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Just how hard is Russia hitting Germany?

Wednesday, November 26, 2014 - 02:00

German Chancellor Angela Merkel has accused Russia of violating international law with its interventions in Ukraine. Her comments come as the impact on Europe of Russian sanctions continues to grow. Ciara Lee reports.

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It was a debate about next year's EU budget. But the German Chancellor Angela Merkel had another issue on her mind too. (SOUNDBITE) (German) GERMAN CHANCELLOR, ANGELA MERKEL, SAYING: "Russia is calling into question Europe's peaceful order and it is trampling on international law." In July the EU and the US imposed economic sanctions on the country's energy, banking and defence sectors. And that's hurting the euro zone powerhouse. The region has been relying on Germany to help drive the recovery. Christian Schulz from Berenberg Bank, says it still can. SOUNDBITE (English) SENIOR ECONOMIST AT BERENBERG BANK, CHRISTIAN SCHULZ, SAYING: "If you look at the composition of German growth in the third quarter, I think it highlights that Germany does not have two problems. One is consumption. Maybe it was boosted by the World Cup, but consumption continued to grow nicely in the third quarter as it has throughout this year. So consumption is growing backed by very high employment, by rising wages and very low inflation.". But a month after sanctions were imposed, EU exports to Russia fell 19 percent. That led to a loss of almost 2 billion euros. Machinery and transport equipment such as cars and tractors fell 23 percent, while manufactured goods dropped 16 percent. Germany was at the sharp end - it accounts for one-third of sales to Russia. James Bevan from CCLA Investment Management says the euro zone recovery is at risk. (SOUNDBITE) (English) CHIEF INVESTMENT OFFICE, CCLA INVESTMENT MANAGEMENT, SAYING: "It's a very interesting problem Germany faces. On the one hand, it desperately welcomes the weakness of the euro because of its export dependency. On the other hand it recognises the competitive advantages it has over the rest of the euro land mean that the structural problems of the peripheral five - that is, Portugal, Ireland, Spain, Greece and Italy - remain substantial." The first set of EU sanctions is due to expire in March. Keeping all the countries united over the restrictions when they're having such an impact could be a challenge.

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Just how hard is Russia hitting Germany?

Wednesday, November 26, 2014 - 02:00