a millennium dreams of riches and power in the Slavic and Finno-Ugric lands to their east had been a powerful magnet for Europe’s burgeoning Germanic tribes. Whether mercenary Middle Ages Teutonic knights conquering Balts,  18th century settlement of Volksdeutsche peasants by Russian Empress Catherine, Kaiser’s Prussian legions plunging into the World War I’s Eastern Front , or Hitler’s fatal Unternehmen Barbarossa, generation after generation of Germans have joint the “drive to the east”. Often it has been catastrophic.

Watching German Chancellor Angela Merkel’s latest Russian visit, it is hard not to recall this phenomenon dictating so much of modern European history. The Chancellor made all the obeisances at Yekaterinabervg, heart of the vast country, for her fifth meeting this year with Russian leaders: “We will also discuss domestic political problems and about various issues which have to do with human rights, But also about research, education and health.” But “that we do business, that we make profits and that we cooperate more intensively” was the thrust.

Once suspicious of close bilateral ties, Mrs. Merkel now was trailed by a large coterie of German industrialists, signing billions in new sales. This strategy was fed by her growing economic policy dilemma: Berlin helped bring on the continuing Euro crisis with aggressive, subsidized exporting. Unfortunately, of the 60 percent of German exports going to the EU market, disproportionate sales went to the peripheral smaller economies now in deep do-do; Greece presently the most desperate. Frankfurt is now searching desperately for other markets, difficult in a prolonged worldwide recession. The underdeveloped Russian economy with its seeming compatibility with Germany’s thirst for raw materials – not the least gas and oil – is all too attractive.

The Russian come-on is siren-like. Pres. Dmitry Medvedev invited German companies to invest in Russian enterprises until now blocked to foreigners. This time, for example, Germany’s heavy industrial giant Siemens alone signed for $2.8 billion to rebuild Russian railroads. These new investments follow an already estimated $20 billion by 6,000 German companies, many small and medium sized.

But even Mr. Medvedev lamented that it is a one-way traffic.

Still, addressing “Dear Dmitry”, the Chancellor announced the two governments had reached “a high level of understanding”. One of the ironies, of course, is Mrs. Merkel’s new Russian friendship ignores her bitter experiences growing up in the Soviet satellite East Germany. Even more incongruous is that her new ally, Prime Minister Vladimir Putin’s slim claim to statecraft expertise is largely his years as KGB liaison in Dresden with the German Communist Stassi secret police that persecuted Mrs. Merkel’s Lutheran pastor father.

The explanation for Mrs. Merkel’s strategy is obvious. Nimble politician that she is, Mrs. Merkel is nevertheless increasingly hemmed in. On the one hand, she has growing economic problems not only in Germany but of the whole European Community for which it has been the mainstay. More ominous is the increasingly fractured German political spectrum that looks too much like the failed post-World War I Weimar Republic whose demise led to Hitler and World War II.

True, the Germans – as even more their Russian partners – are now in a rapid demographic decline. This time, too, the German appetite is fed almost exclusively by commercial interest. But anyone taking a second look at Russia today must ask himself just how secure are these ambitious plans — and credits. As in earlier adventures, German enthusiasm may be based on wishful thinking, however vast a market and rich in raw materials the post-Soviet Russian Federation.

None of the major reforms promised repeatedly by post-Soviet leadership have succeeded. One index is that Moscow businessmen ship as much of their capital West as quickly as possible out of fear of Mr. Putin’s corrupt siloviki henchmen seizing it or his erratic policies. Russian net capital outflow continued last year at a staggering $52.4 billion. [When Mr. Putin staged his five-day war in Georgia in August 2008, domestic and foreign investors tossed more than $300 billion to safety in Swiss, French and even dollar institutions.]

Whether it is the continuing fall in male morbidity or repeatedly announced and failed military reform, the picture on all sides is essentially bleak. There has been a return to random political assassination, one-party government, Soviet-style media control, centralized bureaucratic governance [“a vertical power structure” Mr. Putin calls it]. Russia’s rulers  – however much Mr. Putin’s puppet, Pres. Medvedev promises reform –do not provide an investment climate for the faint of heart. For example, confiscation [in Sakhalin against petrogiants BP, Shell and Japanese financial interests] in the very fossil fuel industry on which the economy now almost totally depends is a new style of Russian roulette scaring off essential capital and technology transfer. That’s why Mrs. Merkel’s subsidized German lending has almost a noncompetitive field.

In a world economy turned upside down by the sharpest downturns since The Great Depression, some old axioms are giving way to new slogans. But only time will tell if Germany’s new old “drive to the east” will achieve better results.



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