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Germany is a nation that attempted to use military power to dominate Europe in two world wars. Following a crushing defeat and being split apart for over 40 years during the cold war it has once again emerged as one of the world's major powers, but it now takes a very different approach to exerting its influence. It has become the economic power house of Europe. It is bound with other nations in the European Union, but when it comes to matters of money and trade it holds the keys. Angela Merkel is now in her third term as chancellor. She is by just about any measure one of the world's most effective political leaders.

Vladamir Putin the Russian president has thrown down the gauntlet over Ukraine and appears to be doing things the old fashion way. He is using military muscle to threaten an adjacent country and has taken control of the Crimean peninsula. At home he has whipped up the forces of nationalism using the threat of an external and internal enemies to assure himself of a position of dominant political control.

The US is attempting to play its traditional role as leader of the free world and is making most of the noise in opposition to Russia's heavy handed moves. However a direct military confrontation with Russia seems to be a thoroughly impractical option. The most likely means of applying enough pressure on Putin to force him to back off is through economic sanctions. That is where Germany holds the Keys. Germany and China are Russia's largest trading partners.

Corporate interest in the west are generally opposed to substantive economic sanctions. That is true in the US and it is even more true in Germany where many businesses are heavily involved in two way trade with Russia. Merkel and Putin have historically been on generally good terms with each other. She speaks fluent Russian and he speaks fluent German. As the Ukrainian crisis has unfolded they have frequently been on the phone with each other. There are now suggestions that she has finally begun to despair of the power of persuasion.

Germany's Merkel Gets Tough on Russia    

Angela Merkel wasn’t in a hurry to inflict economic pain on Moscow. Cautious, pragmatic, and mindful of her country’s business ties to Russia, the German chancellor doggedly tried to defuse the Ukraine crisis through back-channel diplomacy and frequent phone calls with Russian President Vladimir Putin.

Those efforts failed—and now Merkel looks ready to embrace the hit-’em-where-it-hurts sanctions that some U.S. politicians have been pushing for. In mid-April, Germany stopped granting licenses for arms exports to Russia and put on hold a plan for Airbus Group (AIR:FP) to sell $973 million worth of satellite technology to Moscow. Europe “shouldn’t be filled with fear” that sanctions could provoke retaliation, Merkel said in Berlin on April 5.

Behind the scenes, Berlin is making plans for the next phase of sanctions, says a high-ranking German official who declined to be identified in keeping with government policy. The measures under consideration would be wider-ranging and more harmful to Russian business than the limited asset freezes and visa bans already in place, this official says. A possible next step: targeted measures such as curbs on critical high-technology and military exports to Russia. In one of the most extreme scenarios being discussed in Europe and the U.S., Russia could be locked out of Swift, the Belgium-based international money-transfer system, as happened to Iran in 2012. That would cripple Russia’s banking system.

Merkel of course has many competing interests to juggle. The EU economy remains in a shaky state and actions that have a major impact on business could create serious problems. However, as the situation in Ukraine continues to deteriorate, western leaders are becoming painfully aware that their responses to the situation have not had much in the way of effective impact. They are now forced to look at options that would inflict increasing levels of pain on their own situations.

One critical question in this is just how much economic pressure would be required to force Putin to alter his course. Even without the imposition of substantive sanctions by governments, global financial markets have reacted to the crisis with an attack of capital flight from Russia.

While the annexation of Crimea has rocketed President Vladimir V. Putin’s approval rating to more than 80 percent, it has also contributed to a sobering downturn in Russia’s economy, which was in trouble even before the West imposed sanctions. With inflation rising, growth stagnating, the ruble and stock market plunging, and billions in capital fleeing the country for safety, the economy is teetering on the edge of recession, as the country’s minister of economic development acknowledged on Wednesday.
In recent weeks, international and Russian banks have slashed their growth projections for 2014, with the World Bank saying the economy could shrink by 1.8 percent if the West imposes more sanctions over Ukraine. By some accounts, more than $70 billion in capital has fled the country so far this year and the main stock market index fell by 10 percent in March — and a dizzying 3 percent just on Tuesday over fears of greater Russian involvement in Ukraine.
The question is just how far will Putin's domestic power and control be able to extend. How much belt tightening will the public be willing to endure on a diet of nationalist passion? When Putin came to power he managed to get rid of the most powerful oligarchs who posed a threat to his power by using an assortment of strong arm tactics. Many of the present wealthy oligarchs are creatures of his creation. How much belt tightening will they be willing to endure? Nobody can answer those questions, but I think that it would be a mistake to assume that economics and politics would inevitably work the same way in Russia that it does in the west.

Meanwhile Putin is smart enough not to put all of his economic eggs in the basket of the west.

Russia and China forge closer ties, as EU explores sanctions
 

Russia is rolling out two major projects – a gas pipeline and a Crimea deep water port – with China, as EU countries and the US weigh options on economic sanctions.

Russia’s ambassador to the EU, Vladimir Chizhov, told EUobserver on Wednesday (16 April) that work on the “Power of Siberia” pipeline and the Chinese construction of a 25-metre-deep port in Crimea are proceeding as normal despite the Ukraine crisis.

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Comment Preferences

  •  lead Europe off Russian gas (4+ / 0-)
    Recommended by:
    commonmass, Brecht, mookins, profundo

    Russia's wealth and leverage is based almost entirely on Europe's dependency on Russian natural gas for "clean" heat and fuel.

    Go for broke on solar, wind, and electrification of transportation, domestic hot water, process heat, etc.  In Germany make the uber-strict "Passivhaus" energy efficiency standard mandatory for new construction and remodels.

    Domestic politics is the continuation of civil war by other means.

    by Visceral on Thu Apr 17, 2014 at 10:47:47 AM PDT

  •  In some ways, Germany is very fortunate to have (3+ / 0-)
    Recommended by:
    Laurence Lewis, FG, Aquarius40

    Kanzler Merkel at the helm. Merkel is not just fluent in the Russian language, she has the benefit (who would have ever thought it a benefit?) have having been born in and grown up in the DDR. She understands not only Russian, but she understands the Russians. She's in a unique position and seems to be using it quite deftly.

    Economic sanctions are the only way to go and the idea of making it difficult for the Russians to transfer funds internationally is a strategy I've been predicting they'd try since the beginning of all of this.

    Pope Francis: the Thumb of Christ in the eyes of the Pharisees.

    by commonmass on Thu Apr 17, 2014 at 10:54:59 AM PDT

    •  She has a cool head and a firm hand. (1+ / 0-)
      Recommended by:
      commonmass

      Those are qualities that are always in short supply.

      I noticed that you used the masculine form of kanzler rather than kanzlerin. Are you up on how this is playing out in contemporary German politics?

      •  I used it on purpose, not to be agrammatical, (2+ / 0-)
        Recommended by:
        Richard Lyon, Aquarius40

        but because I notice that there is a movement away from grammatical gender when it deals with people like female politicians. Recently, in an Austrian paper, I saw a prominent actress referred to simply as a "Schauspieler" rather than "Schauspielerin".

        Pope Francis: the Thumb of Christ in the eyes of the Pharisees.

        by commonmass on Thu Apr 17, 2014 at 11:02:53 AM PDT

        [ Parent ]

        •  I figured that you knew the difference. (1+ / 0-)
          Recommended by:
          commonmass

          That is why I asked. That kind of differentiation of titles has been seriously out of fashion in the English language world for some time. I was wondering if the same trend had caught on in Germany.

          I was always amused by the way that wives of prominent German men were allowed to appropriate their husbands' titles as in Frau Doktor Professor.  

          •  That is going largely by the wayside, too. (0+ / 0-)

            In American English, we rarely hear the word "waitress" any more, and the only time I regularly hear the word "actress" used is at the Academy Awards.

            The liberal German and Austrian press seems to be doing away with some of that, too. I heard Merkel referred to as "Bundeskanzler Merkel" just the other day on Deutsche Welle. You can still find "Bundeskanzlerin" used, however.

            Both Austria and Germany has made some minor changes in the language in the last decades, including the elimination of the "Scharfes Ess" or "Ess-Zett". While I don't think grammatical gender is going to go away entirely, I do think that using it to denote biological gender (as in "Kanzler/Kanzlerin") may be the next thing to go.

            Pope Francis: the Thumb of Christ in the eyes of the Pharisees.

            by commonmass on Thu Apr 17, 2014 at 11:11:47 AM PDT

            [ Parent ]

            •  Trying to remember the gender (1+ / 0-)
              Recommended by:
              commonmass

              of everything was a major reason that my study of German was not very success,

            •  They didn’t eliminate the Eszett; they (0+ / 0-)

              slightly changed the rules.  From German Wikipedia:

              Die Rechtschreibreform von 1996 hat bezüglich des ß weniger geändert als gemeinhin dargestellt. Weggefallen ist lediglich die Schlussbuchstabigkeit, also die Umwandlung von ss zu ß am Wortende und an der Wortfuge.

              Weiterhin steht nach kurzen Vokalen entweder einfaches s (Atlas) oder doppeltes s (Wasser), das am Wortende nun aber nicht mehr zu ß wird (z.B. Fass - doppeltes s nach kurzem Vokal bleibt stehen). Dies ist die einzige Änderung durch die Rechtschreibreform 1996 bezüglich des ß.

              Nach langen Vokalen steht wie bisher einfaches s oder ß für stimmloses s (Glas, Maß).

              It’s in Switzerland and Liechtenstein that the Eszett has been completely eliminated in favor of ss, so that (for example) Swiss Busse can be either German Busse 'buses' or German Buße 'penalty; penance'.

              Concerning the original question, I still pretty consistently see Kanzlerin in writing.

    •  Well many Germans (2+ / 0-)
      Recommended by:
      commonmass, Lepanto

      might disagree with you.  There is quite some discontent with Mutti Merkel and her being a puppet to the US. If see really gets though with Russia - she might come under quite some pressure in Germany. It is really fascinating seeing how the comments in Der Spiegel and other  German Newspapers have shiftet over the last weeks. People are not in for all the propaganda that they are being fed from all sides.

      Read the European view at the European Tribune

      by fran1 on Thu Apr 17, 2014 at 11:05:20 AM PDT

      [ Parent ]

      •  Public opinion in Germany (1+ / 0-)
        Recommended by:
        commonmass

        seems to be very split about Russia. It is quite different from the US. That is a major issue that Merkel has to juggle in dealing with this matter.

        •  Although Nuland.... (0+ / 0-)

          ....is the proximate cause I see German interference in Ukraine.  Some Koncerns tried to steal a march and the Russians noticed and slapped them down. Now the German public are waking up to the reality.

          A Catholic, Jew, Muslim and Buddhist walk into Al Aqsa Mosque. Buddhist immediately exclaims: "excuse me I appear to be in the wrong joke."

          by Salo on Thu Apr 17, 2014 at 11:45:37 AM PDT

          [ Parent ]

    •  If I remember correctly you read German (2+ / 0-)
      Recommended by:
      commonmass, BMScott

      Currently there is this story in Der Spiegel:

      Putin: Warum viele Deutsche ihn bewundern. Kolumne von Fleischhauer - SPIEGEL ONLINE

      Mit Putin geht es vielen Deutschen wie mit den Russen auf dem Ku'damm: Man lächelt über den Männlichkeitskult und das Blingbling, aber in dem Spott verbirgt sich auch Bewunderung für eine Art zu leben, die man sich selber nicht mehr traut.
      The story is somewhat stupid but the comments are fascinating to read - quite in disagreement with the story. But they also show quite well how Putin is perceived.

      Read the European view at the European Tribune

      by fran1 on Thu Apr 17, 2014 at 11:10:11 AM PDT

      [ Parent ]

      •  I'll go look at that, thanks. (2+ / 0-)
        Recommended by:
        fran1, BMScott

        I can imagine that the German public is indeed very split over this entire issue. My friends in Austria are as well: I have had several email exchanges with good friends there who cringe at the very idea of ANY involvement in Ukraine, for reasons which should be perfectly obvious. Historical reasons, not just the issue over what could happen to their natural gas supply.

        This:

        Männlichkeitskult und das Blingbling
        Aha! "Bling" has entered the German language. ;)

        As for the He-man cult, no wonder Bush liked Putin so much.

        Pope Francis: the Thumb of Christ in the eyes of the Pharisees.

        by commonmass on Thu Apr 17, 2014 at 11:20:24 AM PDT

        [ Parent ]

        •  I think that if I were German, I’d react (1+ / 0-)
          Recommended by:
          commonmass

          negatively to at least a couple of the statements in Fleischhauer’s column.  I read several pages’ worth of comments; it was interesting, though none of them struck me as surprising.  Some of them fit right in with ‘sux’ comments that I’ve seen here.

          (And I’ve also seen unreduplicated Bling in German writing.)

    •  She understands the communists. (0+ / 0-)

      Not the Russians.

      Indeed her fingerprints are all over this fuckup.

      A Catholic, Jew, Muslim and Buddhist walk into Al Aqsa Mosque. Buddhist immediately exclaims: "excuse me I appear to be in the wrong joke."

      by Salo on Thu Apr 17, 2014 at 11:42:42 AM PDT

      [ Parent ]

  •  it's revealing (3+ / 0-)
    Recommended by:
    Richard Lyon, fran1, commonmass

    that merkel is willing to expend political capital on this. polls show that the german people don't want strong economic sanctions. it's also becoming obvious that in addition to sanctions hurting russia, absorbing parts of a poor neighbor aren't going to be economically beneficial.

    The cold passion for truth hunts in no pack. -Robinson Jeffers

    by Laurence Lewis on Thu Apr 17, 2014 at 11:06:44 AM PDT

  •  I believe the western countries think (1+ / 0-)
    Recommended by:
    commonmass

    Putin is biting off more than he can chew, but will allow him to keep eating for awhile longer.  Along with imposing economic sanctions on Russia, the west thinks this is a net loser for Russia.

    Which is not to say the west does not want western Ukraine and continuing payments to the IMF on debt.

    "You cannot win improv." Stephen Colbert (https://www.youtube.com/watch?v=m6tiaooiIo0 at 16:24).

    by Publius2008 on Thu Apr 17, 2014 at 11:21:38 AM PDT

  •  Thank you for this diary (0+ / 0-)

    The real question is whether the Chinese would go along with any Russian retaliation for sanctions by, for example, selling all their dollar-denominated investments.

    The Stars and Bars and the red swastika banner are both offerings to the same barbaric god.

    by amyzex on Thu Apr 17, 2014 at 12:39:04 PM PDT

  •  Putin has enough power to survive any (1+ / 0-)
    Recommended by:
    Richard Lyon

    conceivable sanctions in the short run. Still, if Russian economy slows down significantly b/c of sanctions it will make him less popular and may put some constraints on his actions.

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