Germany Inc fears cold shoulder from US

The atmosphere was deathly at a reception in Berlin last week to celebrate the 100th anniversary of the American Chamber of Commerce in Germany.

It should have been a birthday party for US-German trade relations but the political row between Berlin and Washington over Iraq made it feel more like a funeral.

German business leaders are worried that the political disagreements over the looming war will damage commercial ties between the two countries.

"Increasing numbers of German firms are already experiencing a hardening of relations and are worried about their economic interests," said Mr Anton Borner, president of German Exporters' Association (BGA). "I don't think anyone can recall a time when the relationship has been so difficult."

Germany exports $45 billion (€41.7 billion) of goods to the United States each year and imported more than $24 billion last year, making it the US's second-largest trading partner.

Europe's largest economy was the most exposed to the US slowdown last year and remains in the doldrums to this day, with 4.6 million unemployed and growth of less than 1 per cent expected this year.

Business leaders already worried that a war in Iraq could depress the delicate German economy now fear the political row could make a bad economic situation worse.

"If the mutual animosity increases further, we fear a drop in bilateral trade of around 10 per cent. That would reduce German economic growth to 0.3 per cent and would have a corresponding negative influence on the employment market," said Mr Borner.

That, in turn, would have a negative influence right across Europe if Germany's cold becomes the euro-zone's flu.

One concern is that US consumers will start to boycott high-profile German brands like BMW and Mercedes if Germany sticks to its anti-war position.

That would be a serious blow for the German car makers, whose poor domestic business has been kept afloat in recent years by demand in the US market.

But there could be more serious consequences if valuable contracts in the defence and engineering industry are called into question. After all, these are the areas where the whims of the US government can have huge influence.

The diplomatic chill between Washington and Berlin has already made itself felt in relations between the German Aerospace Centre (DLR) and NASA, the US space-exploration body.

Last year, NASA put on hold a collaboration with DLR on Project X38, developing a mini-space shuttle, at a cost to the German side of €40 million.

"NASA no longer deals with us for political reasons," said Mr Ralf Huber, head of the DLR, to the Berlin newspaper BZ. "They made it clear: because of your Chancellor, we are not in the position to keep talking."

Mr Huber believes the project has been stalled indefinitely because of Chancellor Schröder's "no war in Iraq" re-election campaign last year.

However, German officials deny there are any problems in trading relations between the two countries at the moment.

"I'm annoyed about the continuing rumour that the Iraq debate has had a negative influence on German trade," said Mr Wolfgang Ischinger, the German Ambassador to the US, at the reception in Berlin last week.

But even the ambassador would have noticed the businessmen who walked out during his speech. Those who stayed until the end only managed a half-hearted round of applause.

It would be difficult, if not impossible, to conclusively prove that US-German trade had suffered as a result of the political disagreement over Iraq. But German business leaders are certain that Berlin has poisoned the business mood. As Mr Borner of the BGA puts it: "With the German government's current position [towards the US\], there is nothing to gain and everything to lose."