While Germany puts great store on accumulating trade and monetary surpluses, it is not a mercantilist power in the traditional meaning of the term, in that it does not aim to build a war chest in a zero-sum pursuit of advantage. It also has not pursued economic nationalism, as the state follows the private sector rather than guiding it. Firms act as de facto instruments of geo-economic states and create a set of material incentives for policymakers, with commercial motivations underpinning great power politics.
In the case of Russia, German firms, as well as those from France, Britain, and Italy, have drawn Europe closer to Moscow, at the expense of both the geopolitical concerns of Eastern European countries and of multilateral relations within the EU.7 Thus German firms shape
German geopolitical interests and strategic culture. Commercial logic saw opportunities to invest and to exploit the world’s largest gas reserves, and treated both Russia and Gazprom as geo-economic actors driven by the logic and incentives of profits. As Rawi Abdelal sets out
Mundi Index, available at http://www.indexmundi.com/g/r.aspx?c=gm&v=2199; see also Ulrich Grillo, “Deutschland als Globalisierungsgewinner”, Executive Letter, Berlin, Bundesverband der Deutschen Industrie, 4 April 2015, p. 1 (hereafter, Grillo, “Deutschland als Globalisierungsgewinner”).
6 See, for example, Steven Erlanger, “Before Palace Banquet for Xi Jinping, a Snub From Prince Charles”, the New York Times, 19 October 2015, available at http://www.nytimes.com/2015/10/20/world/ europe/before-palace-banquet-for-xi-jinping-a-snub-from-prince-charles.html?ref=world&_r=1. 7 Rawi Abdelal, “The Profits of Power: Commerce and Realpolitik in Eurasia”, Review of International Political Economy, volume 20, number 3, June 2013, pp. 421–456, available at http://www.hbs.edu/ faculty/product/42270 (hereafter, Abdelal, “The Profits of Power”).
in his study of European energy firms, Western companies held the view that Gazprom needed West European revenues to be profitable, that Russia needed Gazprom’s profits and taxes to keep the country’s budget in the black, and therefore that Russia would not jeopardise its economic relationship for geopolitical gain.8 This commercial logic is
now confronted, however, by the strategic logic of a Russian military challenge to the European order.
Germany's relationship with Russia prior to the outbreak of the Ukraine crisis in 2014 was a case study in this geo-economic approach. German policymakers developed a deep economic relationship with an increasingly authoritarian Russian state with the rationale of “change through trade” (Wandel durch Handel). This was a mutation of the principle, previously embraced by Berlin, of “change through rapprochement” (Wandel durch Annährung). It had the long-term goal of transforming Russia, alongside a geo-economic rationale, in the idea that engagement would slowly modernise Russia, and that this economic modernisation would eventually lead to political modernisation. The relationship created a substantial Russia lobby within the German business community, which developed significant clout in Berlin. The result was an excessive willingness to tolerate or ignore concerns about human rights and democracy in Russia.9
The Ukraine crisis has reopened the question of whether Germany will have to act as a more traditional geopolitical power, with a stronger military dimension. The use of Russian military force in Europe, as well as the rise of nationalism in China, Japan, and other countries, has raised questions about the assumption that globalisation is benign and will continue to shape the landscape of the international system. The Germans have bet that the traditional military powers will lose influence this century to the geo-economic powers. Berlin’s reaction to Russian aggression in Ukraine has been to emphasise economic instruments of statecraft, primarily sanctions, and to rule out substantial military options. Although defence spending is due to rise over the next couple of years, no real changes have yet been made in German security policy and there is little prospect that the nation will become a serious military power, in contrast to the trend in Japan.
8 Abdelal, “The Profits of Power”.
The coercive use of economic instruments is a new approach, however. In the past, Germany has taken a “win-win”, positive-sum approach and avoided sanctions, which were seen as undermining its reputation as a reliable economic partner. Chancellor Angela Merkel’s role in pushing German and European sanctions against Russia is relatively new, though Germany did impose sanctions on Iran, and is a signal that even the ultimate geo-economic power cannot always define strategic interests in economic terms. Even segments of the German business community have recognised that a threat to the European security order takes precedence over profits.10 Germans believe that their approach
is best suited to the international politics of the twenty-first century, in which postmodern economic powers will have an advantage over modern military powers such as Russia and the US. War and threats will not override interdependence. Networks will replace alliances, economics will subsume force. When Germany looks at Europe it sees traditional modern military powers such as Britain and France cutting back on their militaries and becoming more geo-economic.
Furthermore, Germans believe that President Vladimir Putin’s strategy will be defeated by economics. Not just sanctions but the structural weaknesses of the Russian economy and global trends in energy will trump the use of military force – in much the same way that the economic weakness of the Soviet Union led to the end of the Cold War. Berlin does not see Putin as a military threat to the West, and views his overreaction to events in Ukraine as an indication of deep insecurity and pessimism about Russia’s future. However, this aggressive use of economic instruments for state purposes has opened up the possibility that globalisation will be challenged more by economic warfare than by military means.11 Germany has a rather unimpressive military, but
a substantial economic arsenal. This has been witnessed in both the Russian and Greek cases in very different ways, via sanctions in the former, and fiscal and monetary policy in the latter.
10 Ulrich Grillo, “Deutschland als Globalisierungsgewinner”, pp. 3, 5; “‘Gesprächskanäle müssen offen bleiben’: Der BDI-Hauptgeschäftsführer Markus Kerber setzt im Umgang mit Russland auf Deeskalation”, Handelsblatt, 20 May 2014, p. 16; “Für die Wirtschaft ist Polen wichtiger als Russland”, Frankfurter Allgemeine Sonntagszeitung, 26 October 2014, p. 6. The position of the BDI, which represents all German firms and thus has a global outlook, contrasts with that of the Ost-Ausschuss der Deutschen Wirtschaft, which represents German companies working in Russia.
11 As outlined in a report by the World Economic Forum: “Recent Western sanctions against Russia signalled the beginning of the first great-power conflict since the end of the Cold War”. See Mark Leonard, “Geopolitics vs Globalization: How Companies and States Can Become Winners in the Age of Geo-economics”, in Geo-economics: Seven Challenges to Globalization (World Economic Forum, 2015), p. 5, available at http://www3.weforum.org/docs/WEF_Geo-economics_7_Challenges_ Globalization_2015_report.pdf.
Germany’s future Russia policies depend not only on Moscow’s foreign policy but also on the state of the Russian market. Russia is important to Germany in terms of energy and provides significant markets for German companies, but it is not one of its top trading or investment partners.12 German business will assess the Russian market in terms of
investment risk and the rule of law. Even before Ukraine, elements of the legendary German small to mid-sized businesses, or Mittelstand, were souring on Russia due to corruption and the lack of the rule of law, but the big players like Siemens and Daimler are likely to want to deepen their engagement if conditions improve. The agreement to construct a Nord Stream Two gas pipeline is an indication of Germany’s longer-term interests, although the revolution in energy markets caused by an increased use of renewables and US shale oil production is also likely to devalue the Russian connection.