By Mark Thompson
FRANKFURT, Sept 20 (Reuters) - The row between Germany and the United States over Iraq has strained diplomatic ties and worried business leaders but is unlikely to cause lasting damage to trade and investment, experts said on Friday.
Chancellor Gerhard Schroeder, fighting a tight battle for re-election on Sunday, has bolstered his support with criticism of U.S. plans to attack Iraq.
"I don't think this will affect economic relations between the United States and Germany," said George Oleksyn, director of the California Office of Trade and Investment in Frankfurt. "I think the whole thing will blow over right after the election.
The row was inflamed on Thursday when German Justice Minister Herta Daeubler-Gmelin was quoted as comparing President George W. Bush's aggressive stance with diversionary tactics used by Nazi dictator Adolf Hitler.
Daeubler-Gmelin denied making the comparison.
Any long-term fallout from the souring of relations between the world's first and third economies would be costly to both. Germany exported $59 billion worth of goods to the United States in 2000, while imports totalled $29 billion.
Germany received 11 percent of total U.S. direct investment abroad in the first half of 2001 worth $8.2 billion, according to the American Chamber of Commerce in Germany. The country has some 2,200 firms with American capital.
German businessmen, including a co-founder of software giant SAP and the sales chief of world leading printing machinery maker Heidelberger Druckmaschinen , have warned that the souring of relations may cost contracts.
The printing and paper industry, which relies on exports for 80 percent of its business and had U.S. sales of 1.1 billion euros ($1.08 billion) in 2001, said clients in the United States were seeking explanations in talks with suppliers.
"The Americans are making it clear that they see clear alternatives in the world market," said industry association director Wilfried Schaefer. "We have to alert people to this before it causes extensive problems." Other industries, including the autos and chemicals sectors, have not yet noticed any impact on their business and trade officials said that any damage would be repaired quickly once election campaign rhetoric had faded.
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Fred Irwin, president of the American Chamber of Commerce, said member firms had expressed concern about Schroeder's position on Iraq.
"He went too far but if the question is whether this will stop American investment in Germany, the answer is no."
Irwin, who is also vice-president corporate clients at Citibank AG in Frankfurt, said the main barriers to investing in Germany were structural, particularly the rigid labour market.
"That's why there is more U.S. investment in the UK, Belgium and Holland," he said.
The U.S. has long called for Germany to accelerate structural reforms to promote investment, create jobs and generate faster growth.
Daniel Coats, the U.S. ambassador to Germany, said this week that whoever forms the next government will have to address painful reforms so that Europe's leading economy can play its part alongside the United States in restoring global growth.
"These two economic engines need to be dynamic," he told a business audience. "We do not believe that we will get a lot of help from Japan." (Additional reporting by Adam Jasser and Frank Siebelt in Frankfurt)