In a scene that left television viewers astonished, he then demanded that the owners, whom he likened to cockroaches, sign a pledge to get the factories working again. ‘Did everybody sign this agreement? Yes? Deripaska, have you signed? I can’t see your signature… Come here!’ The billionaire shuffled up and meekly signed the paper, only to hear Putin snarl at him: ‘Give me back my pen!’
It was as if Leonid Brezhnev had come back to haunt Russia – the Communist Party general secretary stepping in to whip the local bosses into order. But this was 2009, almost two decades after Russia was supposed to have espoused capitalism. Putin’s solution could only be a quick fix. In the longer term Russia had to find a way to make even the mono-cities respond to the market.
The city of Tolyatti on the Volga, 800 kilometres southeast of Moscow, is the country’s biggest mono-city – a conurbation of 700,000 people where every fourth adult works in the AvtoVAZ factory producing Lada cars. Shortly before the recession, in February 2008, the French manufacturer Renault bought a 25 per cent stake in AvtoVAZ for $1 billion. But like automobile makers around the world, the company suffered badly during the crisis. Renault failed to streamline production or reduce the bloated workforce. As many as 100,000 cars were unsold. Again, the prime minister’s instinct was to put workers’ welfare ahead of all else. The factory simply could not be allowed to faiclass="underline" in a city like Tolyatti, the collapse of the dominant industry would have catastrophic consequences for hundreds of thousands of people – and threaten the very stability of the state. On 30 March 2009 Putin visited the factory and praised its managers for not causing massive layoffs (in contrast to Pikalyovo) and promised 25 billion roubles ($830 million) of government aid in the form of loans, cash and guarantees. Sergei Guriev describes the bail-out of ‘this behemoth of inefficiency’ as one of the few mistakes of the crisis.
But Putin also engaged in some tough diplomacy to ensure the company’s longer-term survival. In October he issued a public ultimatum to Renault to help bail out the plant or see its 25 per cent stake in the company reduced. ‘Either they participate in the further financing of the company or we will have to negotiate with them about our relative stakes.’ Then, on 27 November, he made a dash to Paris and got what he wanted. Renault promised to provide new technology for the factory, in return for which the government put in an extra 50 billion roubles.
It was a good couple of days in Paris for Putin. As well as the Renault success, he also supervised the signing of a deal between Gazprom and the French energy giant EDF on the latter’s participation in the controversial South Stream project – the pipeline designed to bring Russian natural gas to Europe while bypassing ‘unreliable’ transit countries such as Ukraine and Belarus – while the other French energy major, GDF-Suez, held talks with Putin about taking a 9 per cent share in the other bypass pipeline, Nord Stream. Both pipelines were now making good progress: the German government and energy companies supported Nord Stream, while the Italian ENI was a partner in South Stream. The EU’s alternative, Nabucco, by contrast, was making slow progress.
Meanwhile, at a private dinner with the French prime minister, Putin discussed something even more sensational – the purchase of a French-built Mistral amphibious assault ship, the second-largest vessel in the French fleet, with room for helicopters, tanks, landing craft and 750 commandoes. The sale of two Mistrals was confirmed a year later, representing an unprecedented transfer of NATO naval technology – and causing considerable unease among Russia’s East European neighbours.
The prime minister seemed to relish his job as international salesman for Russia. But he suffered one notable failure – again involving the automobile industry. In the spring of 2009 he and the German chancellor, Angela Merkel, together supported a bid to rescue Opel, the German division of the bankrupt American manufacturer General Motors. The deal would see one of Russia’s state-controlled banks, Sberbank, club together with a Canadian firm, Magna, to buy a 55 per cent stake in Opel and save tens of thousands of jobs, mainly in Germany. Merkel and Putin met regularly to discuss and promote the deal. For Merkel, facing elections in September, it was politically vital, and for Putin it was another chance for Russia to get its hands on Western technology: Sberbank’s partner in the deal was the GAZ car factory, owned by Oleg Deripaska, which stood to gain access to Opel’s latest technologies and build cars that might finally shed the impression that Russians could only produce shoddy Ladas.
On 10 September GM agreed to the deal. Putin was jubilant. ‘I hope that this is one of the steps that will lead us to true integration into the European economy,’ he told members of the Valdai Club at his country residence. Over the next couple of months the chairman of Sberbank, German Gref, oversaw the final negotiations, flying back and forth to GM headquarters in Detroit. They produced a 5,000-page contract. ‘Then, one evening in early November,’ Gref recalls, ‘I happened to be in a meeting with Putin, and I was supposed to fly to Russelsheim that evening to sign the contract the next morning. I came out of the meeting and was given a message that GM had decided not to sell Opel!’ At first, Gref thought it must be a joke. ‘The whole deal was worked out. We’d done colossal work, getting agreement with all European governments!’
Eventually the president of GM, Frederick Henderson, called Gref to apologise and explain that it had been a decision of the board. Gref told him it might be better for them not to have a conversation right then, because he might use language he would regret: ‘It was a short call. I was so shocked, it took me ages to recover. We had worked day and night for half a year on this deal – with a huge team of people.’
Putin himself hit the roof. It was not just a huge blow to his hopes of reviving the Russian car industry, but also confirmation of American perfidiousness: ‘We will have to take into account this style of dealing with partners in the future, though this scornful approach toward partners mainly affects the Europeans, not us. GM did not warn anyone, did not speak to anyone… despite all the agreements reached and documents signed. Well, I think it is a good lesson.’
The need to reform
The financial crisis exposed the weakness of Russia’s semi-reformed economy. You could not rely solely on a hyperactive prime minister to rush around chivvying owners to sign pledges or foreigners to invest. The economy itself had to become more responsive, and more attractive to investors. Putin’s team of reformers understood this, and so did his president. Medvedev’s adviser, Arkady Dvorkovich, says: ‘We had to ask ourselves, why was the Russian economy hit harder than any other? And the main conclusion we came to was that the structure of the Russian economy just didn’t match up to modern demands and was open to far too big risks. Of course, that was obvious back in 2000 when we worked out the reforms under Putin. We achieved some things in those eight years, but the structure of the economy didn’t change.’4
Constantly rising oil prices had helped to raise living standards, but also induced complacency with regard to economic reform. ‘When oil prices fell again in 2008,’ says Dvorkovich, ‘we realised this was not enough – we had to change direction. Medvedev decided we just couldn’t stay on the old path.’