Russia and Germany pledge closer economic ties

Thursday 15th July 2010

Russia and Germany have pledged to strengthen economic ties as Russian President Dmitry Medvedev called Europe's largest economy Moscow's "key partner" for the future.

German Chancellor Angela Merkel said relations between the two states had taken a stride forward as she led a delegation of business leaders on a tour of Russia, China and Kazakhstan.

"Germany is our key strategic partner," Medvedev said after meeting Merkel in the Urals city of Yekaterinburg, urging Germany to invest in Russia and help modernise its economy.

The Russian leader has called for warmer relations with the West as he seeks to diversify the Russian economy after the global economic crisis underlined its dependence on exports of energy and commodities.

Business deals signed during Merkel's visit included an agreement worth €2.2bn ($2.8bn) for German engineering conglomerate Siemens to supply trains to Russian Railways.

According to Russia's Customs Service, Germany was Russia's biggest trading partner in 2009, just ahead of the Netherlands, with China in third place. The EU accounted for over half of Russian trade last year, and the US just 3.9 percent.

However, Germany's exports to Russia have fallen sharply in the economic crisis, prompting German business lobbies to criticise the pace of Russian economic reform.

Merkel, who initially adopted a more reserved attitude to Russia than her predecessor Gerhard Schroeder when she took office in 2005, has increasingly warmed to Moscow, meeting Medvedev for the second time in just a few weeks.

"Relations between both countries are more intensive than they have been for a long time," Merkel said, adding that it was vital the pair stepped up economic cooperation.

"We talked about how it would be good to have a few shining beacons out there to demonstrate that (economic) relations are not a one way street," the chancellor said.

Lucrative deals
Merkel's trip gave her an escape from a run of negative political developments at home, and a chance to trumpet the German economy's recovery from a record slump in 2009.

Among the industry leaders travelling on her delegation were the bosses of Siemens, carmaker Volkswagen, planemaker Airbus, chemicals group BASF, retailer Metro and lender Commerzbank.

On top of its contract to supply trains, Siemens also secured a €1bn renewable energy joint venture with Russian wind power companies Rosteknologii and Rusgrido.

EADS unit Airbus won an order worth more than €2bn to deliver A330 planes to Russia's Aeroflot, a source familiar with the deal said.

And Gazprom Bank will take a 30 percent stake in Russian-German energy agency Rudea. The bank, which has stakes in some 500 Russian firms, will fund energy efficiency projects, such as plans to update street lighting across the country.

Siemens has partnered with RZhD (Russian Railways), Russian power generators and medical groups for years, earning billions of dollars from RZhD alone.

It supplied RZhD with eight trains for its fledgling high speed link between Moscow and St Petersburg last year, and signed a 30-year maintenance contract for €630m.

The group will also build a research centre at Skolkovo - a technology hub set up by Medvedev to mimic Silicon Valley.

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