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HOWGERMANYISLOCKEDINABEARHUG.By:Ewing,Jack.BusinessWeek.10/20/2008,Issue4104,p052052.
1p.1ColorPhotograph.Abstract:ThearticlefocusesoneconomicrelationsbetweenGermanyandRussia.Thetwo
countries'economiesarecloselyintertwined.GermanyisRussia'slargesttradepartner.Itexportslargeamountsofgoods
there,andGermancompanieshavelargeoperationsinRussia.Inreturn,Germanyimportsmostofitsenergysupplies,
especiallynaturalgas,fromRussia.(AN:34760296)
Database: BusinessSourceComplete
Section: EMERGINGMARKETREPORT
HOWGERMANYISLOCKEDINABEARHUG
ItseconomyisbecomingincreasinglydependentonRussia
Dateline:FRANKFURT,GERMANY

GermanChancellorAngelaMerkelisn'tknownasagreatfanofRussia'sgovernment,buthertonewasremarkablymildwhenshemetPresidentDmitry
MedvedevinSt.PetersburgonOct.2.ShecalledRussia'sincursionintoGeorgiainAugust"notappropriate,"butotherwiseavoidedthesubjectandeven
enjoyedalengthydinnerwithMedvedevaboardarestaurantshipontheNevaRiver.

TheswiftreturntocordialrelationswasrecognitionofjusthowintertwinedtheGermanandRussianeconomieshavebecome.Manufacturingeverythingfrom
luxuryautostomachinerytofood,some4,600GermancompaniesareactiveinRussiaand70,000Germanjobsdependonbusinesswiththecountry.Germany
isalsoRussia'slargesttradingpartner,with$45billionintwowaytradeduringthefirstsixmonthsofthisyear.Littlewonderthatthe25Germanbusinesspeople
whojoinedMerkelinSt.PetersburgseemedanxioustoforgivetheeventsinGeorgiaandgetbacktodoingdealswithRussianpartners.Thebiggestdeal:an
agreementallowingenergysupplierE.ONtoacquire25%ofahugeSiberiannaturalgasfieldownedbystatecontrolledGazprom.TheDusseldorfbasedutility
tradedcontrolofa3%stakeinGazpromvaluedat$5.4billion,endingyearsofstalematednegotiations.

Merkel'srhetoriconRussiaisgenerallyharsherthanthatofherSocialDemocraticpredecessor,GerhardSchroder,apalofPrimeMinisterVladimirPutinwho
nowworksforGazprom.ButGermany'sbusinesslobbymakessurethatMerkelneverforgetshowmuchtheircompaniesdependontheformerSovietstate.
"Whateverwecandotoadviseourgovernment,wearedoing,"saysKlausMangold,aformerDaimlerexecutivewholeadstheEastEuropeancommitteeofthe
GermanFederationofIndustries.Infact,MerkelrarelysaysanythingthatwoulddamageGermanRussianeconomicties."Theeconomiccooperationis
advantageousforbothsides,"shetoldanaudiencethatincludedMedvedevinSt.Petersburg.Russiaisalsoacrucialenergysupplier:Germanybuys36%ofits
gasand32%ofitsoilfromthecountry.

AstradewithEuropeandtheU.S.hasflattened,explodingRussiandemandhashelpedinsulateGermanyfromglobaleconomicturmoil.Russiantradeis
particularlyimportantforsectorssuchastheGermanmachineryindustry,whichhasboostedexportstoRussiafivefoldsince2000,to$8.8billionlastyear.Inthe
firstsevenmonthsof2008,machinerysalestoRussiahit$6.4billion,a29%increasevs.thesameperiodayearearlier.Bycontrast,machineryexportstothe

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U.S.whichhasamuchlargereconomythanRussiawerestagnantat$9.9billioninthefirstsevenmonths."RussiahasmorethanmadeupfortheU.S.,"says
RalphWiechers,chiefeconomistfortheGermanEngineeringFederation.

ACHANGEINPACE
Sofar,Germanbusinesspeoplesay,growthinbusinessfromRussiaseemstobecoolingbutremainshigh."Itisn'tyetexhausted,butitwon'tcontinueatthe
samepace,"saysAndreasHartleif,CEOofVEKA,aGermanmakerofplasticwindowandslidingdoorframesthathasfactoriesinMoscowandNovosibirsk.Not
allGermanexportersaresolaidback.RussiaisimportantforGermancarmakerstryingtomakeupforslowerU.S.sales,whichtheweakdollarhashammered.
NotonlyareRussia'snouveaurichekeentogetbehindthewheelofaMercedesoraPorsche,buttheyarewillingtopayforcostlyoptions.DaimlercitedRussia
asonereasonitsMercedescardivisionekedouta1%increaseinoperatingprofitinthesecondquarter.SaysBMWbrandchiefFriedrichEichiner:"Wesell10
timesasmanycarsintheU.S.,butRussiaisveryprofitable."

EventhoughRussiaaccountsforonlyabout3%ofGermanexports,formanycompaniesitisoneofthefewgrowthmarketsleft.SaysGerdHassel,economistat
BHFBankinFrankfurt:"AneconomicslowdowninRussiawouldbeverydecisivefortheGermaneconomy."

PHOTO(COLOR):DaimlersaysRussiahelpedMercedesearna1%increaseinoperatingprofits

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ByJackEwing

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