German Russia policy is at a dead end of its own making
This article originally appeared at Mish's Global Economic Trend Analysis
The cold war took another twist last week when a senior german politician endorsed Russian takeover of Crimea:
"Former state premier Matthias Platzeck, chairman of the German-Russian Forum business lobby and erstwhile Social Democrat (SPD) chief, is the first high-ranking German to say the West should endorse the annexation as a way to help resolve the Ukraine crisis.
Platzeck, 60, told the Passauer Neue Presse newspaper: "A wise man changes his mind - a fool never will...
The annexation of Crimea must be retroactively arranged under international law so that it's acceptable for everyone."
Platzeck, Brandenburg's popular state premier from 2002 to 2013, struck a nerve in eastern Germany where there is far less support for sanctions against Russia than in the West. "We have to find a resolution so that Putin won't walk off the field as the loser," said Platzeck, whose career was nurtured by ex-Chancellor Gerhard Schroeder - a friend of Putin.
He said areas held by separatists will never be part of Ukraine."
Platzeck's statement shocked a lot of people including German Foreign Minister Frank-Walter Steinmeier who stated Germany will never accept Crimea annexation.
"We don't accept what has happened and we don't accept Europe's borders being changed again 70 years after the war," said Steinmeier.
Der Spiegel reports cracks form in Berlin over Russia stance.
"A political solution is more distant than ever in the Russia conflict, with the German government and EU having exhausted their diplomatic options. A rift may now be growing between Chancellor Merkel and her foreign minister over Berlin's tough stance against Moscow."
Dead End for Merkel
Today, Reuters reports Merkel hits diplomatic dead-end with Putin.
"Since February, when the pro-Russian president of Ukraine, Viktor Yanukovich, fled Kiev amid violent protests on the Maidan square, Germany has taken the lead in trying to convince Putin to engage with the West.
Merkel has spoken to him by phone three dozen times. Her Foreign Minister Frank-Walter Steinmeier, a member of the Social Democrats (SPD), traditionally a Russia-friendly party, has invested hundreds of hours trying to secure a negotiated solution to the conflict.
Now, German officials say, they have run out of ideas about how they might sway the Russian leader. The channels of communication with Putin will remain open, but Berlin is girding for a long standoff, akin to a second Cold War."
Explaining the Dead-End
Perhaps things are at a dead end precisely because of statements like "Germany will never accept Crimea annexation" by Foreign Minister Steinmeier.
Does talking make any sense if that is the position of Germany?
Putin Peels Away at Sanction Support
Matthias Platzeck, a former leader of the SPD, broke ranks earlier this month and urged Germany to recognize Russia's annexation of Crimea.
"This week, Russian Economy Minister Alexei Ulyukaev is being hosted by Russia-friendly businessmen in Stuttgart, the heart of German industry.
Russia also appears to be extending a hand to right-wing opposition parties in Europe. France's National Front confirmed at the weekend that it had secured a 9 million euro loan from a Moscow-based bank.
The first set of EU sanctions is due to expire in March and will need to be renewed. German officials say Italy, Hungary and Slovakia will be the most difficult countries to keep on board.
"Putin will be trying to peel countries away in the run-up to March," said one. Another described the battle to keep the EU united on Russia as a "Herculean task"."
Against the backdrop of this fragile EU consensus, ratcheting up economic sanctions further is seen as a "no go" in Berlin for now.
That would change, German officials say, if Russian-backed separatists carved out a corridor of control from eastern Ukraine to Crimea by taking the strategic city of Mariupol.
For Merkel however, the showdown seems to be evolving from a fast-moving tit-for-tat affair into a longer game in which the West slowly squeezes Russia's struggling economy in the hope that Putin eventually blinks.
Merkel Will Blink First
With support for sanctions eroding in several countries, with political infighting in Germany, and with German sentiment shifting more pro-Russia, the odds are that Merkel changes her tune first.
After all, she is the political chameleon, not Putin.
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