Home Page

From the Vol.1,No.6 issue of Electronic Intelligence Weekly
RUSSIA AND EASTERN EUROPE NEWS DIGEST

Shakeup in Russian Duma Intersects Economic Policy Crisis

Putin Says Shift Away from Deterrence in Nuclear Posture Is Dangerous

In his April 4 interview with Russian and German media, Russian President Vladimir Putin was asked about the recently leaked U.S. Nuclear Posture Review, which identified Russia and six other countries as potential nuclear targets.

Putin's answer was cautious but insightful. He said, "It seems to me to be premature, to talk about a new U.S. nuclear strategy, since so far, happily, these are only individual statements by far from the top people in the United States."

However, he stated that "we are concerned" about these other "statements about the possible use of nuclear weapons by the United States, including against non-nuclear countries.... Secondly, we hear statements and proposals about the development of low-power nuclear explosives and their possible use in regional conflicts. This lowers the threshold for nuclear weapons use, extremely low.... If nuclear weapons shift from being a deterrent, to the level of application in operations, this is very dangerous, in my view."

Meeting Between Putin and Schroeder Opposes Iraq War

The April 9-10 Weimar summit between German Chancellor Gerhard Schroeder and Russian Vladimir Putin was the eleventh meeting between the two leaders since Putin took office two years ago. While the relationship has led to a growing confidence between the two countries, Germany is caught in a paradoxical situation: On the one hand, it practices solidarity with the United States in NATO, in the "war on terrorism," whereas, on the other hand, Germans are concerned that the advance of U.S. troops into Central Asia and Afghanistan, which is not proceeding under a United Nations mandate, is being watched with deep mistrust in Moscow. Furthermore, Germany is interested in not seeing any new war front emerging, outside of Afghanistan.

However, the joint Weimar declaration of Schroeder and Putin, in favor of a non-military solution to the Iraq problem, and Germany's support for Russia's demand for more substantial consultations by NATO on vital issues of Eurasian and Russian security, represents the farthest that Berlin dares go. Unfortunately, the declaration hardly poses a challenge to the Bush Adminstration's irrational insistence that support for a war on Iraq, leading to a "regime change," is a defining policy for all countries in their relationship to the United States.

Germany could potentially have more leverage on the Bush Administration, if it would engage in more in-depth cooperation with the Russians, but there, the Germans are most hesitant.

Russian Debt Proposals to Germany Not Accepted

In early 2001, the Russian government made two important economic proposals to the Germans: 1) to settle the years-long dispute over the old Soviet-era "T-ruble debt" of 6.4 billion transfer-rubles to the East German state by a scheme that would relieve Russia of a share of that debt and transform the remaining debt into new investments in Russian industry. Moscow particularly recommended German investments in the Russian machine-building, light industry, and food industrial sectors; and 2) to sign a long-term energy agreement under which Russia would supply Germany (which imports one-third of its crude oil and 40% of its natural gas from Russia) with secure oil and gas at calculable prices for 10 or even 20 years. In the second design, the Germans were to invest massively in the Russian oil and gas sector.

Both proposals were met with monetarism-minded rejection in Berlin: A debt relief and transformation into investments on the mooted scale of several billion dollars, would pose a "bad example" for debt settlements on a global scale, the German side argued; and a long-term energy agreement of the kind proposed would interfere with the energy free market, the Germans said.

The loyalty of Berlin to free-market monetarism, and its stubborn insistence that the transfer-ruble be valued like a U.S. dollar, has not worked to the benefit of the Germans, however. At the Weimar summit, Germany was able to extract only 8% of the nominal pre-1990 Soviet debt to East Germany, from the Russian side. Moscow will pay 500 million euros to Berlin, and will be relieved from the remaining 7 billion euros of the "T-ruble debt." The first installment of 350 million euros, by the end of this year, may help German Finance Minister Hans Eichel to balance his deficit-ridden budget a bit, but there is no benefit beyond that for either Germany or Russia.

On the contrary, the Russian proposals would have represented an opportunity for a long-term economic partnership. The Russian side had proposed that it would be willing to acknowledge up to 1 billion euros of that "debt," if it were turned into investments in and exports to Russia from industrial companies in eastern Germany. When the German side opposed that, the Russians made an alternate proposal to use at least a share of that debt payment to fund an intensification of youth exchange programs between Germany and Russia. Neither suggestion was viewed warmly by the German government.

On the nominally positive side, the German government honored the Russians' agreement to pay the 500 million euros, with a doubling of the Hermes facility for credit insurance for German exports to Russia, to 1 billion euros. The facility insures German firms that produce and deliver goods for Russia against unforeseen disruptions of trade relations, defaults, and other losses. But as the Russian government agreed, at the same time, to compensate for endangered earlier import deals from Germany, in the range of 500 million euros, the net effect of the Hermes improvement for Russia is zero, for the time being. An upgrading of the Hermes to 2 billion or more euros would have made a small difference, but a real one.

There remain the private-sector industrial deals that were signed during the Weimar summit: Several contracts, totalling 1.5 billion euros, including delivery of German medical technology to Russia and German corporate use of Russian communications satellites, were finalized. In particular, a new arrangement between the German Export Credit Bank and Russia's Sberbank, the Russian population's most favored general bank, to make loans available for smaller and medium-sized firms of both countries, looks interesting. But the fact remains that the potential for economic cooperation between Germany and Russia is still scarcely being tapped.

All rights reserved © 2002 EIRNS