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Business

German Industry Leaders Warn Against Isolating Russia

Some German industry leaders have said a harsh political response to Russia during the current crisis could hurt business ties. Europe -- and Germany in particular -- is Russia's most important trading partner.

The statue of a warrior with a shield is seen against a dark cloudy sky

Some fear that pushing Russia away will have serious financial consequences

Moscow's decision earlier this week to recognize the independence of Georgia's two breakaway provinces has raised concern among German industry groups that a political backlash could reverse recent progress made to the countries' economic ties.

In the first half of 2008, Germany's exports to Russia rose by 23 percent to 15.8 billion euros ($23.3 billion) and some 4,600 German companies have a presence in Russia.

"It is important for the politicians not to give Russia the cold shoulder," Klaus Mangold, chairman of the Committee on Eastern European Economic Relations at Germany's BDI industry association, told Reuters news agency.

"Everything must be done to stop the spiral of escalation," he said, adding that excluding Russia from the World Trade Organization or freezing partnership talks with the EU could have a negative effect.

Strong energy ties

E.ON electricity lines

E.ON said it had weathered other crises

Europe as a whole remains by far Russia's most important trading partner. In 2007, the EU imported 143.6 billion euros worth of goods from Russia -- more than half the entire value of Russian exports that year. At the same time, the bloc sold 89.1 billion euros worth of goods to Russia -- again more than half of the total amount imported into the country that year.

Russia is the EU's largest single supplier of energy, accounting for 28.4 percent of all its oil and gas imports in 2007, according to figures from the European Commission. In 2007, Russia sold a colossal 94.33 billion euros worth (currently $139.2 billion) of oil and gas to EU states -- two-thirds of all its exports to Europe that year.

That makes Russia the EU's third-largest source of foreign imports, behind only China and the United States.

In part due to business interests, German Chancellor Angela Merkel initially responded with caution when the conflict broke out earlier this month. She has since changed her tone, calling Russia's recognition of South Ossetia and Abkhazia on Tuesday "absolutely not acceptable."

Not the first crisis

But not everyone in Germany is worried that diplomatic tension will spill over into trade. Some leading firms that do business with Russia -- including energy group E.ON, chemicals group BASF and Lufthansa airlines -- have played down the impact of Caucasus crisis on commerce, reported Reuters.

"Russia has been a reliable source of gas for 35 years," said a spokeswoman for E.ON, pointing out that business ties had survived crises like oil price hikes and the fall of the Soviet Union.

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