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SANDERS: Germany follows money in drive to east

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For almost a millennium, dreams of riches and power in the Slavic and Finno-Ugric lands to their east proved a powerful magnet for Europes burgeoning Germanic tribes. Whether it was mercenary Middle Ages Teutonic knights conquering Baltic lands, the 18th-century resettlement of German peasants by Russian Empress Catherine, Kaiser Wilhelms Prussian legions plunging east in World War I , or Hitlers fatal Operation Barbarossa, generation after generation of Germans have pursued the "drive to the east." Often the results have been catastrophic.

Watching German Chancellor Angela Merkels 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 Yekaterinaberg 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," as well as "research, education and health." But she pointedly added that the thrust of the meeting was "that we do business, that we make profits and that we cooperate more intensively."

Once suspicious of close bilateral ties, Mrs. Merkel this time came trailed by a large coterie of German industrialists, signing billions of dollars in new deals. This strategy was fed by her growing economic 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 trouble, Greece being for now the most desperate. Berlin is now searching desperately for other markets, difficult in a prolonged worldwide recession. The underdeveloped but resource-rich Russian economy, with its seeming compatibility with Germanys thirst for raw materials - not least gas and oil - is all too attractive.

The Russian come-on is sirenlike. President Dmitry Medvedev invited German companies to invest in Russian enterprises that were until now blocked to foreigners. This time, for example, Germanys heavy industrial giant Siemens alone signed contracts worth $2.8 billion to rebuild Russian railroads. These new investments follow an already estimated $20 billion by 6,000 German companies, many small and midsized.

But even Mr. Medvedev lamented that the flow of commerce to date has been a one-way street.

Still, addressing "dear Dmitry," the German chancellor announced the two governments had reached "a high level of understanding." One of the ironies, of course, is Mrs. Merkels new Russian friendship comes despite her bitter experiences growing up in the Soviet satellite of East Germany. Even more incongruous is that her new ally, Prime Minister Vladimir Putin, rests his slim claims to statecraft expertise largely on his years as KGB liaison in Dresden with the German Communist Stasi secret police that persecuted Mrs. Merkels Lutheran pastor father.

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

True, the Germans - and even more their Russian partners - are now in a rapid demographic decline. This time, too, the German appetite is fed almost exclusively by commercial interests. 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 however rich in raw materials the post-Soviet Russian Federation is.

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 as they can to the West as quickly as possible out of fear of Mr. Putins corrupt siloviki henchmen seizing it or of his erratic policies. Russian net capital outflows 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-based institutions.

Whether it is the continuing fall in male life expectancy or repeated failures at military reform, the picture on all sides in Russia is essentially bleak. There has been a return to random political assassination, one-party government, Soviet-style media control and centralized bureaucratic governance ("a vertical power structure," Mr. Putin calls it). Russias rulers -- however much Mr. Putins puppet, Mr. Medvedev, promises reform - do not provide an investment climate for the faint of heart. For example, confiscation of assets and claims held by Western petrogiants BP and Shell and by 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. Thats why Mrs. Merkels subsidized German lending to Moscow has almost no competitors from other industrial powers.

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 Germanys new/old "drive to the east" will achieve better results this time around.

Sol Sanders, veteran foreign correspondent and analyst, writes weekly on the convergence of international politics, business and economics. He can be reached at solsanders@cox.net.

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