Merkel meets Putin

The German and Russian leaders will meet again in St Petersburg on Friday, just a few days after the G8 summit in Northern Ireland. The Russian president is hosting an international economic forum there, and for Chancellor Merkel the visit will be an opportunity to discuss trade between Russia and Germany, which has been booming for years.

In 2012 the exchange of goods between the two countries was worth a record 80 billion euros, according to the Committee on Eastern European Economic Relations, an umbrella organization supported by the five big business associations in Germany.

But experts believe the mood may be turning. Until recently, German businesses were actively courted in Russia, but as political tensions grow between Berlin and Moscow they are starting to come up against opposition.

The Eastern Institute in the eastern German port town of Wismar, which specializes in doing business with Russia, hinted at problems during a conference in mid-June but did not give further details.

Politics affect business

Since Vladimir Putin took over as president last May, Berlin has been openly critical of domestic politics in Russia. Last autumn the Bundestag, the German parliament, even passed a motion expressing concern about new legislation in Russia which it believed endangered civil rights.

Russia reacted angrily, saying that Germany should not meddle in its affairs. German weekly news magazine Der Spiegel recently described the mood between Berlin and Moscow as "possibly the worst since the Cold War."

There is disagreement among German politicians as to whether they should openly criticize Russia. Merkel's Christian Democrat party believes that, as an important trading partner, Germany is in a position to express concern.

The opposition Social Democrats, on the other hand, are in favor of careful diplomacy and a new "Ostpolitik," an approach similar to that adopted by the Social Democrats in the 1970s towards Russia and the Eastern European, Communist states.

Alexander Rahr, program director at the German-Russian Forum, recently described it as a conflict "between an organized and influential civil society in Germany and the elite in Russia, which is more affiliated with the state."

Putin favors big companies

Most German investors in Russia are still faring well and, according to the Eastern Institute in Wismar, the much-cited lack of legal protection is largely a myth. Its members report that disputes dealing with business matters can be settled in court with "satisfactory and excellent" results, says Rahr.

Gerd Lenga from the Eastern and Central European Association agrees. "I'd really like to know about all these alleged cases of legal limbo," he said at a conference recently, adding that he thinks investing in Russia is now even easier.

But Putin's economic policy is worrying German experts, as the Russian president focuses on supporting big international companies. And Andreas Metz from the Committee on Eastern European Economic Relations points out that, unlike his predecessor Dmitri Medvedev, who supported small-and medium-sized businesses, Putin is much less interested in diversifying the Russian economy.