RE: Storm Clouds Gathering for EUs Germany5 Jul 2022 04:07
Part 2 of 2
“Lots of European countries are net importers of energy and their trade balances have been skewed by prices going through the roof. But Germany is particularly reliant on energy to power its industrial sector, which accounted for 37pc of gas consumption in 2021. In the UK, the figure was 23pc.
Germany imports around 60pc of the energy it uses. Of this, half of all gas and hard coal imports and a third of all oil imports originates in Russia. In total, Germany depends on the Kremlin for about one third of its total energy consumption, according to the London School of Economics.
Berlin is now having to wean itself off Russian hydrocarbons at speed not least because Putin is threatening to close the taps. The government has provided €15bn in credit lines provided to buy gas for storage facilities ahead of the winter.
However, the head of the country’s energy regulators has warned that this may not be sufficient.
At the same time, Germany is adopting a more circumspect attitude towards its second largest export market. For decades, Berlin pursued a “change through trade” policy towards China. But Beijing’s studied ambivalence towards Russia’s invasion of Ukraine, disastrous zero-Covid strategy and persecution of the Uyghurs has altered the calculus.
China has recently given indications that it is prepared to follow Russia’s lead in weaponizing trade. Beijing recently sanctioned Lithuania after the Baltic state hosted a Taiwanese Representative Office and imposed tariffs on Australia imports after officials criticised Chinese efforts to thwart an investigation into the origins of the Covid pandemic. Speaking at the World Economic Forum in Davos earlier this year, Mr Scholz expressed concern over China’s growing power.
And yet, Berlin’s geopolitical pragmatism has been met by something approaching dismay from German industrialists. In an interview with the newspaper Bild am Sonntag at the weekend, Yasmin Fahimi, head of the German Federation of Trade Unions, said: “Because of the gas bottlenecks, entire industries are in danger of permanently collapsing: aluminium, glass, the chemical industry.” And last week, Herbert Diess, the chief executive of Volkswagen, said inflation would spiral even further if Germany reduces the amount of business it does with China. Mr Diess told Der Spiegel that “Germany would look completely different” if it turned away from China, warning that such a move would harm growth, wealth and employment.
The trouble is, Germany is the only major eurozone country that has consistently run a current account surplus. The longer it continues to post deficits, the greater the strain on the currency, which is already approaching parity with the dollar.
The UK and German economies might both be unwell. But the British malaise appears easier to cure. What’s more, the eurozone’s shared currency means Germany’s sickness could be contagious.“
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