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Economics forces Germany to be friends with Russia - in spite of the US

Economics forces Germany to be friends with Russia - in spite of the US

August 22 2018 LJ cover – Экономика вынуждает Германию дружить с Россией – вопреки США
Tags: Putin, Russia, Germany, Merkel, Austria, Politics, International relations, Analytics, West, Economy, Sanctions, USA, Trade

The content of the meeting between Putin and Merkel was not officially announced, but with the help of a calculator it is possible to calculate it.

What happened last weekend (18-19 August) looks a bit strange and even places a sort of spy story. The president of one of the three (including North Korea and Iran) most malicious states of the world quite suddenly accepts the invitation to visit in private the wedding of the foreign minister of one of the leading countries of Europe. Later it turns out that in the course of this trip "to good people for barbecue" he "on the way" looks at a late dinner to the head of another state, which is the leader of the whole unified Europe. And they talk about something for three hours. Then they leave for their business without any statements to the press or final communiqués.

What was it? Why such espionage difficulties? How did it happen that the leader of the country that supports sanctions and the leader of the country to which they are imposed cute talk privately in spite of the obvious public indignation of the world hegemon, these same sanctions initiated? And why is Germany officially friendly with the US, but at the same time persistently participates in the implementation of the "Nord Stream-2", against which the US is categorically opposed?

Russian President Vladimir Putin visited the wedding of Austrian Foreign Minister Karin Kneisl
Russian President Vladimir Putin visited the wedding of Austrian Foreign Minister Karin Kneisl. Photo:

The economic foundation of the political superstructure

The whole thing is in the economy, which, as is known, traditionally serves as the basis for any policy. For centuries, at least since the beginning of the great geographical discoveries at the end of the XV century, the European economy flourished through trade.

At first glance, everything looks not particularly large. The contribution of foreign trade is about a quarter of the GDP of the European Union. The total turnover of this trade in 2014, before the introduction of sanctions, was 4,7 trillion dollars. Of the total, the key trading partner is the US (16,9%), followed by China (15,3%), Switzerland (7%), Russia (6,2%), Turkey (4,1%) and Japan (3,5%). The case, as usual, changes the details.

The structure of trade relations in Europe is not uniform. It consists in approximately equal shares of goods and services. Moreover, the overwhelming majority of services are of a financial nature: investments or bank servicing of cash flows. When it comes to 47% of EU trade relations, attributable to 150 in other countries of the world, the overwhelming majority of them create banking operations. Whereas 86% of all industrial exports go mainly to the six countries listed above, thus forming the overwhelming share of revenues.

Let us give an example. Airbus A380 weighs about 160 tons and is sold on average for 489 million dollars - roughly speaking, at 3 million dollars per ton of total weight. With an average profitability of 26-27%, about one million profit is generated from it. Whereas a ton of hard wheat HRS at the auctions in Minneapolis is worth 223 a dollar and brings only 33,45 dollars of profit. Therefore, for the EU, relations with key consumers of industrial products are many times more important than anything else.

For the same reason, with all sanctions on aluminum, steel, automobile imports, Europe as a whole and Germany in particular are in no hurry to severely disrupt trade relations with the United States. With all the current problems in 2017, German goods to America were sold at 113 billion dollars, while in Russia - only 22,7 billion.

Bolivar can not take two

Another question is that all this friendship was formed in conditions of continuous expansion into the external world, which seemed bottomless. Since then, its capacity has run out. There is no longer an opportunity to increase sales by developing countries that were not previously covered by the market economy. Now the guarantee of prosperity is success in competition only in existing markets, and the severity of this competition is increasing.

Seeking to return America to its former greatness, Trump is making titanic efforts to push all foreign manufacturers out of the American consumer market.

For example, the same steel overseas during 2017 year consumed 108 million tons, of which 35 million were imported, including 2,8 million - European. Due to the increase of import duties on steel at 25%, the White House intends to raise the level of loading of American steelmaking enterprises from 76% to 82% within the next two years, and to 2025 to reduce the share of imports from the current 32,8% to at least 25 - 23%. Europe, these plans threaten the fall in sales of the same steel in the amount of about 448 million dollars per year.

To "steel" losses are added similar in nature losses from the closure of the US market for aluminum, cars and a long list of other high-tech products, including machinery and industrial equipment. That is, all where, in terms of the total ton of weight, revenue and profit go maximum.

In other words, the current volume of German exports to America demonstrates a steady downward trend. Yes, so far, the pace is not high - in the first six months of the new duties, European steel shipments for the ocean declined by 1,7%, but the point is that there is no clear prospect of winning the decline ever in the future.

Trump and the financial and industrial groups behind him have as their main goal proclaimed the return of America to the times when US Steel was the largest corporation in terms of stock capitalization. That is, this war is not an accidental quarrel between good friends, it is conducted on the principle "Bolivar will not endure two". Washington decidedly aimed at a broad import substitution, the destiny of the losers does not bother him. Even if we are talking about allies.

President Donald Trump
President of the United States Donald Trump. Photo:

Like a dog in the hay

European complications are compounded by the fact that the economic war that America has waged against the rest of the world is ricocheting across Europe. A good example of this is the situation surrounding the "Iranian nuclear deal". Withdrawal from it, the United States automatically put a number of European companies in front of a difficult choice.

At 2017 year, business in Iran was conducted by 10 thousand German companies, including Siemens, Volkswagen and Daimler, 120 companies have headquarters there. Germany's allies are not lagging behind: Renault is building a plant with an annual capacity of 350 thousand cars. Peugeot concluded contracts for a total of 400 billion dollars. Airbus intends to sell about one hundred of its planes there for about 20 billion only in the first stage. The country's total need for aircraft, given the aging of its existing fleet, is estimated at a minimum of 500 beads. Siemens and the Italian FS plan to modernize the Iranian railways by 1,4 billion. A contract has already been signed for the construction of the Kum-Arak highway and the supply of 50 locomotives.

For a European economy that is critically dependent on the size of foreign trade, the existence of such cooperation is the strategic foundation of financial well-being. The more such projects, the better. And then everything else indicates that the civil war in Syria will soon end. Bashar Assad officially estimated the cost of rebuilding her economy at 400 billion. So Damascus will also need a lot of machines, aircraft, cars, metal, industrial equipment and electronics, in short, all that Europe specializes in.

However, a serious problem on the way to success are American sanctions. They are very tangible even for such large multinational corporations as the French oil and gas Total. As the chairman of the board of directors commented, the refusal to participate in the project to develop the Iranian oil field South Pars means for Total a direct loss of 400 million dollars and the loss of a contract that promised more than 2 billion in profits over the next five years. However, on the other side of the scale are other projects of the company in 120 countries of the world, of which at least 70 somehow fall under American jurisdiction.

Russian President Vladimir Putin and German Chancellor Angela Merkel
Russian President Vladimir Putin and German Chancellor Angela Merkel. Photo:

To this should be added just two facts. With respect to borrowed capital, in order to ensure the turnover of current operations, Total's dependence on the American debt market is 64%. And at least a third of the current board of directors and the list of shareholders of this formally French corporation are represented by American financial funds and large private investors. So its sanction vulnerability is close to absolute.

In a similar situation, at least a third of the large corporate and at least a quarter of the list of the leading banking capital of Europe are located. However, even with "correct behavior" they are already subjected to serious educational shocks. A clear example of this is the $ 8,9 billion fine imposed by the US Treasury, incidentally, just for violating "anti-Iran sanctions", on the French banking group BNP Paribas.

A penny a ruble protects

Separately, we should note the "energy" side of the issue. Whoever said anything about the unique features of the device of the post-industrial economy, in real life it still continues to be based on energy.

For example, engineering in Europe consumes 17,26 billion kWh of electricity. Or, roughly, for 880 kWh in terms of each car produced there. At the current average cost of electricity in Germany at 0,56 USD per kWh, this gives about 493 a dollar of electricity costs in the structure of the cost of production of each car.

At first glance - a little. However, it should be noted that in 2017, all EU countries produced 19,7 million vehicles (production outside Europe is not included), and the total amount of electricity costs in the industry is 9,7 billion dollars per year.

If America somehow still manages to "stop Gazprom's expansion into Europe," even if only by halving the volume of Russian gas exports, the Ministry of Energy experts believe that by increasing average gas prices, the growth in electricity prices in Europe on 10-12%. In the most "ideal" conditions - up to 18%.

Construction of the Nord Stream-2
Construction of the Nord Stream-2. Photo:

The implementation of such a scenario threatens the European Union only in the automotive industry by increasing costs by at least 1,16 billion dollars annually. In fact, this will be a direct loss, since the manufacturer, whatever he chooses - to compensate for costs out of his pocket or raise the retail price to their size, will eventually receive a fall in profits.

However, only the automotive industry is clearly not limited. The costs of all industrial production will increase, and it consumes more than 1 million GWh of electricity per year in Europe. So even a ten percent increase in the prices on these scales translates into very substantial amounts. Thus, only on electricity to Brussels (and therefore Berlin) is a simple matter - to lose these 72 billion (the difference between the current and possible future prices for this volume) or not. If you cede to the Americans - this will be a direct loss of Europe. If we find a way to "support the Russians", losses will be avoided, thus keeping the overall profitability of the economy at the same level.

Look at neighborly

Here, in fact, and the whole initial layout. Europe is literally between two fires. Due to the inertia of the habit and due to numerous financial, technical, cultural and lobbying ties, it is still trying to maintain the current "friendship" with America. But the dynamics of global processes make you think about your own future. Washington does not hide the plans of actual colonization of Europe for the sake of the US economic survival.

The White House recently revived the idea of ​​the Transatlantic trade and investment partnership. This time it seems like "honest", without corporate tribunals, but with very strict limits on the sale of European goods in the domestic market of the United States. At the same time, the access of American goods and services to Europe should be expanded. It is obvious that Europe will lose in the long distance race according to the proposed rules.

Hence, the geopolitical course must be changed. But smoothly, without sharp jerks, fraught with fatal shocks. For this, we need to look for options for restoring relations with Russia. And as the largest supplier of inexpensive energy carriers, and as a source of other types of raw materials, and as a market for industrial products and technologies. Russia for Europe is an ideal partner for an economic (so far only economic) union in the confrontation not only with the US, but also with China. Moreover, a partnership with Russia will help, under good conditions, enter the business in the Middle East, where Moscow's positions are clearly superior to Washington's.

In turn, our rapprochement with Europe is interesting to no lesser extent. Two-thirds of Russian foreign trade and three-quarters of its profits provide trade with EU countries. This in itself is more than important, even if we do not consider other moments of great geopolitics.

It's another matter that the four years of the sanctions wars provoked by the Americans have not been in vain. The old relationship is messed up. A fair amount of various "restrictive and punishing" laws has been adopted. A negative public information background was formed.

It is impossible to cancel all this with an easy gesture of the hand. A thorough and methodical work is required, which always begins with a mutual understanding of views, the formation of the same approaches, the realization of the benefits of common strategies and the same attitude towards risks. To the risks - because it is naive to believe that the Russian-European (or even only Russian-German) rapprochement of counteraction measures on the part of America will not cause.

The leaders of the two countries talked about this for three hours. Because it's not a ruble thing. Here you have to go from afar, consider a variety of options, so to speak, brainstorm arrange. At official interstate meetings such things are not done - there, as a rule, only the result of already held negotiations is fixed. And the work begins here - looking, so to speak, neighborly, a snack on the road.

Zapolskis Alexander
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