Arguably Europe’s most powerful politician made a surprise appearance at last week’s St Petersburg International Economic Forum (SPIEF) – and it wasn’t Angela Merkel.
The German Chancellor has been a relatively frequent visitor to the Kremlin of late negotiating a shaky Ukraine ceasefire, but it was Alexei Tsipras, who stole the show in at the St Petersburg International Economic Forum (SPIEF).
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Speaking in front of his host, President Vladimir Putin, the Greek Prime Minister delivered what some detected as a barely concealed shift in axis to Moscow, while impassioned calls for sanctions to end came on the same St Petersburg stage from the automotive world in the shape of German brakes supplier, Knorr-Bremse.
International sanctions aimed squarely at Moscow have put huge pressure on Russia’s economy, with access to capital at a premium, interest rates and inflation soaring, all leading to a catastrophic collapse in the country’s automotive sales which have seen a barely-before witnessed pummelling during the past 12 months.
Just to add to the explosive cocktail, a perfect storm is made even more painful for Russia by the spectacular tumble in the price of its staple export, oil, which at one point halved in value to around US$50, although it has rallied of late.
“For Europe and the rest of the world, let me explain what is at stake,” Tsipras began. “The crisis in Ukraine is a new hotbed of instability within Europe. What we are witnessing in the region is a process that might lead to militarisation, war and impose sanctions.
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By GlobalData“This viscious circle has to be disrupted as soon as possible. We [Greece] are at the centre of storm, of a whirlpool. You know, we live near the sea, so we are not scared of storms.”
The Greek Prime Minister could not have sent out a clearer signal he believes the tectonic plates in Europe are shifting – despite Russia’s myriad challenges – to the near East and beyond.
“People are asking why I am here [Russia] and not in Brussels,” he said. “The economic centre of the planet has shifted – there are new emerging forces that can play a role geopolitically.”
And just in case anybody hadn’t quite grasped the message, he added for good measure: “Russia is one of the most important players for us.”
His presence was despite what many see as the end game for Athens in the Eurozone, although Tsipras may believe the game of poker with Brussels will see the IMF and assorted banks cobble together a deal.
If not, well he has a handy new ally in the Russian President, who may well be playing his own clever game, betting Tspiras will not vote to extend sanctions against Moscow in return for possible aid and oil infrastructure and if he doesn’t make that move, the Europeans may well step in anyway with yet another rescue package.
Sanctions are genuinely hurting Russia and speaking at SPIEF on the same stage as Putin, Knorr-Bremse owner and chairman, Heinz Hermann Thiele lambasted the West for hurting its own economies using the draconian economic levers.
“I was and still am, totally against the sanctions – and from the very beginning by the way,” he told the huge audience at the Russian President’s Plenary address in St Petersburg.
“I am not the only one in Germany who has this position. I support the statement of President Putin – it is high time to stop these sanctions. I hope now everybody in Europe understands these sanctions have hurt Europe substantially.
“If you look to the figures, within two years, 2014 and 2015, Germany has lost 50% of exports to Russia.”
A common theme of SPIEF was whether or not Russia would pivot to the East in a bid to counter the West’s economic blockade with Thiele noting his brakes component company had “extremely good business in China.”
Only last month Knorr-Bremse and Dongfeng started their joint venture in China to strengthen the German company’s profile in the commercial vehicle market.
Based in Shiyan in the Chinese province of Hubei, 1,000 km to the west of Shanghai, the new joint venture Knorr-Bremse DETC Commercial Vehicle Braking Technology (DETC), has a workforce of 460 employees.
“Russia turning to the East is to do something normal, quite normal,” added Thiele. “Even my company, we have strong connections with China and extremely good business. Why shouldn’t Russia do the same.
“We have boosted that need by applying sanctions – we must go away from that. Everybody should have the chance to make his decision where he finds the best partner for his specific business.
“We are supporting global development and I would like to add, peaceful, development, which is at this moment, not satisfactory at all.”
Just to outline how much the sanctions are hitting Russia, former adviser to Mikhail Gorbachev and current member of the Russian Academy of Sciences, Abel Aganbegyan, listed a startling array of statistics to show the country’s challenges.
“It [went] from bad to worse in 2014 – because of the sanctions the Q4 situation deteriorated further [and] stagnation turned into a deep recession,” he said. “We have recently seen some statistics for May. GDP went down by 5%, turnover of transport went down by 4% and the worst thing is we see reducing investment for three years in a row.
“This is emerging against the backdrop of growing inflation [of] 15.8%, prices are going up, interest rates are very high. Unemployment has grown by 590,000 [and] for the first time Russia is seeing fewer migrants coming into the country, that is because of the rouble depreciation.”
I spoke to Aganbegyan – he was certainly held in much regard in St Petersburg – and he stressed although the Russian Central Bank rate is 11.5% the actual level at which car purchases for example can take place is actually up to 18% making transactions extremely expensive.
It’s a bit of a chicken and egg situation as although investment is strongly needed, oil price revenue has sharply fallen and sanctions are affecting confidence.
But the situation in Ukraine is – while clearly unstable – at least subject to a ceasefire which appears to be holding.
Everything stems from that peace – however shaky – being maintained in order to convince the international community it should lift the sanctions but lurking in the background is Crimea.
Surely that question needs resolving before anything can progress further.
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