A ‘sharp recession’ lies ahead for Germany should it be cut off from the Russian gas it is so badly addicted to.
Germany’s energy situation does not appear to be getting any better, with a recently released report suggesting that the country would fall into a “sharp recession” should it suddenly lose access to Russian gas.
While Europe as a whole appears keen to implement harsh embargos on Russian energy imports, Germany’s chronic addiction to Russian gas has put a wrench in such works, with authorities in the country having expressed disbelief as to how the addiction issue was ever able to become so bad in the first place.
Though politicians have been sparring with each other regarding who is to blame for the crisis, what is clear that the Russian gas habit has now put the German economy in mortal peril, with a report published on Wednesday predicting a serious recession should Russian gas disappear overnight.
“If gas supplies were to be cut off, the German economy would undergo a sharp recession,” said Stefan Kooths, vice-president of the Kiel Institute for the World Economy which is responsible for penning the study.
The report claims that such a cut-off would result in €220 billion of German economic activity being put at risk over two years, though Kooths warned that knee-jerk policy reactions to this danger could cause issues elsewhere.
“Policymakers should be careful not to provide poorly targeted transfers to cushion high energy prices,” the economy expert said. “If such support schemes are handed out on a wide front, it will further drive up inflation and undermine the important signaling effect of higher energy prices.”
“This in turn exacerbates the problems of low-income households and increases overall economic costs,” he went on to say.
As the Ukraine crisis rages on, many within the European Union have expressed a desire to target Russian energy imports with sanctions and bans in the hopes of curbing Moscow’s war machine.
Elected EU representatives last week demanded an “immediate” embargo be implemented against Russian coal, oil, nuclear energy and gas.
Despite a resolution calling for such a ban being passed in Europe’s parliament, no such measure has materialised, with only a limited future ban on Russian coal being pencilled in by the political bloc.
For gas in particular, this failure is most likely due to an extreme Europe-wide overreliance on Russian gas, with Germany, in particular, being heavily dependent on receiving such energy supplies from Vladimir Putin’s Russia.
This has long been thought of as a potential security risk for both Europe and NATO, with Former US President Donald Trump slamming the Federal Republic for doing nothing to ween itself off the supply during his time in office.
However, like many of the President’s warnings, his calls fell on deaf ears, leaving Germany to scramble towards alternative energy sources — such as expensive Liquified Natural Gas and Renewables — in the hopes of staying afloat now.
In the meantime, Russia has repeatedly threatened to cut the west off from its energy exports itself should they not commit to paying for their fixes in Russian rubles, a demand that Germany and its allies have firmly denied.
Thankfully for the current German government, it looks like such a threat has not come to much so far, with the current Austrian Chancellor, Karl Nehammer, even claiming that Putin has confirmed that Austria’s payments for Russian gas in euros can continue for now.
It is unclear whether this courtesy will be extended to other European nations in light of the previous threats.
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