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German Investors Return to Russia

Walter Russell Mead

Reports of Russian isolation have been greatly exaggerated. The Wall Street Journal reports that German companies are leading a quiet resurgence of foreign investment into Russia:

In the past two years, plunging oil prices and U.S. and European Union sanctions on Russia for its intervention in Ukraine sent foreign investors fleeing. Now, Western firms are placing new bets that Russia, which has been battered by economic turmoil, is on the verge of an upswing.

German companies are leading the way, as they have in the past. Businesses ranging from blue chips such as Daimler AG and Henkel AG to lesser-known niche players are embarking on new investments.

“There are rock-solid economic reasons why companies invest there now,” said Oliver Hermes, chief executive of German family-owned pump maker Wilo SE, which built a €35 million ($37.6 million) plant in Moscow that opened this year.

Direct investment by German companies in Russia rose to €2.05 billion in the first nine months of the year. That surpasses the amount for all of 2015 and contrasts with a net outflow in 2014, according to statistics from Germany’s central bank.

Russia has a long history of disappointing foreign investors, but even Lenin went through a period of welcoming foreign investment. Moscow’s considerable foreign policy successes during the Obama years give it greater clout in Europe, and it’s easy to see why German business is beginning to look east once again.

But this is only part of the story. Europe’s real problem isn’t that business is looking east, but that business is looking out. The troubles of the eurozone, the continuing paralysis of European decision making, the inexorable growth of regulation, high energy costs, and demographic uncertainty lead many European businesses to go abroad. Russia, Asia and the United States are all hoping to benefit as capital leaves Europe for more hospitable climes. That Putin’s Russia looks increasingly attractive to German business tells us much more about Germany and the EU than it does about Russia—and what it tells us isn’t good.

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