In this context it is helpful to hint at the current state the russian defense is in:

With a defense budget of between 30 and 40 billion dollars a year, this is hardly a fearsome threat. Both France and Britain spend more, and Germany is not far behind. While we spend most of our equipment for salaries and upgrading, they have to keep a huge cold war infrastructure running. Also they have the obligatory conflicts with their satellite republics, aside from the fact that one would have a hard time finding an army with even worse morale.
Does anybody really think that Russia will launch an attack on Europe?

Far more likely they will become ever more associated with the EU. We are pumping in both the money and the machinery they need after all. For them to rely solely on the rapidly growing asian countries would be too risky, as rapidly growing countries can fall just as quickly. From our perspective, Russia is basically an energy provider that is capable of keeping up stability in central Asia. (sorry for this undiplomatic description, but I want to be honest)

Free trade with Europe has a lot more to offer for them than intimidating us. While Russia has its history and you cannot expect this country to change its harsh way of conducting foreign policy quickly, it is the connection of our economies that matters most to them. And this is also the current doctrine of our foreign policy with Russia: Wandel durch Verflechtung.

This isn´t far from the way we got connected with each other in Western Europe. Once the primary industries are in touch, you cannot assault your neighbours anymore. This connection has not only started on the sectors of energy supply and production, but also on the defense sector. I do not exactly expect a nation to attack my country when it is launching our espionage satellites..
Is it surprising that the Russians use tricky methods to improve their negotiation position with the EU? Hardly. That´s what the French and the Poles are doing all the time. And this while they are IN the EU.

Schmidt is surprisingly undiplomatic I have to agree. But to be honest, compared to a nation with a defense budget of more than 400 billion dollars that gloats about its capability of global interventions, I hardly know who could be more dangerous anyway.

"Were the nations of Europe not economically engaged in the later half of the nineteenth and first half of the twentieth century?"

Not comparably. Especially in the arming sector every major power guarded its own production and stressed its independence. Today we have our manufacturers of aircrafts linked together closely, with EADS and Irkut owning shares of each other. This is only the most obvious example.
Something like this would have been unimaginable in the 19th century.

"Business and trade have always offered much to the participants, does tend to mitigate against war, but does not represent a cure."

That´s right - if you do not include "primary industries" like the arming or the energy sector. Without having them 100% under control, waging a war against the country controlling the other part of the infrastructure would be... rather difficult :)

@ David

We know about you alignment with the current american government. Have you ever considered the possibility that european valuation of the dangers of foreign powers might not change essentially with a different american government?

The commentatorship in the german press does hint to that conclusion. In case you´d like to see a sample:

http://www.spiegel.de/politik/ausland/0,1518,518896,00.html

"In terms of the perceived threat of US power, would you agreed that that the assessment in Europe of the Clinton administration was qualitatively different (ie less reckless/threatening)?"

Yes I would agree. But this is a thing of the past. I posted the link to specifically underscore this. In the past, democratic politicians have been treated very forthcoming in our press compared to republican ones. And this article exemplarily shows the change here.