OREANDA-NEWS. January 28, 2013.  Mathias Bruggmann (via interpreter): Prime Minister, it is a great honour for us that you have agreed to give an interview to our newspaper, Handelsblatt. We are an economic publication and we cannot wait to hear what you will tell us.

Dmitry Medvedev: I am glad to meet you and I am glad of the opportunity to give an interview to Handelsblatt, so I am at your disposal.

Mathias Bruggmann: This year Russia is holding the G20 rotating presidency and next year it will assume the presidency of the G8. What are the plans for your presidency, what do you want to achieve?

Dmitry Medvedev: We have ambitious plans. We will regard our mission of presiding over the G20 with the utmost responsibility and seek to advance the global agenda as much as we can during our presidency. We have identified eight priorities around which work this year should be built and which will eventually form part of the so-called St Petersburg Plan.

What are the key elements? The main concern today for the whole world is the problem of economic growth and ways of speeding up growth, on the one hand, and the problem of reducing unemployment, on the other.

This is indeed the global agenda today… Speaking about Russia, our rate of growth last year was 3.5%, which is not much, in our opinion, but on the whole not too bad. If you look at growth rates in Europe or Germany, I do not have to tell you that there are problems there, especially in some countries in the eurozone, the European Union. So growth remains the key economic indicator that generates hopes that the global economy will emerge from its state of stagnation and crisis.

Unemployment of course is also a major problem. It has to be admitted that, sadly, levels of unemployment are very high in many countries, so taking measures to create new jobs and provide employment remains an international priority.

In Russia unemployment, fortunately, is not that high, we have managed to keep it down although the situation was a major cause for concern in 2008-2009. Today our unemployment rate is about 5%, but we know of a number of countries, including those within the European Union, where unemployment is at a critical level.

In general, creating a healthier financial system is still on the G20 agenda. We will have to revisit the issues of budget consolidation, compliance with the obligations the G20 countries assumed earlier, the situation with the banks, the implementation of the Basel III package and a number of other issues on which we are cooperating directly.

Mathias Bruggmann: What are you proposing in order to restore the health of the financial sector?

Dmitry Medvedev: The whole point of our proposals – and they do not contain anything very new – is that we have to comply with the obligations that we have assumed. That’s all really. 

Mathias Bruggmann: And what about new measures?

Dmitry Medvedev: Measures of course, more specific measures, will be offered and taken, but I will speak about that later. The main thing is for us to adhere to the obligations that we have assumed, primarily with regard to the budget deficit. This is one of the main problems. The majority of states have assumed obligations but not all of them are managing to comply with them.

Mathias Bruggmann: How do you assess the actions of the eurozone from that point of view?

Dmitry Medvedev: With cautious satisfaction. Of course, we were very worried about the fact that the discussions on this topic took so long. But the recent ideas about a so-called real economic partnership and the commitments the countries have been assuming… So, by and large, we have been following these discussions closely. We believe that you have managed to rise above a narrow national approach. I am aware how difficult it was for Germany, of the discussions that were going on in your parliament, especially considering that Germany is a key player in the European Union and a key member of the eurozone. Since you raised this subject I would like to make it clear that of course we have supported and will support the eurozone.

Mathias Bruggmann: Do you trust the eurozone enough for Russia to be willing to buy the bonds of various European countries?

Dmitry Medvedev: No, we are not going to buy any bonds for now. We have a different mission: 42% of our reserves are in euros and we have an option to get rid of them and exchange them for securities denominated in some other currency. Our total reserves are in excess of 500 billion dollars, that’s a considerable sum, so this is already about sharing risks.

Mathias Bruggmann: How do you assess the eurozone's plans to protect Cyprus: would depositors at banks there, including Russians, lose money as a result?

Dmitry Medvedev: It would be best if nobody were to lose anything. What Cyprus needs above all is for the European Union to finally formulate its requirements to the Cypriots and for them to say on how they will go about invigorating their economy. Incidentally, Cyprus has a substantial margin of strength, unlike some other countries that are in trouble, for example, Greece.

Mathias Bruggmann: But that means discrimination against Russian depositors because nothing like this happened in Spain or in Ireland or in Greece. Now this plan (and it is being promoted above all by Chancellor Angela Merkel) envisages that depositors would pay for this.

Dmitry Medvedev: I don’t know to what extent it would be discriminatory. Of course, it would be bad if depositors lost out. Especially since we are constantly being asked to help Cyprus. We have set up the following position for ourselves, and I have made it known to our partners and we want to let it be known to the Cypriots. The position is simple: we will follow the process of recovery of the Cyprus economy, we believe that the main responsibility for resolving these issues rests on Cyprus itself, on the European Union states, but we will not refuse to help out in certain circumstances, that is, once all the main agreements have been achieved, but not before that time. Just to remind you, we lent Cyprus 2.5 billion dollars in 2011.

Mathias Bruggmann: The banking sector in Europe is not in very good shape: we have mentioned Cyprus, but the situation in Spain is also difficult. At the same time we see that in America banks are making quite a lot of money, for example, JP Morgan has earned 20 billion dollars and Citigroup more than 10 billion euros. Aren’t we seeing an accumulation of new risks in this area?

Dmitry Medvedev: You have to understand the real state of the American economy. There are some questions there. On the one hand, the American economy seems to look better than those of the European Union, but on the other hand, the United States has a colossal budget deficit which is continuing to grow.

Questions arise about the way the decision-making system inside the United States functions, the gridlock that we see again in Congress between the Republicans and the Democrats, and unemployment… These are at least three points that give us concern, so Obama is facing a big challenge. But it seems to me that it is important that at any time one or other reserve currency should perform the functions, if you like, of the main reserve currency. Although the euro is in a sorry state now, I think the euro was very helpful for the world economy and world finances in 2008-2009. At the time the dollar was down, and there was even talk of the collapse of the dollar system, and then the euro played a stabilising role. That is why we believe that the global economy based on several reserve currencies is better than a global economy based on one reserve currency, and so we believe that the euro must be preserved. It would be still better if there were more such currencies. I think the yuan potentially can claim such a role.

Mathias Bruggmann (in Russian): And the rouble?

Dmitry Medvedev: The rouble too.

Mathias Bruggmann: So, do you see a positive future for the eurozone in spite of all the existing problems, and a positive future for the euro as a world currency?

Dmitry Medvedev: You know, I think the idea of the euro is positive and I hope that its future is positive. Of course, there is an inherent problem which is that a strong currency serves different economies, including weak ones. It has never happened in world history before. Either these economies have to become stronger or these economies will have to give up the euro, that is obvious.

Mathias Bruggmann (in Russian): So, from your perspective, the euro crisis is not over?

Dmitry Medvedev: Of course, it is not yet over, but I see glimmers of hope. I believe that the responsible position of the leading states, including Germany, has made a contribution.

And going back to the first question about our preferences and the agenda for our presidency… I think it is high time to put an end to the pointless discussion about what is more important for the world economy – economic growth or budget consolidation. Both are essential.

Mathias Bruggmann: You mentioned the United States. Many people hoped after the election of President Putin and before Obama’s re-election, that relations would improve. But now we see, if not a new Cold War, then a worsening of relations. Why is that?

Dmitry Medvedev: It is not our fault. The Americans are to blame.

Mathias Bruggmann: But you approved… for example, there was the ban on the adoption of Russian children…

Dmitry Medvedev: No, children do not come into it. Let's face it: I warned Barack Obama that the passing of the Magnitsky Act, even if it is accompanied by the repeal of the Jackson-Vanik amendment, would have an extremely negative impact on our relations. Consider what happened. Every country has the right to allow or not to allow any individual to enter its territory, without giving the reasons. This is normal. This is what we do, this is what the Americans do and this is what Germany does. Every country has the right to conduct investigations with regard to its citizens or foreigners. But this is a different case: a certain list has been compiled and practically made public, in which people against whom no charges have been brought and no other decisions have been made are declared to be criminals only because the United States Congress thinks so. That is an unpleasant story, we had to respond to this and adopt our own list, pass a decision concerning the people who, in our opinion, had violated the rights and legitimate interests of Russian citizens or other citizens. That, of course, generated some unpleasant emotions, but nothing fatal has happened, we are continuing to cooperate in all the areas in which we cooperated before. Speaking about cooperation on international affairs, I believe things are not at all bad in general, take the G20… I believe that our economic cooperation with the Americans leaves something to be desired. Let us compare our cooperation with Germany and America. With Germany, we have full economic partnership, and with America we have a limited amount of trade and not a very large number of projects in spite of the fact that America is the biggest economic power. 

Mathias Bruggmann (in Russian): Things may get even more difficult because they are beginning to export shale gas to the European market.

Dmitry Medvedev: That’s another problem. Let the Americans work on shale gas. The outcome of all this is still uncertain because there are the problems of the price of gas, although it is undoubtedly a promising area, and the environmental problems…

Mathias Bruggmann (in Russian): Are you afraid that the price of Russian gas in Europe will fall?

Dmitry Medvedev: We are not afraid of anything because if we counted only on gas there would have been no point in doing anything. We need to stop being dependent on hydrocarbons, on the prices of gas and oil. Our task is to diversify our economy.

Mathias Bruggmann (in Russian): But how? Russia has been talking about that for 10 years…

Dmitry Medvedev: Russia is not only talking the talk, it's walking the walk. Less than 50% of our revenues come from raw materials. So there is something else, namely, the domestic market that is giving a serious impetus to development. It used to be small, but now people’s purchasing power has increased, and that can be a driver of growth. We have a growing agriculture sector, which may emerge as a dominant sector. We are working to develop hi-tech sectors – granted, it is not proceeding very rapidly, but on the whole our education level is pretty high. So I believe that we are quite capable of overcoming that dependence. But this cannot be accomplished within two years, or three years, or even five years. The Soviet Union had become addicted to oil, it is not us who created an oil-based economy, it was the Soviet Union. 

Mathias Bruggmann (in Russian): You spoke about a new wave of privatisation. When can it be expected to happen? And how will it take place?

Dmitry Medvedev: Privatisation is already underway. We have a privatisation plan for 2011-2013. Last year we sold, for the first time, sizable blocks of shares, including…

Mathias Bruggmann: Sberbank.

Dmitry Medvedev: Yes, Sberbank, we managed to sell a stake on the London Stock Exchange and on the Moscow Stock Exchange to the tune of more than 5 billion dollars. We have still more ambitious plans for this year: we are going to sell blocks of shares…

Mathias Bruggmann: Which ones?

Dmitry Medvedev: …Sovkomflot, which is our major ship owner. VTB is the second largest bank in our country, and there are some other smaller assets. In general, if things go well, if there are no dramatic slumps in the stock market, I believe that we will raise a considerable amount of money. But, as I have said on more than one occasion, this is not only about money. We want our partners to see that our goal is not state capitalism or a state-run economy, notwithstanding all the transactions such as TNK-BP and so on.

Mathias Bruggmann: We see that the commodities sector in your country is growing…

Dmitry Medvedev: Nothing is growing there. The problem…

Mathias Bruggmann: Rosneft is set to become the biggest…

Dmitry Medvedev: That’s for sure. But it was not us who started the quarrel. What can we do if two very angry and very big teams (I mean BP and TNK) have fallen out with each other? If they could not sit side by side, if they were constantly at loggerheads, naturally they had to decide to sell either one block of shares or both. The crux of the matter, and I have always been very candid about it, is this: of course, one might have waved aside the whole thing and said: “Let them sell to whoever they like.” But who will pay 50 billion dollars for this today? I know who and you know, but it is not necessarily the right decision for Russia today, which is why the decision was made to buy out that stake. But simultaneously with buying the stake we stepped up work on privatising Rosneft.

Mathias Bruggmann: But if you wanted to get Western investment you had the chance. Not necessarily Western, but foreign investment, shall we say.

Dmitry Medvedev: You've put your finger on it. These are different things.

Mathias Bruggmann: And China is your friend…

Dmitry Medvedev: China is of course our friend, everyone is our friend. But we should be careful about investments in a strategic sector, after all, it is a very big company. It is a very large company and we had to make our decision taking into account all the factors, but to be quite frank and open about it, it took quite an effort to find somebody capable of splashing out 50 billion dollars today. This is a vast sum considering the plight of the world economy, which is why such a decision was made. It was a forced measure. We did not invent it, it was invented (and I am repeating it for the umpteenth time) by TNK, it was invented by BP when they signed this stupid agreement, let us be frank about it, in which their shares were divided on a 50:50 basis. Eventually they quarreled. Rosneft is a major state-owned oil company. It has its free float, it is in a position to develop its business and at the same time the state has an opportunity to sell stakes in this company and part of the stake…

Mathias Bruggmann: Will it be done some day?

Dmitry Medvedev: It will be done when the market situation improves. But let me remind you that part of the stake should be transferred to BP and if that is not privatisation, what is?

Mathias Bruggmann: A new citizen has come to you, Mr Depardieu.

Dmitry Medvedev: He did not exactly come to me.

Mathias Bruggmann: Do you expect more rich Europeans to seek Russian citizenship?

Dmitry Medvedev: You know, Depardieu is a nice guy, but he is an emotional person, he is an actor. He made that decision and naturally we granted his request, the Russian President granted him Russian citizenship. I think it is rather a one-off case. But speaking about highly skilled specialists who are seeking Russian citizenship, I believe it would be good for us in general. The Americans do it and other countries do it. If somebody feels inspired by our economic situation, I see nothing wrong with that. We do retain a flat income tax rate, though we do not believe this will be forever. However, a little over 10 years ago it was very important for us to stop wages being paid under the table and to make them legal. We have succeeded in that, everybody now pays taxes, especially since the tax rate is low at 13%. Both billionaires and ordinary people pay this tax. At some point of course the question of progressive taxation may arise, but I believe that that is not a question for today because we may end up losing more than we gain. In other words, our tax system in general remains quite attractive and we would like to preserve that advantage in the future.

Mathias Bruggmann: Speaking about income tax in Russia and in other countries, we see a growing gap in taxes between the rich and the poor. Mr Schwab (Klaus Schwab, the founder and president of the World Economic Forum in Davos) already spoke about this during the forum. What are you planning to do to bridge that gap?

Dmitry Medvedev: It is a trade-off. I have just said that at a certain point it was more important for us to come out of the grey area. Yes, we understand that objectively speaking the super-rich must share their wealth with the less well-off, and with the budget. But it was more important for us that they should legalise their incomes. We have succeeded and at this point in time there is no pressing need to introduce progressive taxation. However, sooner or later that question will certainly arise. As for taxing super-incomes, the idea of introducing a luxury tax is being mooted. That may remove some social imbalances. But in general this is a problem in all countries, even in countries where there is a progressive taxation system or a tax on the super-rich, like in France. Nevertheless the gap in incomes between the top decile and the bottom decile has increased 30-fold in the last 20 years, I think. 

Mathias Bruggmann: 70% of the speakers at the forum said that Russia needs to improve its corporate governance… This leads me to my question: what is the relationship between the Government and the President? If the press is anything to go by, decisions are still taken only by Putin…

Dmitry Medvedev: You work for a newspaper yourself…

Mathias Bruggmann: I stopped writing about these matters a long time ago.

Dmitry Medvedev: Can you believe everything you read in the newspapers? Probably not, as indeed, you cannot believe everything that is written. Leaving aside conspiracy studies, the situation is very simple. I have worked as President and I know that it is impossible for the President to take all the decisions. Let me cite the following example. Every day I sign about 50 documents, with billions at stake for each document: these are direct action documents issued by the Government. The President does not sign such documents: the President signs laws. Do you think that I make calls or seek consultations before signing these documents? I sign them and I am directly responsible for them. Some of them are challenged in court. So, all this is very specious and very odd talk. But under the Constitution, of course, the President makes all the key decisions on strategy, on foreign policy, on war and peace. This is normal and nobody has abolished the Constitution. The Government has a huge number of problems of its own.

Mathias Bruggmann: Well, do you agree with him on guidelines?

Dmitry Medvedev: We have a normal, steady, comradely working relationship. When necessary we talk with each other on the phone. When necessary we meet face to face. But very often our agendas do not even overlap because the President has very many functions that he alone performs. These include foreign policy, the functions of Supreme Commander-in-Chief, the Army, police and security. The President deals with all this single-handed.

Mathias Bruggmann: Is fighting corruption his business or yours?

Dmitry Medvedev: Fighting corruption is our common cause because there is law enforcement and there are economic means of fighting corruption. Speaking about the police, this is of course more in the President’s brief because he supervises the activities of the Interior Ministry, though the Ministry is in general is part of the Government. But there are a number of measures that are economic in nature. We are currently discussing in the State Duma the law on the state contract system, which is partly aimed at minimising corruption risks. It is a strictly economic issue but at the same time it is connected…

Mathias Bruggmann: You mean tenders, don’t you?

Dmitry Medvedev: … yes, with counteracting corruption, with our wish to make all this more transparent and get rid of schemes that enable people to make money illegally. So this is a joint area of activity. The President has his own powers in this sphere and the Government has its own powers, but this is the only way if we are to achieve results.

Mathias Bruggmann: What job did you like more: Prime Minister or President?

Dmitry Medvedev: You know, I like any work. I can tell you that I liked working as the Chief of the President’s Executive Office, I liked being First Deputy Prime Minister because every job has its specifics which are very interesting. I can put it this way: of course, the President is the chief executive and he is ultimately responsible for everything that happens. In that sense the President’s job is the most difficult job in the country and I of all people know this from my own experience. Perhaps only three people in this country are really in a position to make a judgement about it: they are Vladimir Putin, yours truly and to some extent Mikhail Gorbachev, if he still remembers how he was President and what a “nuclear suitcase” is.

Mathias Bruggmann (in Russian): Will you be President again after Putin?

Dmitry Medvedev: Who told you that?

Mathias Bruggmann: I am just asking you.

Dmitry Medvedev: The question of who will be President is decided by the sole subject of democracy, the Russian people.

Mathias Bruggmann: I have another question. You have built up a very good relationship with Angela Merkel, our Federal Chancellor. Germany will face elections for the Bundestag this summer. This brings me to my question: would you like to continue working with an Angela Merkel government?

Dmitry Medvedev: You are asking me tricky questions there. Indeed we are on very good terms with Angela Merkel and I cherish this relationship. I have always enjoyed discussing with her the most diverse issues: foreign policy and economics. But the issue must be decided by the people of the Federal Republic of Germany.

Mathias Bruggmann: Did you notice that relations between Russia and Germany cooled after Putin’s election?

Dmitry Medvedev: You know, I think these are again some kind of clichés. Vladimir Putin and Angela Merkel also have good friendly relations.

Mathias Bruggmann: Well, not so good.

Dmitry Medvedev: You should ask her.

Mathias Bruggmann: I have.

Dmitry Medvedev: They have a good relationship that makes it possible to solve any tasks. There are, of course, some emotional aspects, but this is a purely personal matter. I hope that everything will be fine with our relationship because, at the risk of sounding pompous, the economic situation in the whole of Europe depends to a great extent on the state of Russian-German relations. Not only because our countries have massive mutual trade or because we are strategic partners in some projects. It just seems to me that a great deal depends on our consolidated position, in spite of the fact that Russia is not a member of the European Union and is not part of the eurozone.

Mathias Bruggmann: And doesn't want to be?

Dmitry Medvedev: You know, speaking at the forum today I said that we would like – and this is my sincere wish – to have the closest possible integration with the European Union, but time will tell what form that will take. We have created a Customs Union, we are forming a Common Economic Space with Kazakhstan and Belarus. This is our choice, these are close fraternal states, as we call them, but we are interested in the closest possible relations, integrated relations with the European Union.

Mathias Bruggmann: My last question: when will Russia change its stance on Syria?

Dmitry Medvedev: I think the Russian position on Syria is entirely pragmatic. It is this: we do not support Assad, we do not support the opposition, we are in contact with Assad and the opposition. We do have interstate relations, we have economic links and even military links with the incumbent government, but we have never insisted that Assad or anyone else should stay in power. That is an issue for the Syrian people to decide.

I always remind people who for some reason are oblivious of one thing: Syria is a very complicated country, it is not even Libya, although Libya can also be fragmented. Syria has so many different denominations and branches of Islam that if everything were left to chance the country would implode. Can we imagine what will happen if the Sunnis come to power? I think they will start hanging the Alawites, sad though it may sound. This cannot be allowed to happen. Things have to be agreed at the negotiating table, and that includes the future of the country. As for the fate of the leadership, these are secondary matters. We are ready for contacts with everyone, but we categorically object to any party providing arms either for the opposition or for anybody else. This has to stop.

Mathias Bruggmann: Thank you.