Kohl backs Yeltsin in face of German economic fears

The German Chancellor, Dr Helmut Kohl, gave his backing yesterday to the decision by the Russian President, Mr Boris Yeltsin, to reinstate Mr Viktor Chernomyrdin as Prime Minister five months after sacking him. But the opposition Social Democrats (SPD) reacted more sceptically, accusing Dr Kohl of allowing his personal friendship with Mr Yeltsin to blind him to the Russian President's recklessness.

The chancellor's spokesman said that Dr Kohl saw Mr Chernomyrdin as someone the German government knows well and respects.

"He trusts that Chernomyrdin can, in the face of the drama and seriousness of the situation in Russia, push through the necessary decisions. He wishes him the necessary support, especially from the Duma," he said.

The price of German government bonds fell yesterday amid fears that the Russian crisis could leave the German taxpayer to pick up the bill for billions of pounds worth of unpaid debts.

As Russia's biggest investor and most important trading partner, Germany is especially vulnerable to the financial and political crisis in Moscow. Russia owes the Bonn government DM74.2 billion (£30 billion) and German banks are owed a further DM50.5 billion. Most German exporters to Russia are insured by Hermes, an insurance company partly owned by the state.

The economics minister, Mr Gunter Rexrodt, insisted yesterday that Germany would continue to invest in the long-term reconstruction of the Russian economy. But the chairman of the opposition Social Democrats, Mr Oskar Lafontaine, said Bonn should be more strict in its dealings with Moscow.

"Simply banking on the friendship of the current Russian President doesn't seem the appropriate response for Germany. To put it cautiously, the current Russian President is, at least, not acting very consistently," he said.

Mr Lafontaine hinted that his party will take a tougher approach to Russian requests for help, should it win Germany's election on September 27th.

"The German government, and this applies to us too if the German voters choose us, should not just provide credits but should also look at how the money is being used," he said.

Dr Kohl is currently trailing his Social Democrat rival, Mr Gerhard Schroder, in opinion polls. But foreign policy is the chancellor's strong suit and the Russian crisis could help him to persuade voters that Germany cannot afford a change of leadership at a time of international uncertainty. The SPD is reluctant to challenge the chancellor's achievements on the world stage but Mr Lafontaine yesterday blamed Dr Kohl for exposing Germany to financial risk in Russia.

According to Mr Jurgen Conrad, Russian analyst at the Deutsche Bank in Frankfurt, the devaluation of the rouble and the political uncertainty in Moscow do not represent an immediate threat to the German economy. But he warns that, in conjunction with the financial crisis in Asia, Moscow's troubles could spread westwards before too long.

"If the situation in Japan does not improve in the next few months and if the emerging markets continue to perform as they did in the last year, it is only a matter of time before the supposedly safe havens of Europe and North America are affected," he said.