Putin's world

Mixed Signals from Russia

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The wonderful world of Vladimir Putin.
  • Why it matters

    Why it matters

    Companies and governments are divided over the effectiveness of sanctions and the state of Russia’s economy.

  • Facts

    Facts

    • The European Union agreed to extend sanctions on Russia for a further six months until January 2016.
    • The 15-month-long conflict in Ukraine has claimed the lives of nearly 6,500 people.
    • German companies are increasingly concerned about a loss of business as competitors make deals with Russian companies.
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    Audio

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When Russian President Vladimir Putin spoke at the St. Petersburg international business forum at the weekend, he berated foreign powers for threatening his country, whilst thanking foreign companies for doing business there

At the close of the three-day event, attended by representatives from around 1,000 companies, Mr. Putin complained that countries had encircled and threatened Russia after the fall of the Soviet Union instead of looking for new forms of cooperation.

The countries had “tried to take free geopolitical space for themselves,” he said. And though he called the countries “our partners,” his tone was sneering.

Mr. Putin was critical of the sanctions, which he said are costing companies from the European Union €100 billion in lost revenues.

At the same time, Mr. Putin thanked companies he did not name for continuing their activities in Russia despite sanctions. Without naming Siemens, he referred to the construction and opening of a turbine manufacturing plant the previous week.

Siemens has also made a deal with Russia’s state railway company RZD worth over €1 billion.

Other companies from Germany are also working with counterparts in Russia: E.ON is part of a consortium with Gazprom and Shell to expand the Baltic pipeline. BASF subsidiary Wintershall is deciding whether to join too.

Mr. Putin was critical of the sanctions which he said are costing companies from the European Union €100 billion in lost revenues.

This concern was shared by some company representatives. Heinz Hermann Thiele, owner of Knorr Bremse, a maker of brakes, said, “These sanctions have caused substantial damage in Europe, it’s high time they were ended.”

Sidestepping the Crimea conflict and the fact that Russian soldiers active in Ukraine, Mr. Putin insisted that Russia does not use violence in its politics. “We don’t see ourselves as aggressive,” he said.

Mr. Putin’s words contradicted his announcement last week that he plans to station 40 new intercontinental missiles. It emerged during the weekend that foreign ministers from countries in the North Atlantic Treaty Alliance will meet on Wednesday this week to discuss a response to Russia’s nuclear strategy.

Russia would be ill-prepared for a new arms race. While the army has been overhauled and modernized since Mr. Putin came to power 15 years ago and the country’s most modern weapons shown in parades recently, the country’s economic crisis means less money is available for new missiles, guns and tanks.

Mr. Putin’s speech at the forum suggested a rosier outlook as he predicted 3.5 percent growth for Russia in the medium term. The number contrasted with the European Bank for Reconstruction and Development figure of minus 4.5 percent growth. “People predicted a crisis but that hasn’t happened,” Mr. Putin said.

However his government sounded a warning, too. The slight improvement in the first quarter might be confusing; the difficulties would come in the current quarter, Mr. Putin’s former finance minister Alexei Kudrin said. The most recent figures for Russia show that its GDP had fallen by 2.2 percent for the first three months of the year and was down in April by 4 percent in comparison to the previous year.

The Russian government places the blame for this squarely on Western sanctions and the steep fall of the oil price. German Gref, chairman of Sperbank, however, said that “crises always result from poor management.” What concerned him, he said, was “that we are not creating an economy for tomorrow but are making the framework for business people worse than in the past.”

Mathias Brüggmann is the head of Handelsblatt’s foreign affairs desk, leading the coverage of the Ukraine crisis. To contact the author: brueggmann@handelsblatt.com

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