Asia Times: Shifting Europe's power balance


	January 05, 2001	atimes.com

Central Asia/Russia

Shifting Europe's power balance
STRATFOR.COM's
Global Intelligence Update

Summary

Russia and Germany are considering converting a large chunk of Russia's US$14 billion debt to Germany into equity stakes in Russian companies, which would make Germany a major shareholder in Russian industry. The deal will represent an important move in forging a close geopolitical partnership between Germany and Russia. This may help Russia's revival, and Germany could emerge as the leader of a united Europe with Russia on its side. Such a development would significantly weaken US influence in Europe while dramatically strengthening Germany and Russia and helping them to advance to the front stage of world geopolitics.

Analysis

Germany and Russia are forging an economic deal that, if it succeeds, may shift the balance of European power. Werner Muller, Germany's Economic Minister, and German Gref, Russia's Minister of Economic Development and Trade, met in Berlin December 12 to debate details of a plan to exchange Russian debt for German equity in Russian companies.

The two sides agreed in principle to swap a large share of Russia's $14 billion debt, The Times reported December 13. One option they are considering is giving to Germany a significantly larger share in Gazprom, Russia's gigantic gas export monopoly. Germany's Ruhrgas now holds 4 percent.

Obtaining several billion dollars' worth of stakes in Russian enterprises would make Germany a major shareholder in Russian industry, giving Berlin a stronger voice in Moscow. In addition, it would further tie Berlin's interests to economic and political stability in Russia. Russia already supplies about 35 percent of Germany's gas needs.

Moscow and Berlin understand this fast-growing mutual cooperation will strengthen each country's potential and help advance both to the front stage of world geopolitics. This most recent deal is just one important move in this direction. Such moves have significantly accelerated since President Vladimir Putin came to power in Russia.

Several factors pull Russia and Germany closer. On the verge of economic collapse, Russia has been bitterly disappointed with its failed romance with the United States in the first post-communist years, during which Moscow received no real help. It fears Washington's single-superpower domination and Moscow's lack of real geopolitical allies will contribute to precluding Russia from restoring its world power status and possibly lead to the end of the Russian state.

But Russia cannot afford a direct confrontation with the United States in the near- or mid-term future. The only country that could help Russia successfully confront the United States is China. But with all the talk about the Russia-China geostrategic partnership, Russia is concerned China's geopolitical designs may include swallowing vast, underpopulated regions of weakened Russia at some point in the future.

Being a part of European civilization and always yearning for recognition in Europe, the majority of Russia's elite and the current Russian government in particular have been reluctant to turn east in their search for allies. They still see Europe as the most desirable place to be.

Russia desperately needs large-scale foreign direct investments. Even if they wanted to, neither Britain nor France ? not to mention the other European countries ? would be able to shore up Russia's economic and overall revival. As for the United States, Moscow believes Washington will continue to insist Russia makes one concession after another until it becomes fully subjugated to the United States.

China and other non-Western nations cannot afford any large investment in Russia: they themselves need it to come from abroad. And Japan is reluctant to proceed until it resolves the problem of the "northern territories" with Russia. But Germany seems to be both able and willing to support Russia's revival, while not demanding humiliating concessions. Berlin sees a close partnership with Moscow as a future geopolitical benefit.

First, for its own further growth, Germany needs Russia's enormous natural resources, the last in the world to remain largely untapped. By giving Russia economic and political aid, Germany makes sure these resources will flow to its territory from a stable, German-friendly Russian government, such as that of Vladimir Putin, who speaks German.

Second, a stable, Germany-backed Russia would provide the cheapest, fastest and safest transportation corridor for shipping goods and resources between Germany and the rest of Europe and the world's most dynamic economies in Asia-Pacific.

Third, Germany feels building a secure, united Europe would be impossible if Russia were left without support, destabilized and hostile. After experiencing a half-century Cold War, during which the main frontline was right in the middle of Germany, Berlin would hate to see the old times return. German strategists realize a weakened and abandoned Moscow might feel threatened enough to take on prosperous Europe as a desperate measure if it senses Russia's final collapse.

In a broader sense, Germany foresees Russia as guarding the outer borders of a larger European community from Islamic radicals and other growing external threats. For the same reasons, Germany would be glad to see Russia's vast resources come to Germany and Europe rather than go to the east, particularly future geopolitical rivals China and Japan. Berlin would also prefer these resources do not move overseas to the United States, Germany's current geopolitical rival.

Europe and the European Union ? except for US-oriented Great Britain ? seem to be solidly behind Germany in its Russian policy. The difference is that Germany is pioneering and leading this process, while aiming to benefit from it the most.

Forging a close geopolitical partnership between Germany and Russia, if it is successful, will dramatically change the global balance of power. Assisting in Russia's integration into Europe would result in Germany's emergence as the leader of a united Europe with Russia on its side. Such a development would significantly weaken US influence in Europe. On the other hand, Chinese positions will be weakened as well, with Russia drifting away from it and toward Germany and Europe.

(c) 2000, Stratfor, Inc.

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