Germany threatens retaliation if U.S. sanctions harm its firms

[June 17, 2017]  By Gernot Heller and Alissa de Carbonnel

BERLIN/BRUSSELS (Reuters) - Germany threatened on Friday to retaliate against the United States if new sanctions on Russia being proposed by the U.S. Senate end up penalizing German firms.

The Senate bill, approved on Thursday by a margin of 98-2, includes new sanctions against Russia and Iran. Crucially, it foresees punitive measures against entities that provide material support to Russia in building energy export pipelines.

Berlin fears that could pave the way for fines against German and European firms involved in Nord Stream 2, a project to build a pipeline carrying Russian gas across the Baltic.

Among the European companies involved in the project are German oil and gas group Wintershall, German energy trading firm Uniper, Royal Dutch Shell, Austria’s OMV and France’s Engie.

German Chancellor Angela Merkel's spokesman described the Senate bill, which must be approved by the House of Representatives and signed by President Donald Trump before it becomes law, as "a peculiar move".

He said it was "strange" that sanctions intended to punish Russia for alleged interference in the U.S. elections could also trigger penalties against European companies.

"That must not happen," said the spokesman, Steffen Seibert.

In an interview with Reuters, German Economy Minister Brigitte Zypries said Berlin would have to think about counter-measures if Trump backed the plan.

"If he does, we'll have to consider what we are going to do against it," Zypries said.

The sharp response from Berlin comes at a time of deep strains in the transatlantic relationship due to shifts in U.S. policy and a more confrontational rhetoric towards Europe under Trump.

The new U.S. president has lambasted European partners for not contributing more to NATO, slammed Germany for running a large trade surplus with the United States and broken with allies on climate change with his decision to exit the landmark Paris agreement on combating greenhouse gas emissions.

Ironically, the part of the Senate bill that targets Russia was introduced by some of the president's top critics, including Republican hawk John McCain.

They are intent on limiting Trump's ability to forge warmer ties with Russia, a key foreign policy pledge during his campaign for the presidency, but one he has been unable to deliver on amid investigations into alleged Russian meddling in the U.S. election.

DIALOGUE BREAKS DOWN

Under Trump's predecessor Barack Obama, Washington and Europe coordinated closely as they ramped up sanctions against Moscow for its 2014 annexation of Ukraine's Crimea region.

German Chancellor Angela Merkel visits the new Takeda pharma factory in Oranienburg, Germany, June 16, 2017. REUTERS/Hannibal Hanschke

But the dialogue has broken down under Trump, who considered easing sanctions against Russia when he first came into office, according to U.S. officials.

"I regret that the joint approach of Europe and the United States on Russia and sanctions has been undermined and abandoned in this way," Zypries told Reuters.

France and the European Commission also urged the United States to coordinate with its partners on such matters.

"For several years, we have underlined to the United States the difficulties that extraterritorial legislation spark," a French foreign ministry spokesman told reporters.

The Nord Stream 2 pipeline, due to start pumping gas from Russia to Europe from 2019, has been dogged by controversy.

Eastern European and Baltic states fear it will make them hostage to Russian gas and undercut Ukraine by depriving it of transit fees for Russian gas supplies to Europe.

Nordic nations, meanwhile, have security concerns over the pipeline running through territorial waters, where Russia has bolstered its military presence in recent months.

Some EU diplomats fear the threat of new measures out of Washington may harden Germany's defense of Nord Stream and complicate already difficult talks among EU nations over whether to seek joint talks with Russia over the pipeline.

"This is not helpful now. It tends to stir up desires to protect our territorial space," one EU diplomat said.

The House of Representatives is expected to debate the Senate bill in the coming weeks but it is unclear whether it will come up for a final vote before lawmakers leave Washington at the end of July for their summer recess.

(Additional reporting by Michael Nienaber; Writing by Noah Barkin; Editing by Andrew Roche)

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