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How Europe's titans of industry became Putin's puppets

Vladimir Putin
Vladimir Putin

As the Italian government and its allies warned Vladimir Putin against invading Ukraine, the captains of Italy Inc sat down for a cosy meeting with the Russian president.

The controversial summit on Wednesday, aimed at expanding corporate ties between Rome and Moscow, may have seemed incongruous.

But experts say it highlights Putin’s brazen effort to undermine western unity by entangling European firms - and therefore their governments - with Russian business interests they are desperate not to lose.

Putin’s charm offensive has lured some of the Continent’s biggest corporate titans on his side, as well as top politicians including former leaders of Germany and France.

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Amid a full-blown diplomatic crisis over Ukraine, it is paying dividends. European capitals are split over how hard they should hit the Kremlin with economic sanctions if Putin attacks.

John Lough, an associate fellow at Chatham House, says Europe’s dependence on Russian natural gas is the most obvious weakness that has been “skillfully exploited”.

“They've courted European energy companies over many years and some of these companies, which are keen to sustain a strong relationship, potentially have a great deal to lose if sanctions are imposed,” he says, pointing to firms in Italy and Germany as the most prominent examples. “Those extensive business linkages then play into the political space.”

So vital is Russian gas to Germany - which relies on it for half of its supplies - that the country is said to have sought an energy carve-out for any potential sanctions.

Gas is by no means the only pressure point Putin has available. Several major European powers are also reluctant to give up exports to Russia worth tens of billions of dollars per year.

After China, Moscow’s biggest trading partner is Germany. It bought $30bn of goods from Berlin in 2019, according to the Observatory of Economic Complexity, covering everything from cars and medical products to clothing and chemicals.

It also imported $8.79bn worth of goods from Italy and $6.52bn worth from France. Their national industrial champions have set up shop in Russia, with Italian tyre maker Pirelli and German car giant Volkswagen among those with factories. France’s Société Générale, meanwhile, owns Russian lender Rosbank.

Such ties mean there is little enthusiasm in some quarters of Berlin, Rome and Paris for sanctions that could prove just as crippling to domestic businesses, such as locking Russia out of the international financial system (SWIFT) or preventing the opening of the Nord Stream 2 gas pipeline.

Dr Mira Milosevich, a senior research fellow at the Elcano Royal Institute in Madrid, says: “For some European countries, the suggestion of expelling Russia from SWIFT is simply impossible because all of their commercial transactions are happening through that.

“These kinds of sanctions really can affect a lot of private companies and governments are aware that the domestic impact could be very difficult to deal with.”

Even if attitudes harden, she says, the Kremlin can rely on a list of powerful allies to plead its case in the European corridors of power. Many former politicians in the bloc enjoy close links with Russian business.

Friends in high places

Vladimir Putin and Gerhard Schröder share a joke in St Petersburg in 2003 - PA Photo: Stefan Rousseau
Vladimir Putin and Gerhard Schröder share a joke in St Petersburg in 2003 - PA Photo: Stefan Rousseau

Gerhard Schröder, the former German Chancellor who preceded Angela Merkel, has been chairman of Russian energy giant Rosneft since 2017, earning $600,000 a year.

Known as one of Europe’s most prominent Russophiles, he was also recruited by Gazprom to be chairman of Nord Stream 2’s shareholder committee.

Schröder enjoys a peculiar “bromance” with Putin, German media has reported, spending Christmas in Moscow with him one year. The Russian leader also paid Schröder a home visit to celebrate his 60th birthday.

The former politician is one of several notable Russlandverstehers - “Russia understanders” - of the ruling Social Democratic Party (SDP), alongside former chairman Matthias Platzeck, who was previously state premier of Brandenburg and now serves as chairman of the influential German-Russian Forum.

The SDP governs the coalition having won the most seats in last year’s German election. It is the party of Chancellor Olaf Scholz, who succeeded Merkel and has been criticised for his lack of vocal support for Ukraine.

Meanwhile Francois Fillon, former French prime minister under president Nicolas Sarkozy, joined the board of Russian state oil firm Zarubezhneft last year. And Karin Kneissl, the former Austrian foreign minister who danced with Putin at her 2018 wedding, also sits on the board of Rosneft.

Some influential business figures support stronger ties with Moscow. The board of the Committee on Eastern European Economic Relations, a German lobbying group that advocates trade with Russia, is packed with executives from chemical giant BASF, industrial manufacturer Siemens, Deutsche Bank and energy firm Uniper.

Cold War legacy

Didi Kirsten Tatlow, a senior fellow at the German Council on Foreign Relations, believes the level of sympathy for Russia is partly a legacy of the Cold War when doing business with communist East Germany was seen as a way of gradually opening it up to democracy.

She argues a change in German policy may only happen in the face of outside pressure from allies such as the US.

Putin’s meeting on Wednesday, hosted by the Italian-Russian Chamber of Commerce came despite pleas by prime minister Mario Draghi for it to be cancelled. Attendees reportedly included bosses from Pirelli, banking group UniCredit and insurer Generali.

“We are interested in foreign, including Italian, businesspeople feeling as comfortable as possible in the Russian market,” Putin said, according to a Kremlin readout.

The chamber’s president is Vincenzo Trani, founder of Russia-focused investment firm Mikro Kapital and Russian car-sharing provider Delimobil - and one of the biggest cheerleaders of trade between the two countries.

Putin also counts powerful Italian politicians as friends, including former prime minister and media tycoon Silvio Berlusconi. In 2015 Putin reportedly considered offering Berlusconi Russian citizenship and a job as the country’s economy minister.

As he continues to mass troops on Ukraine’s borders, Russia’s leader will now be hoping his country’s plethora of business ties with Europe will make political leaders think twice about imposing harsh economic sanctions.

At the same time, his critics will be wondering how they became so inextricably tangled in the first place.