globalEDGE Blog: Germany’s Complicated Relationship With Russia

Germany’s Complicated Relationship With Russia

As the western allies prepare to impose new sanctions on Russia, the complexity of Germany’s relationship with Russia is becoming increasingly apparent. German Chancellor Ms. Merkel will have to be mindful of the regional economic ties some states have with Russia, as she sides with her western allies.

Remnants of Soviet Eastern Germany reveal economic dependence on Russia as a trading partner, specifically in the German state of Mecklenburg-Vorpommern. The state, which has the country’s lowest average income, harbors the bustling trading Port of Sassnitz. The port is a rail-ferry terminal that was built in the 1980’s allowing Eastern Germany to receive vast imports from communist Russia. The port remains a high traffic trading area today that is important for Germany’s economy and critical for the immediate region. Russian businessmen have been loyal to the port region, purchasing shipyards and providing job opportunities for hundreds of Germans.

Amidst recent tension between the west and east, officials of Sassnitz’s state have been meeting with Russian rail officials and businesses to seek new opportunities for the port. The state officials reinforce the strong relational ties with Russia and even note that they may be dependent on their trading partner. Even local businesses of the region support the lobbying efforts by their elected politicians, as the businesses experience first hand the importance of trade with Russia. The Mecklenburg region will undeniably be affected by any disruption and could suffer major economic hardships.

Forecasters estimate if the worst were to happen with Russian counter sanctions, if Germany decides to impose heavier sanctions, a cut of 0.9 percentage points for Germany’s GDP would result. Germany’s expected GDP growth for the year is 1.2 percentage points, which would be reduced to just 0.3. Nevertheless, Ms. Merkel remains loyal to her Western allies against Russia, despite local politicians lobbying for stronger Russian ties. She will have to be cognizant of regional dependence in her decision.

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