Germany starts to feel the sanctions' bite

Well, this was like predicting the dawn.  The German Leisure classes have been surprisingly enthusiastic about inflicting sanctions on Russia.  In that, they are almost identical to the USA Leisure Classes.  In fact, there have already been accusations that some of the extreme right-wing garbage that has emerged from an otherwise fundamentally sound German media has in fact been written by the CIA.

What is especially interesting about this is that Germany had become an almost perfect prototypical Producer Class state.  Up until WW II, Germany had been a pretty even mixture between her phenomenal industrial power and her historical Prussian militarism.  After the war, Germany's militarism pretty much disappeared under a serious program of de-Nazification and her industry was forced out of military production.  Then in 1969, the Social Democrats won an election and the immediately began a program of trade with the USSR they called Ostpolitik.  Suddenly, it was official government policy to trade with the East.

However, as neoliberalism started to make its comeback in the 1970s, the institutions of militarism and the other Leisure Class manifestations of force and fraud began to make a comeback too.  And so, there was a fertile climate for starting Cold War 2.0 in the non-industrial elements of German society.  However, Ostpolitik and similar social /political movements had resulted in a situation where there were now 6200 enterprises doing business in Russia. For many of them, their Russian business was the difference between making and losing money.  Not surprisingly, these people are furious over the sanctions.

Anyone who has any doubt that the most significant class conflict has always been between the Leisure and Industrial classes need only look at German politics these days.  This conflict threatens to sink the Merkel government and redraw Germany's political landscape.  If the German industrial classes prevail on this one, it will be a mighty victory in the struggle against neoliberal insanity.

German Businesses Suffer Serious Fallout as Russia Sanctions Bite

Economic fallout from the conflict in eastern Ukraine has forced small businesses to seek insolvency protection

Chris Bryant (Financial Times) Stefan Wagstyl 27 NOV 2014

This article originally appeared at Financial Times

Alexander Schuke Potsdam Orgelbau has supplied pipe organs to cathedrals and concert halls for almost 200 years, surviving a wave of upheavals including war and nationalisation under the communist regime of the former East Germany.

But the economic fallout from the conflict in eastern Ukraine has forced the family-owned company to seek insolvency protection. Its problems arose after Ukrainian and Russian customers failed to pay for two instruments that took months to build, leaving the company some €400,000 out of pocket.

“A small company like ours cannot withstand that kind of shortfall,” says Matthias Schuke, chief executive. “We’ve never known something like this. We know Russia as a very reliable partner.”

Germany’s close business links with Russia, in part a legacy of its cold war Ostpolitik, were once a source of growth and profits. But they have become a vulnerability as the international sanctions (which include banking curbs and restrictions on the export to Russia of energy-related goods and technology with potential military application) championed by Angela Merkel, German chancellor, start to bite at home.

German exports to Russia fell 16.6 per cent to €20.3bn in the first eight months of the year. Euler Hermes, the credit insurer, expects a full-year decline of 20 per cent, which would equate to a shortfall of €8bn compared with the previous year.

Ralf Meurer, head of its German unit, says that at companies particularly dependent on Russian sales, “the situation is very dramatic”. Insolvencies could rise in the second half of this year, he warned.

Germany’s machinery sector has been particularly hard hit. Russia is the fourth most important export market for German machinery and plant technology. Sales were worth some €7.8bn last year but are drying up.

At Herkules, a family-owned machine tool maker based in Siegen, western Germany, orders from Russia have fallen by half, due largely to the economic downturn that has seen the rouble slump and local bank finance become harder to obtain. The country normally accounts for 15-20 per cent of the group’s €165m annual turnover.

The German business sector had hoped Russia and the EU would quickly settle their differences over Ukraine, but as the conflict grinds on this is beginning to seem a pipe dream. “The sanctions will remain in place for a long time,” warns Anton Börner, president of the BGA, the German exporters association. “We won’t get rid of them . . . Rather they will get tougher.”

Although Russia accounts for less than 3 per cent of Germany’s total exports, some 6,200 German companies do business in Russia and the uncertainty threatens jobs, says Ulf Schneider, managing partner at Russia Consulting in Moscow.

“If you ask people whether they see the crisis over in a year or two, nobody can predict this,” he says. “I see the risk that companies will lose hope for better times and may part with some of their workers.”


Around 300,000 German jobs depend on trade with Russia. Vladimir Putin, the Russian president, was careful to remind the German television audience of this number in a recent interview with broadcaster ARD. “Sooner or later it will begin to affect you as much as us,” he said.

IKA, which supplies a granulate for plastic window frames, is dependent on Ukraine and Russia for two-thirds of its €35m in annual revenues. Because of the crisis, it expects Ukrainian revenues to fall by half this year and Russian sales to decline around 30 per cent.


Reinhard Beck, chief executive, says his Ukrainian customers are having difficulties converting local currency into euros to purchase imports, while the rouble’s decline makes IKA’s products very expensive for Russian customers.

“If the situation remains the same we will have to move from a three shift to two shift operation,” he says. “Our assumption is we’ll have to talk about redundancies in the new year. ”

Stefan Dastig, general manager at Maschinenbau Dahme, a family-run supplier of agricultural machinery components, says he could have to let about 10 per cent of his staff go as the Ukraine crisis hits demand for tractors and harvesters.

Meanwhile, carmaker Opel is cutting a quarter of the jobs at its St Petersburg plant in Russia and Volkswagen has halted production for several days at its Kaluga factory. VW’s Seat brand is pulling out of Russia altogether.

JenOptik, the eastern Germany-based maker of laser and optical systems, which has 3,500 staff, warned in its interim report earlier this month that export restrictions had hit sales at its metrology and defence divisions. In October the company lowered its full-year sales and profit targets.

As business with Germany becomes more difficult, German companies fear their Russian customers are turning elsewhere, in particular to China.

“The risk is that this is not a temporary effect,” says Mr Schneider. “Companies worry it will be very difficult to get business back later and rather it will be lost in the long term.”

For this reason, Mr Beck says, sanctions are counterproductive for Germany. “Russia and Germany had a good relationship,” he says. “The government’s policies are too much against Russia at the moment.”

But for some, wider political concerns trump business difficulties. “I support sanctions 100 per cent,” says Christoph Thoma, who heads Herkules.

“If Chamberlain had imposed some sort of sanctions on Hitler things would have been different. Both Hitler and Putin held Olympics, and after his Olympics Hitler went to war. If things go on like this our children might have to go to war.” more