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Germany's Merkel pays Putin a prickly visit

Despite the strong economic ties between Germany and Russia, the country's relations have been strained as of late over the Kremlin's recent apparent political crackdowns.

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"I think we need to speak openly and honestly about these issues. This dialogue is a precondition for understanding each other and identifying the conflicts," Merkel added.

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But during a public exchange about Pussy Riot, Mr. Putin suggested that Merkel doesn't know all the facts of the case, including what he alleged was one of the Pussy Riot women's involvement in a 2008 "performance art" display which he claimed had anti-Semitic overtones.

"As for political and ideological issues, we hear our partners. But they hear about what's happening from very far away," Putin said.

For example, "Does [Merkel] know that ... one of [the Pussy Riot activists] hung an effigy of a Jew and said that these people need to be got rid of? You and I cannot support people who take an anti-Semitic stance. And I ask you to also take that into account," he added.

'The business community is very happy'

Germany is Russia's largest trading partner after China, with trade turnover of $87 billion last year. German gas companies are part owner, along with Russia's natural gas monopoly Gazprom, of the Nordstream pipeline under the Baltic Sea that opened a year ago to bring Russian gas directly to European markets. Germany depends on Russia for about 30 percent of its oil supplies, and 40 percent of its natural gas.

Just this week Gazprom and the German chemical giant BASF signed an asset swap deal that will give Gazprom a major foothold in gas trading and storage operations in Germany, while the German company will receive a 25 percent stake in the key western Siberian Achimov gas field.

"In economic relations, investments are growing, trade turnover is increasing, and the business community is very happy," says Fyodor Lukyanov, editor of Russia in Global Affairs, a leading Moscow foreign policy journal. "The economic foundations of the relationship are solid, and very much based on the interests of German big business. And this is not new, these ties between our countries go back to the 1970s."

But Russia has been angered by an EU investigation into Gazprom's alleged "anti-market" practices, and under increasing pressure the company has been forced to lower the prices it charges several European countries for its gas.

"The energy market in Europe is changing, and that could become a core issue between Germany and Russia in future," says Mr. Lukyanov. "It remains to be seen whether Gazprom can find ways to compromise."

But growing political tensions, which have spiked since Putin assumed a third term as Kremlin leader last May, have isolated Russia in European political forums, such as the Council of Europe, and are increasingly clouding bilateral relations with countries like Germany.

"There is a decoupling of economic relations from political ones taking place," says Lukyanov.

"Russia and Germany have a lot to lose if bad politics bring disengagement. The economic base of the relationship is too big and too important, and everybody would suffer."

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