In a few weeks there a federal elections in Germany. These are early elections due to a collapse of the government, based on the coaliton of the Social Democrats, the market oriented Free Democrats and the eco-left Greens.
There are a lot of talks explaining the causes of the collapse and discussions about future coalition models, but there is a White Elefant in the room, nobody does mention:
Offically the explaination is, that the coalition partners couldn’t agree on the federal budget and on the future borrowing.
The core of the problem are the extremely negative effects of the sanctions against Russia on the Germany economy and the burden the support of the Ukraine put on the federal budget of Germany.
In a specific sense the economic and political crisis in Germany is a result of the wrong responses of the German government in the Ukraine war.
To understand this, a look back into German history is necessary.
As a conclusion of World War II West-Germany set up 5 pillars in respect to Eastern Europe and Russia:
- The army should be part oft he NATO alliance, but the purpose of the German army was self defence only.
- To show are more pacifistic approach after the aggression of WW II Germany limited itself to exports of weapons to countries without political and military conflicts.
- There shoud be a good understanding with Eastern Europe mainly Poland, the Czech Republic and the Baltic States. A a great gesture Germany gave up all territorial claims regarding former German territories in Selesia and the cities of Stettin, Breslau and Danzig.
- There should also a good understanding with the Soviet Union. As a similar gesture Germany gave up claims regarding Königsberg which is now Kaliningrad.
- To strenghten political ties a enery partnership with Russia was set up. Gaz from Siberia was transported to West-Germany. Remarkable this was achieved during the Cold War and against the opposition of the US government.
- After the fall of the wall the economic cooperation worked as a 6 pillar. Especially Poland, the Czech Republic, Hungary the industrial cooperation laid a a solid industrial basis. Russia remained the biggest gaz and oil exporer to Germany and opened up is markets for German companies.
All this can be described as a successful partnership. It was political as well as an economic model for peace and properity.
After the start of the Ukraine war, the pillar Russia not only was called in question, but destroyed. Partly with intention, partly unintentionally. Furthermore: The sucessful model, in the 70s called Ost-Politik, is now out of balance.
Misconception about the effect of the sanctions against Russia
- The first misconception of the German government, to be fair, one has to say also on the side of the EU and the US, was th miscalculation how quickly the sanctions would show an impact. Out of a feeling of superiority, but also out of a excessive sense of its own economic power, there was the believe, that the Western sanctions would bring Russia to its knees within a few months. Take for example the SWIFT financial transfer system: The believe was, that excluding Russia from SWIFT would have the effect of a „financial atomic bomb“.
- Another misconception was, that the German government out of arrogance also ignored the fact, that sanctions almost always are are double edged sword. The exemption are sanctions against very weak economic countries like Syria, Iraq or Sudan.
- lso in regard to another issue Germany became victim of its own arrogance. Totally convinced of the model of Western type democracy, there was the expectation, that the „rest of the World“ would implement towards Russia the same sanctions as the West. To their surprise, Germany had to accept, that neither Latin America, nor India and not even the Golf states sanctioned Russia, but decided for independence. Surprising as well: China proved to be a close and reliable partner for Russia.
- In this context, the German government also couldn’t imagine, that Russia would be able to sell their oil and gaz so far mainly transported via a vaste pipeline net, on the world market.
- Another error was the wrong analysis, that Russia would not be able to subsitute import goods.
- As one of the most serious miscalculations however proved to be a point, which is so clear from an independent point of view, that it is surprising, that the German government overlooked it. It is proof of the experience, that ideology does lead to a situation, were facts are ignored.
aa) The Russian oil contributed due to the direct Druschba pipeline link mainly to the supply of Eastern Germany and the Berlin airport.
bb) Germany also seemed to have ignored the fact, that Russia was not just a supplier of gaz, but had been the most important gaz supplier among all other global suppliers. cc) The political establishment in Germany didn’t realize or out of political reasons ignored, that the supply of Russian gaz not only meant heat and electricity via power stations, but Russian gaz also meant cheap and direct supply of the chemical and pharmaceutical industry of Germany with hydrocarbons.
dd) The German government also ignored, that Russian oil and gaz had one enormous advantage, that was for decades taken for granted. Russian oil and gaz was cheaper than the one of even so-called friendly countries like Norway.
All of these errors described above have led to a situation in which it can be stated today:
The sanctions against Russia have failed to have their intended effect. The sanctions harm Germany more than Russia. Precisely this conclusion is taboo in Germany. Due to political pressure, not even German business organisations dare to address the issue.
The consequences for the future are serious:
1. for the foreseeable future, German companies will lack the Russian market. Even if sales were not always high: Profitability was high.
2. in many fields in which Germany was strong, their market shares have been taken over by Chinese companies.
3. the enormous cost disadvantage for Germany cannot be compensated for. Instead of cheap Urals delivered via the Druzhba, a barrel of crude oil costs the German industry around 8 dollars more on the world market. The same applies to gas: instead of cheap pipeline gas, Germany buys LNG from the USA, which is many times more expensive.
Germany is so considerably weakened by the sanctions that it is not foreseeable whether it will be able to regain this strength. This economic weakness is further exacerbated by ideologically driven left-green policies: The nuclear power plant and coal phase-out is making energy even more expensive for consumers and industry.
The EU political requirement supported by the German government to ban combustion engines in the future is weakening the German automotive industry and in addition to that will give Chinese car manufacturers a competitive advantage.
What is already clear is that Germany’s low demand is also leading to economic disadvantages for its EU partner states. This is already affecting the Eastern European countries, with a strong local automotive industry which are linked to VW, AUDI and Daimler via a supplier network.
The same is increasingly true for Germany’s trading partners. Germany is not only suffering from any economic weakness. In fact, Germany’s successful business model is being called into question:
Innovative strength combined with cheap Russian energy was the basis of the West German export model. Energy costs are part of all production costs for goods.
With the sanctions, the West German government has sawn off a branch on which it was sitting.
In other words: instead of harming Russia with the sanctions, Germany has mutilated itself with the sanctions.
In addition to that: As described above, the German left-green government has also given up the successful 60 year Ost-Politik-model.
Nevertheless there is the hope, that the economic crisis in Germany, will create the awareness, that
Germany does need Russia as a economic and political partner.
Wolfgang J. Hummel
Senate Administration for Labour and Social Affairs, Berlin
