Angela Merkel (as translated): I am very glad to see Mr Putin. This is his first time in Berlin as Prime Minister. We have exchanged opinions on the general economic situation-in particular, on the impact of the global financial crisis on our countries, Russia and Germany.

We have surely discussed natural gas supplies to Western Europe. We are in a problem-laden situation as Russian gas does not reach us. Our talks, which Mr Putin will tell now about, have been discussed by companies selling Russian gas in Western Europe. I have contacted representatives of those companies. A testing stage is on now, and it has a certain procedure. It should involve international observers who are presently in Russia and Ukraine to test all possible arrangements of gas piping to Western Europe and the Balkans lest the gas Gazprom intends for Europe vanish somewhere in Ukraine.

We are greatly pressed for time. We know the Balkan countries' problems, and we are duty bound to solve the problem as soon as possible. It is just as important to Gazprom as exports are among essential sources of its profits. We hope to get the arrangement going for Europe to receive gas.

I think we might also discuss a range of other problems, and we hope for an opportunity to continue this discussion. Meanwhile, gas is top priority, and it is fine to have the chance to talk it over. This is a dispute that must be settled. It is a dispute between companies, and politicians have to interfere because of its political dimension. I am glad that German companies and Gaz de France are willing to reach a practicable settlement with Gazprom.

Vladimir Putin: I am grateful to Ms Merkel for her invitation.

We have also discussed bilateral problems and Russian-German partnership in many fields.

We had a record-setting trade turnover last year. We are implementing ambitious bilateral and multilateral energy, engineering, high tech and other projects. Ms Merkel initiated high technological partnership in Hamburg. So we have had quite an extensive agenda.

We have talked about the current situation and trends in our economies with the global financial and economic crisis, and attempted to come at such patterns of partnership that would promote not impede it.

Naturally, bilateral and multilateral energy partnership, including gas, has been prominent on our agenda-in particular, the problem of our blocked gas transit via Ukraine. As you know, I have met with representatives of principal European purchasers of our gas in Berlin today. I think we are approaching interesting agreements that might settle the controversy. I stress again that Russia wants settlement the sooner the better.

Gazprom's damages are huge-1,200 million dollars for today. We naturally have no reason at all to thwart gas exports to European consumers who are paying market prices in time.

We would guarantee transit, come to terms with our Ukrainian partners and distinguish between two problems-gas supplies to Ukraine for its domestic consumption and gas transits to European clients. We have talked much about it today, and come at new ideas and proposals at the negotiation table. I think they are all constructive and will promote progress.

Thank you.

Question: My question concerns both participants of this news conference. What will the consortium look like? Will it concern purchasing the Ukrainian pipeline system or technical gas? And another question: Ms Merkel, what do you think of the European Union's role and the tarnished public image of Russia and Ukraine? What should Russia and Ukraine do now to get closer to the European Union?

Angela Merkel: As for the proposal, we cannot talk about a consortium yet but about a preparatory stage for the resumption of gas supplies to Western Europe. Mr Putin and I have discussed the attraction of observers along the entire network. They are starting work already.

There are certain problems as Russia has not supplied the entire amount of gas to Western Europe and the Balkans. I cannot take proper stock of the direction of the gas flow and other technical details. It takes experts to settle all that. What we need is a system for observers to monitor the job and gas flows. If we agree on where gas should be piped in Ukraine and on export directions, it will help us to build confidence.

As I have said to Mr Putin, it is hard on us not to have gas. We have had critical talks with Ukraine on who should be responsible for technical gas.

I have always called to reckon with Russian and Gazprom interests and to resume supplies urgently before apprehensions build up. You know the European Union's response to the situation.

The problem has hit countries to a varying extent. Slovakia and Bulgaria, for instance, are concerned not the way the other EU countries are. We are giving them necessary support. German companies assist Serbia and Slovakia. I hope we will come at a solution before tensions grow, as I have said in bilateral telephone talks with Ukraine and Russia.

We have the right to receive gas even without an agreement we need, so the European Union will do everything possible to speed up Russian-Ukrainian talks.

Vladimir Putin: As you know, we can only regret that we failed to come to an agreement with Ukraine at the end of last year on the supply terms and prices of our natural gas for Ukrainian consumers. So Gazprom suspended such supplies on January 1. It concerned only Ukrainian consumers, I stress.

As for European consumers, we have continued gas deliveries in their full, 100% amount. Regrettably, as Gazprom was delivering gas to that system since January 1, its Ukrainian partners were siphoning off export gas. In fact, they were stealing gas from Gazprom and you, our consumers.

Gazprom was forced to reduce supplies gradually by the daily amount of siphoned-off gas. In the morning January 6, Ukraine stopped piping gas to the Balkans. It was zero at the exit, though the flow to Central Europe held on through the day. The next morning, January 7, Ukraine blocked the Central European flow too. Gazprom held its piping system connected with Ukraine open throughout January 7 but also turned off the valve at night when we saw that gas transit was blocked in Ukraine entirely.

After a monitoring commission was established on Ms Merkel's initiative and relevant documents were signed-by our Ukrainian partners, as well, we turned on our gas valve on Monday to resume supplies to the Balkan countries and Slovakia, who were hit the worst, as top priority. So we applied to Ukraine for piping 76.6 million cubic metres for the Balkans and 22.2 million cubic metres for Slovakia-only to receive a written refusal. Ukraine was referring to technical problems as it refused to pipe the gas to Europe.

What were those technical problems? There were two. First, as it became known, the export pipe was empty though it was supposed to have a permanent amount of 140 million cubic metres-it had been siphoned off to make the utmost slackness of the transit party evident to all. That gas is gone, and let it go! More that that, they had no gas as fuel for pumping stations to press gas on to Europe-a daily 21 million cubic metres!

Our Ukrainian partners appealed to us to pass the amount into their holding. They did it in writing, I stress-we have the paper. They applied for 360 million cubic metres in January, 600 million in February and another 600 million in March. Take your calculators and see what it all would cost.

We proposed to our principal Western partners-E.ON., Ruhrgas, Gaz de France, Eni and Austrian companies-to establish a consortium and share the risks of technological gas supplies to Ukraine. As I understood from our talks yesterday and today, our partners agree. There are details to refine upon at the corporate level, and I think it will be done. We also know that Ukraine has rehashed its entire transport system and is presently supplying gas to domestic suppliers from tanks on its western border, and it alleges now that export will thwart domestic supply.

However-please mind it-this is the transit party's problem. They have brought their network into utter disorder-let them now repair it. However, we do not want to put Ukraine into a difficult situation. We realise it full well. As I talked to Ms Merkel today, we agreed that it would be correct and expedient to establish an international expert team that would be able and duty bound to determine the best possible flows of our gas to Europe so as to guarantee export and protect us and our clients from endless pilfering. The team will work according to the protocol signed before. I hope this agency will emerge soon. I want to call your attention to the following fact: we have applied again today to have our gas pumped towards the Balkans-and received another refusal.

Angela Merkel: I want to make an addition. It is vitally important not merely for one party-Slovakia or a Balkan country-to receive gas but also for the entire appointed amount of gas to reach Western Europe. We would achieve it as soon as possible. There is another complication here, of which I was unaware on Monday as it was necessary to bring the entire gas to Europe, and observers checked it. This decision should be implemented urgently.

Vladimir Putin: I want to say that Ms Merkel is absolutely right. Gazprom says Ukraine has every technical opportunity to pump our entire gas to the Balkans. The Ukrainian government company, however, alleges they cannot do so. This argument might go on indefinitely, so we call our European partners to establish an independent expert team, send it to Ukraine and draft the optimum transit routes and the ways to prevent pilfering, as I have said.

Question: I want to ask both participants: how topical do the involved parties consider the Nord Stream project in the present situation? And another question: will Germany be represented, and at what level, at the conference of Russian gas importer countries on the gas dispute in Moscow Saturday night?

Angela Merkel: As for Nord Stream, nothing has changed. We are determined to implement the project step by step. Several authorisation procedures are going on-in particular, related to Scandinavia. The German leadership has approved the decision of the German Government. However, we naturally cannot wait for the Nord Stream pipeline to bring us gas. The European Union has decided that Commissioner Piwak and the Czech Prime Minister will attend the meeting tomorrow. We have chosen this stance together. The position of the European Union might be represented there in its entirety alongside what we can do to settle the problem.

Vladimir Putin: Extra routes of Russian energy supplies to Europe are especially topical with the current crisis. Not that I am out to whip up apprehensions. The Nord and South Stream projects are not spearheaded against anyone-not any transit country. They are mere auxiliary routes. All this diversification means extra supplies to our European consumers-only additional supplies. The present crisis has merely made the relevance of such projects quite clear.

Question: Ms Merkel, Mr Putin has stressed that Russia is not to blame for the crisis and Ukraine is blocking the Russian gas flow. Do you agree?

Angela Merkel: I have said already that I would like to see the entire amount of gas reach Europe on Monday because I think the observers' job would be simpler in that case. We are promoting this decision. It is a very complicated problem, and I don't want to say who is to blame. Such situations have one culprit extremely rarely.

It is essential for us to work at the problem constructively, and I hope today's Berlin talks will offer the way to make progress.

Vladimir Putin: I want to develop on Ms Merkel's reply. It is surely a rare occasion when only one party is to blame. But, if we come to responsibilities, there are surely more than two. The European Union is placing Russia and Ukraine on the same shelf. I see its position as de facto encouraging Ukraine, which is violating its transit obligations-in particular, on the Energy Charter, which Ukraine has signed and ratified. It is obliged to guarantee transit, come what may. What we had in the previous years was nothing but intimidation aimed to obtain low-price gas as primary energy and secure competition advantages in the European market-in particular, for Ukrainian commodities. It is rooted in muddle and corruption. We think an end should be put to all that. The Ukrainian nation is interested in it, too. We hope we will do it because the present situation is inadmissible. They are putting us before a choice-either we give Ukraine gas free or at a third of the usual price or Ukraine blocks our gas transits to Europe, which will also pressure us for resumed transits. Enough is enough!

Angela Merkel: All right. I want to add, however, that, as European Union members, we believe that we will receive our gas. That is why it is necessary for the exporter and the transit party to come to an agreement. This is what we expect in the situation. We hope we will work constructively and settle the problem. I think Russia will also gain when gas reaches Western Europe.

Question: Ms Merkel, Mr Putin, Germany and Russia are both hit by the crisis, and efforts against it are nationally coloured in either country.

What lies in store for bilateral economic ties with consideration for the powerful impact of global financial problems and European gas problems? Is it worthwhile to wind up certain joint projects-not in energy, to be sure? Do you think the mutual interest of Russian and German companies has dwindled badly of late? Thank you.

Angela Merkel: The situation is just the reverse, I should say. We have multi-sided trade relations with Russia. Mr Putin has mentioned many high technological projects. We have a good basis for cooperation. I don't think the projects should be wound up because of the crisis.

Protectionism is certainly the most complicated issue in this situation. Every country should think about retaining its own production. I don't think, however, that either Russia or Germany would gain with cutting joint projects. We can go on building good mutual contacts. German companies are determined to follow this road, and I greet it as Chancellor.

Vladimir Putin: First, I want to repeat that last year saw a peak of our trade turnover-60 billion dollars. We are implementing ambitious projects. Direct German investments vary from 13 to 26 billion Euros, according to different estimations. We are diversifying our economic contacts. They involve energy, too, with large multilateral projects-not only Nord Stream but also others. Don't forget that German and other European companies have invested huge sums in the Russian power industry. We have demonstrated tremendous transparency in this field. We have admitted our European partners to the heart of that industry. We are good on all our pledges as a country receiving investments despite the global financial and economic crisis. We are doing everything we can to promote and support foreign investment. We are extending partnership in high technologies and transport. I recently accepted a new train in St Petersburg, purchased by Russian Railways Company. This and other deals cost many billions. I want to remind to the Russian and German press that Germany has 700,000 jobs thanks to its economic links with Russia. That is valuable. I think our economies are mutually complementary in the best possible way, and are able to ensure sustained development.

Angela Merkel: Thank you.