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By Bloomberg

Former Chancellor Gerhard Schroeder said Germany should deepen energy ties with Russia and urged an end to sanctions, clashing with his successor Angela Merkel over her response to the crisis in Ukraine.

"Germany doesn't need a new Russia policy based on confrontation, as is being demanded by some hawks," Schroeder said in a speech at a Russian-German business conference today in Rostock, Germany. He said Germany needs to return to elements of the old policy of "detente" with Russia.

Schroeder, who served as Social Democratic chancellor from 1998 to 2005, retains close ties to Russian President Vladimir Putin and celebrated his 70th birthday this year in St. Petersburg, where he was photographed in a bear hug with the Russian leader. Schroeder is chairman of the Shareholders' Committee of Nord Stream AG, the Russian-German natural gas pipeline.

"We would be well-advised to further expand this energy and raw materials partnership" with Russia, Schroeder said.

Chancellor Merkel is taking an increasingly hard line on Russia over Ukraine and insists there can be no loosening of sanctions.

"I don't see any change at the moment regarding Russia's position," Merkel, a Christian Democrat who grew up in former communist East Germany, said this week. "Sometimes in history one has to be prepared for the long haul, and not ask after four months if it still makes sense to keep up our demands."

Trade Partner

Germany was Russia's biggest trading partner after China last year. About 6,000 German companies have commercial ties with Russia worth about $88 billion in trade between the two nations, according to data compiled by Bloomberg.

Reacting to the Ukraine crisis, the European Union and U.S. have imposed a succession of penalties on Russian companies and individuals over the past six months that have helped push Russia's $2 trillion economy to the brink of recession. Russia has suffered capital flight and stock-market volatility since the Ukraine crisis began.

"The mutual sanctions are causing immense damage to both sides," Schroeder said. "Politicians in Russia and Europe must find a way out of the spiral of ever tougher sanctions."

Schroeder said that the EU had been wrong to offer only Ukraine an association agreement. "It would have been right for the EU to negotiate an association agreement not just with Ukraine but also with Russia," he said.

'Flawless Democrat'

Schroeder, who once called Putin "a flawless democrat," was appointed within three months after leaving office to the post at Nord Stream, which built and operates the 1,224- kilometer (760-mile) Nord Stream pipeline from Vyborg, Russia, under the Baltic Sea, to Lubmin, Germany.

Nord Stream is 51 percent owned by OAO Gazprom, the Russian state gas monopoly.

Schroeder has adopted two children from Russia with his wife, Doris, and makes no secret of his friendship with Putin, a fluent German speaker who was a KGB agent in former East Germany.

Partnership "was always a core of German policy with Russia and with the former Soviet Union," Schroeder said. "This has been the position of all German chancellors and we would be well advised not to deviate from this path."

Schroeder's personal ties to Putin's homeland are a microcosm of German economic relations with Russia. Germany gets about a third of its gas from Russia and is Russia's biggest European trading partner.