German business lobby backs Russian sanctions

Germany's powerful business lobby has dropped its opposition to tougher sanctions against Russia ahead of today's crunch EU ambassador meeting in Brussels.

Throughout the Ukraine crisis calls for sanctions against Russia have been challenged by German business leaders. German trade with Russia comprises about one-third of the EU total with sales of €36 billion last year. Further sanctions against Russia would, business leaders warned, undermine an export sector already down 15 per cent this year and put 25,000 German job at risk.

Political support in opposing sanctions came from within Chancellor Angela Merkel’s junior coalition partner, the Social Democratic Party (SPD). Leading party figures were reticent about sanctions and demanded further diplomatic efforts, in line with the party’s long-standing “change- through-trade” policy.

But the MH17 Malaysian airlines crash in eastern Ukraine, however, has prompted the Federation of German Industry (BDI) lobby to revise its position. Yesterday it admitted that sanctions “cannot and must not be ruled out as a means of applying pressure on the Russian government”.

BDI chief Ulrich Grillo said sanctions could would come at a "painful" cost to European business, and to German exporters, but that the game had changed with Russia.

"The BDI and I personally have become convinced that the behaviour of the Russian government in the Ukrainian conflict of secession must have noticeable consequences for Moscow, " wrote Mr Grillo in the Handelsblatt business daily.

His change of heart is reflected, also, in the ruling SPD where leader Sigmar Gabriel, federal economic minister, acknowledged the need for sanctions, even if they came at a price. Europe would pay a higher price, he said, "if it looked on without acting" for fear of the economic cost.

Though Chancellor Merkel, leader of the centre-right Christian Democratic Union (CDU), has been more cautious on sanctions than some other EU leaders she has made clear to German managers that, if it came to the crunch, political and diplomatic interests had priority over commercial concerns.

Finance minister Wolfgang Schäuble reiterated that position at the weekend, saying economic interests are secondary to the main priority of securing stability and peace in Ukraine.

“If the German finance or economics minister said, ‘careful, sanctions damage our economic interests’ then the chancellor has the wrong minister,” he said. “A disturbance to peace and stability would . . . be the greatest danger for economic development.”

The more robust tone emerging from Berlin was echoed in yesterday’s government press conference, where spokeswoman Christiane Wirtz said the crash of MH17 meant a “completely new situation [had] come about about which makes further measures necessary”.

“The Kremlin continues to have little interest in clearing things up and is not using its influence on the [Ukrainian] separatists,” she added.

Berlin hopes today’s talks will agree a “strong signal” for Moscow, such as sector-specific sanctions that would close EU markets to Russian banks and a ban on arms sales and energy technology to Russia.