Official website of the President of Russia

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Prime Minister of Luxembourg Jean-Claude Juncker: (simultaneous translation): Ladies and Gentlemen, Vladimir Vladimirovich,

First of all, I would like to offer you my apologies. We planned to end our talks an hour ago but we ended up needing more time. Others had obviously decided for us that an hour would be sufficient but our talks went on for two hours.

Ladies and Gentlemen,

We are very pleased that the President of the Russian Federation is paying this official visit to our country. This is a great honour for the Grand Duchy of Luxembourg. Our bilateral relations go back many decades, but we have waited 140 years for a Russian head of state to visit the Grand Duchy. We are therefore very happy to welcome you here Mr President. I must say that our relations show a high level of development. We have been particularly successful in enriching our relations in many areas over recent years, especially since Vladimir Putin became President of the Russian Federation. I think that if the relations between our countries are developing so well this is due to the great spirit of our peoples and of our countries’ leadership, which, it is true, changes from time to time. For my part, I have visited the President of the Russian Federation four times now.

Our economic relations are also very impressive. The Grand Duchy of Luxembourg is one of the two biggest investors in the Russian Federation. Bilateral trade between Russia and Luxembourg doubled last year compared to 2004 and tripled compared to 2005.

Today we have signed a whole number of economic and commercial agreements, in particular agreements with Gazprom and between our bankers and the association of Russian bankers. I will not go through all the details of these agreements. You will find them in the documents that you will, of course, receive.

We also spoke a lot today about the relations between the European Union and the Russian Federation. In principle, our relations are developing well. I am a provincial, overall, and I try to look at the general situation. We have worked hard to develop our relations since 2005, but I think that the European Union and Russia nevertheless have some differences of opinion, in particular regarding the human rights issue. We also differ perhaps in our assessment of some international events. But at the same time, there are also significant advances, and this is something that perhaps gets less coverage.

We expressed our support for Russia’s accession to the World Trade Organisation. We think it is entirely natural that the Russian Federation should become a member of this organisation. We also fully support Russia’s accession to the OECD. We have very friendly feelings towards Russia. At the same time, there are, of course, some points that we need to discuss with our partners in the European Union and the United States.

But coming back to relations between Russia and Luxembourg, our ties are at a good level and will remain very positive, and this is not something that is likely to be affected by other factors. Vladimir, I give you the floor.

President Vladimir Putin: Mr Prime Minister, Ladies and Gentlemen,

First of all, I would like to thank His Royal Highness Grand Duke Henri and Prime Minister Jean-Claude Juncker for the invitation and for the very warm reception and substantial discussions. We view the results of the talks and meetings we have had as positive. Both sides show a clear commitment to deepening the traditionally friendly ties that bind Russia and Luxembourg and looking for new forms and models of cooperation. My colleague noted that he has been to Russia four times and has repeatedly invited me to visit Luxembourg, and I consider it quite simply my duty to respond to the personal ties we have formed and the relations that have developed between our countries.

We paid serious attention to the issue of deepening our business partnership. Overall, our business ties are developing well. Mr Jean-Claude Juncker spoke of this. The dynamic is good. Our bilateral trade has increased almost 3.5-fold over the last three years. As one of the world’s leading financial centres, Luxembourg, as the Prime Minister mentioned, now holds second place in terms of accumulated investment in the Russian economy. This represented a total of around $23 billion as the figures stood at the end of last year — $22.3 billion or $22.6 billion to be exact. Of course, the repatriation of Russian capital accounts for a large part of this figure, but we are pleased to see Russian capital returning home. Luxembourg’s economy also benefits considerably from this process. There is increasing cooperation between leading Russian and Luxembourg companies and there are good prospects for work together in the energy sector, including on the markets of third countries. This is illustrated in particular by the agreement signed today between Gazprom and Luxembourg company Soteg on building an energy facility, an electricity station in Germany. Total investment in this project is around $400 million euros.

The Russian regions are also making a significant contribution to expanding direct contacts with Luxembourg. The next session of the mixed commission on economic cooperation between Russia and the Belgian-Luxembourg economic union is set to map out the most promising areas for developing our business partnership. Our successful experience of work together in satellite and space communications could be a reference in this respect. We think that bringing together our respective countries’ competitive advantages, technology and resources could have a positive impact on development on both sides. This is not the first year that we have been working in this direction. Luxembourg has already begun making use of our services to launch its satellites. The Grand Duke told me today that he has even been to the Baikonur Cosmodrome and has seen a launch take place.

The relations between Russia and Luxembourg have traditionally been distinguished by close humanitarian cooperation. As cultural capital of the European Union in 2007, Luxembourg’s cultural events calendar includes a good number of outstanding Russian performers. The 2007–2010 programme for cooperation in the areas of science, education, culture, sport and youth exchanges, preparation of which is currently in the process of completion, will open up new opportunities for contact between our citizens and for joint creative initiatives.

We greatly appreciate the Grand Duchy’s contribution to developing the dialogue between Russia and the European Union. I remind you that it was during Luxembourg’s presidency of the European Union in 1997 and 2005 that the EU-Russia partnership and cooperation agreement and the agreements on the four common spaces were signed. Today we had a businesslike and constructive discussion of all the issues regarding Russia’s relations with its European partners, including the results of the recent Russia-EU summit in Samara.

I must say that the realistic and very pragmatic approach to these issues taken by our partners in today’s talks cannot but win us over. We confirmed once again that our views on events in the world coincide in many respects. We support uniting the efforts of all countries to prevent international terrorism and respond to the global challenges and threats we face today, and we also support the search for diplomatic solutions to regional conflicts and crises.

In conclusion, I would like to once again thank my colleague for his hospitality and for the excellent organisation of today’s work. I am sure that the agreements reached will contribute fully to advancing cooperation between Russia and Luxembourg, our reliable and promising partner.

Thank you for your attention.

Question: Mr President, Mr Prime Minister,

Russia’s relations with the EU on the one hand and with the U.S. on the other have been worsening in general and I would say that we are even seeing some provocative statements being made now. How do you view what is happening now when 10 years ago everyone was talking of a strategic partnership?

Vladimir Putin: I think that strategic cooperation and a strategic partnership still exist today. We spoke about this just last week at the Russia-EU summit in Samara. Mrs Merkel, who is presiding over the EU at the moment, confirmed this and spoke about it publicly. I fully agree with her view. Yes, problems do arise during the course of our cooperation, and sometimes these problems are far from straightforward, but we try to settle them together. This is natural and understandable for two reasons at least.

First, as our cooperation expands, the potential for new problems to arise also increases.

Second, the number of EU members has grown and, unfortunately, some of these new member states have taken their bilateral problems with Russia to the general European level. But we see nothing so terrible in this process and we do not want to dramatise the situation. Our position is that we too need to make some concessions and search for compromise solutions, but ultimately, our partners in Central and Eastern Europe will have to follow the common rules. I see no need to dramatise the situation. The nature of our partnership remains unchanged. New problems have arisen but we will resolve them together and my visit to Luxembourg is partly devoted to precisely this task. The Prime Minister and I discussed these problems and I hope that Luxembourg will be able to make its contribution to resolving the issues that exist in relations between Russia and the European Union.

Jean-Claude Juncker: Russia is a natural strategic partner for Europe and we want to maintain the highest level of relations with Russia and give them the highest quality. Our strategic partnership will be undoubtedly visible in the economic sphere in particular. It will also cover energy supplies to the European Union and it is also about ensuring security. There is no organisation in Europe and no plans to create a security system without a partnership between Europe and the Russian Federation.

We may have some differences of opinion, but we nonetheless share the same continent and we are responsible for our peoples and our countries. It is therefore our firm conviction that all of us, all Europeans, must take a rational approach to the problems that arise. This rationality is all the more important when there some who gain a sort of pleasure out of dramatising the situation.

Vladimir Putin: Trade with the European Union accounts for 52 percent of Russia’s total trade. This figure in itself speaks of the strategic nature of our relations. If we do not cooperate with the EU and the EU with us we will not be able to successfully combat terrorism and other threats. We are strategic partners by definition. As I said, problems do exist, but we should take care to avoid a situation where we fail to see the wood for the trees. This would not be the right approach.

Question: This is a question for both leaders. You have just spoken of a strategic partnership between Russia and the EU. You also spoke of the impossibility of building a security system in Europe without a partnership between Russia and Europe, and about rational forms of cooperation. What is your view on the plans to deploy missile defence systems in some EU member countries?

Jean-Claude Juncker: I will first give the floor to Mr Putin, as I think he will probably give a more detailed response.

Vladimir Putin: We have already made our position clear. Russia strictly complies with all its disarmament commitments. Russia is unilaterally observing its commitments under the Conventional Forces in Europe Treaty and has essentially withdrawn all heavy arms from the European part of the country. I want to stress this point for the European public’s benefit. In this situation we do not understand the need to establish new bases in Eastern Europe. We do not understand the need to create new weapons systems, to develop this missile defence system. Our NATO partners have not even ratified the adapted Conventional Forces in Europe Treaty and we do not understand why Europe needs these new weapons. This situation causes us concern. I will not repeat all the arguments we have heard – we think they have no basis – explaining that this system is needed for defence against Iranian or North Korean missiles. There are no such missiles and will not be for at least the next 10–15 years.

What is interesting is that one of the justifications we have heard from our partners is that this system is needed to protect Europeans. We have asked our American colleagues if the Europeans themselves requested this, but we have received no answer. Given the current trends in international relations I think that if the Americans asked their request would be granted, but it would be good to at least ask, because as things stand, this is really not the proper way to proceed. But this, and other issues, all require additional discussion, discussion without hysteria. We proposed discussing this issue in the OSCE. After all, this organisation was established precisely to deal with such issues, as its name – the Organisation for Security and Cooperation in Europe – shows. We hope for a constructive dialogue with our European partners.

Jean-Claude Juncker: On this issue, as with many others, I must say that any reasonable solution should be reached through dialogue, through constant and determined dialogue. No one in Europe sees Russia as a threat. Russia is not our enemy or adversary. We want to have the friendliest possible relations with Russia. In dealing with this issue too we should therefore look to the future and not base ourselves on what are perhaps manifestations of post-trauma syndrome that have been present for decades now. These problems can be resolved in particular through the Russia-NATO Council and through the European Union’s structures. I would not like to see this matter drive Russia and Europe further apart from each other. We need to take this issue seriously and not play with fire.

Question: Mr President, Western countries have criticised you for violating some of the basic principles of democracy. Rome was not built a in a day and building democracy is an evolutionary process, of course. But I would like to know how much time Russia will need to reach the standards of democracy that exist in the EU?

Vladimir Putin: Yes, we have been criticised over many issues, especially of late. This criticism has focused increasingly on human rights issues, especially now that Russia is getting ready for first the parliamentary elections and then the presidential elections. One of the reasons for this is to support the forces within Russia which some Western politicians consider pro-Western. I think this is one of the objectives.

The second objective is to make Russia more compliant over issues unrelated to democracy and human rights – weapons issues, say, the missile defence system issue, the situation with Kosovo and so on.

It is one thing to have Russia as a full and recognised actor in international affairs, and another matter altogether to have it somehow limited in its rights. In the latter case, Russia’s views on Kosovo would not be given much consideration and Russia’s position on the issue could be repudiated. But there are ever fewer means of putting pressure on Russia today. There are practically none left. Russia has restored its military and economic potential. In 2000, we had a debt to GDP ratio of 120 percent, but today our debt to GDP ratio is the best in Europe. In 2000, we had gold and currency reserves of just $12 billion, but our reserves have increased by $82 billion in the first four months of this year alone and we now have total reserves of around $400 billion, which puts us in third place after China and Japan. Our economy is growing at an average rate of 6–9 percent a year and posted growth of 7.7 percent for the first four months of this year. There are very few instruments for putting pressure on Russia today. But I think that the best means of discussion with Russia, as with other countries, is to respect each other’s interests.

As for the heart of the matter, first of all, many similar problems exist in Western countries. I spoke about this yesterday in Vienna and gave concrete examples to show that we all face absolutely the same problems, problems with immigration, for example. And international organisations often recognise that this or that law in Europe does not conform to the principles of European democracy.

You mentioned common values. Even when faced with what was essentially civil war in the Caucasus, Russia introduced a moratorium on the death penalty. Some of the G8 countries – the United States and Japan – carry out the death penalty, but no one calls for the U.S. to be excluded from NATO, say, or for Japan to be expelled from the G8. When we speak of common values we need to agree on common criteria. Just wagging tongues and pointing the finger is easy.

As for whether or not we have problems, yes, of course we do. But if even countries with a stable political system, countries which have been developing democratic institutions for centuries now have problems, then what can we expect of Russia, which has gone through state collapse – and the collapse of the Soviet Union was nothing less than the collapse of Russia on a larger scale – a period of serious crisis in the Caucasus, the complete impoverishment of its population, and is only now beginning to shake off the consequences of oligarchy, when a handful of individuals amassed billions and millions of people found themselves destitute. All of this has an impact on the situation in the country.

Of course we need to time to build and develop our democratic institutions and for society to adapt to the new conditions. It takes time to form the middle class which is the backbone of democratic institutions and the foundation for democracy in general. We are moving in this direction and there can be absolutely no doubt in this respect.

You mentioned the Roman Empire, but Rome was far removed from democracy. If we are talking about a modern Roman Empire, it is certainly not the Russian Federation.

Question: Luxembourg is known as one of the world’s leading financial centres. In this respect, my question for Mr Jean-Claude Juncker is: how do you assess the stability of the financial system in Russia, in Europe and in the world in general? Do you think these systems face the same problems and risks?

And a question for the Russian President: at a recent cabinet meeting you spoke about supporting the Russian stock market. How serious will this support be, and could funds from the Reserve Fund, for example, be used for this purpose?

Jean-Claude Juncker: You are leading me into a very long discussion if we are talking about not just the stability and sustainability of the banking system of my own country but also of Europe, Russia and the entire world. I will just say a few words. We have great admiration for the systemic and structural reforms that Russia has taken in particular in order to ensure the stability of its financial system. I do not think that Russia will again encounter the kind of difficulties it has faced in past decades. We do think, of course, that there is a need for investment, including financial investment, in Russia.

Russia has made tremendous progress. In particular, I think that the Russian finance minister should take part in the meetings of the G7 finance ministers, that is, make it a G8. Furthermore, Russia is working very actively on overhauling its system and it should therefore join the WTO as speedily as possible in order to become part of the global system.

Vladimir Putin: Regarding the financial system in Russia, it is growing stronger and is in a very stable state. 2006 was the most successful year so far in terms of developing and stabilising our financial system. I remind you that we decided in mid-2006 to liberalise currency circulation for capital investment and capital movement. This has had positive results: investment is up by 13.7 percent. Investment has already increased by 19.9 percent over the first four months of this year. Direct investment is also up and came to $26 billion in 2006. This year we are expecting much more than $30 billion in direct investment. I think that a country like Luxembourg understands the significance of these figures. Last year, Russia had direct inflow of capital for the first time in its modern history. We always had a net outflow of $15 billion, $20 billion, $25 billion, but last year we had an inflow of $41 billion. I spoke this morning with the chairman of the Russian Central Bank and he said that we have had an inflow of almost $40 billion over the first four months of this year, so the positive trend is continuing.

As for the idea of using funds from the Stabilisation Fund to support the stock market, no one plans to support Russia’s stock market by using money from this fund. I have to disappoint all those who want or fear that we will create a bubble economy, as was the expression used at one time in Japan, and say that we have no intention of letting this happen. What we are talking about is potentially using available resources from pension funds and development institutions and investing them very carefully in Russian blue chip stocks in such a way as to not upset the macroeconomic stability that we have built up over these last years. We will carry out a carefully-planned and cautious monetary policy in order not to saturate the market with money supply.

We have not yet managed to fully rein in inflation, but it is coming down all the time. The inflation rate will still be high this year, around 8 percent we think. Last year it was 9 percent and now it will be 8 percent. The Central Bank plans that the real effective exchange rate of the rouble will not strengthen by more than 5 percent. All of this gives reason to believe that our financial system is stable and will continue to grow stronger.

As for world markets and the world financial system, there are some problems, but overall they are stable today. The main problem the experts are working on is that we see a situation in which developed economies are running a deficit while the developing economies are showing a surplus. It is hard to say at the moment what impact this kind of imbalance could have on global finances, but we have not seen any worrying signals as yet.

Question: The European Union has made a lot of effort to resolve the Iranian problem, but with no success so far. Russia has also put forward some initiatives and proposed, for example, producing enriched uranium on its territory under international control. Now we have the latest report to the Security Council, which will discuss possible measures to be taken against Iran. Do you think the time has come to discuss sanctions? What should we do about Iran?

Jean-Claude Juncker: Luxembourg is not a permanent member of the Security Council and I therefore give the floor to the President.

Vladimir Putin: Jean-Claude is evading the question, because given the experience with decision-making in the EU, Luxembourg does have the power to influence the common position of our European colleagues. I will try to give a brief answer. I’m afraid I will disappoint you and say nothing unexpected or new. We think that all issues, including the Iranian nuclear programme, should be resolved through diplomatic means and should not drive the situation into deadlock. At the same time, we will work in a spirit of cooperation with all of our partners just as we have done so far. We will search for solutions that do not restrict Iran’s right to develop modern technology but that at the same time address the international community’s concerns about the possibility of Iran developing nuclear weapons.

Question: This is a question for both leaders. Coming back to investment, as this is an important issue given the problems on the stock market, what is Luxembourg’s secret on our market? How is it possible that Luxembourg has suddenly become the second biggest investor in Russia in terms of direct investment? Vladimir Vladimirovich, how do you explain this secret?

Vladimir Putin: If we are talking about Luxembourg’s secrets, despite the fact that I used to work in Soviet intelligence, you would do better to ask the Prime Minister about these secrets, for I am not in the know. But I do know that he has created good conditions for attracting foreign capital to Luxembourg. This is a reliable place to invest and it is no secret that a lot of Russian capital that left the country in earlier years – and I already mentioned that we had an outflow of up to $25 billion a year – came here to Luxembourg. Now, as Russia puts in place stable macroeconomic and political conditions, this capital is being repatriated and we are very pleased to see that this is happening. Luxembourg’s budget and economy also benefit from this process because the country’s financial institutions make a profit on all financial operations carried out and this in turn means more taxes paid into the budget. So this process benefits both Russia and Luxembourg. Do you know who the biggest investor is? The biggest investor is the Netherlands, another country that has suddenly come from nowhere it would seem, and the reason is the same. But our position is that arms or administrative measures cannot create favourable conditions in our country. The only way we can create favourable conditions is to follow a careful and effective economic policy.

As soon as we made the rouble fully convertible capital began to return. As soon as we put in place the right conditions, capital began coming home to Russia. Incidentally, the first rouble-denominated Eurobonds were issued recently. This is just the first and I hope not the last step of this kind.

Jean-Claude Juncker: You ask what the objective reasons are for Luxembourg’s success as a financial centre? First of all, what I will say will probably not make anything much clearer. In the press, including in Russia, we often read that our market’s success is based on all sorts of tax breaks that other countries do not offer, and that we do not have such strict supervision procedures as in other financial centres. But this is not true. This was perhaps the case decades ago when we needed to restore our finances and did have to offer some tax breaks in order to establish an advantage for ourselves over our competitors. I would say that the secret lies simply in experience and in our financial specialists. They are very good at calculating risks and are probably the driving force of our success.

We try to implement all the European rules and regulations. As soon as new European regulations are issued, we incorporate them into our legislation. Our country is very small, smaller than others, and so we have to react faster than other countries. Our success is based on a mixture of a serious approach and rapid reaction.