View from Brussels: Germany’s good intentions turn sour

Germany is feeling the pinch of Russia’s war on Ukraine. From energy and transport policies to trade relations, the Bundesrepublik is struggling to get anything right since Angela Merkel left office last year.

The German industrial powerhouse’s unhealthy dependence on Russian fossil fuel imports is by this point extremely well documented. Berlin has lobbied against plans to curb gas shipments and helped write big loopholes into an oil embargo.

Russia’s Nord Stream 2 gas pipeline under the Baltic Sea is now permanently mothballed and its predecessor – Nord Stream 1 – is only operating at a fraction of its capacity due to what Moscow insists are maintenance issues.

Efforts to refill gas storage facilities before the winter heating season arrives are ongoing and may yet pay off, while Chancellor Olaf Scholz is doing his utmost to provide Russia with the spare parts it needs to repair the pipeline.

Nevertheless, the situation is tense and Germany is ultimately fully exposed to the whims of the Kremlin. As this war has proved so far, predictions are difficult to make and the impossible can become possible overnight.

That is why Berlin has launched a series of measures to try and curb energy demand, cut waste and frugally get through this crunch period. But the main problem is that none of them are as-yet binding.

Whereas countries like Spain have issued decrees ordering businesses to turn down their air conditioning, switch off lights at night and even telling employees to stop wearing ties so they are naturally cooler, Germany is as usual dragging its feet.

Renewable energy build-up admittedly continues: in the first half of the year nearly half of power demand was met by clean energy – a record – and the government has supercharged its existing targets.

But a big energy vacuum remains and is forcing Berlin to backtrack on two of its big power tenets: the phaseout of nuclear and coal power.

Olaf Scholz has recently suggested that extending the operating lifetimes of Germany’s existing nuclear reactors could now be the best option, while shuttered coal units are coming back online in place of prohibitively expensive gas plants.

What impact this will have on Germany’s climate policies and emission targets is difficult to fathom at this stage and will all depend on how long the coal plants will have to stay hooked up to the grid.

In any case, it is increasing the Bundesrepublik’s green workload in the second half of the decade quite drastically. Cuts not made now will have to be made at a later date.

Another particularly radical – by German standards – policy has turned sour in recent weeks,  despite its mega-popularity. A €9 passenger ticket, valid across the country for local and regional transport might be discontinued.

Intended to cut car journeys and save oil, as well as bring down carbon emissions, the €9 ticket is likely to be a victim of its own success, as frugal members of the German government are lobbying to scrap it when it comes up for renewal.

Packed station platforms and standing-room-only trains have paradoxically been cited as reasons not to make the ticket a permanent fixture of Germany’s transport offer by some politicians, who wince at the costs attached to the policy.

Finance Minister Christian Lindner is not a fan of the €9 ticket and insists that “it is not fair” because it gets subsidies and not everyone can or will use the transport voucher. That debate will likely last for a while longer.

Lindner’s liberal party is the same one that has resisted all attempts by its green coalition partners to impose a speed limit on Germany’s autobahns, despite the energy and emissions savings such a policy would bring.

Other costs

Faced with increasingly painful energy bills and logistic problems thanks to the drying waterways of Europe amid ongoing droughts and heatwaves, Germany’s industry also has to think about geopolitics.

China’s ongoing tensions with Taiwan threaten to upset the Deutsche applecart further, if Europe is dragged more into the United States’ stand-off with Beijing. Trade disputes could make life even more difficult for Germany’s manufacturers.

According to a new report by the ifo institute for economic research, a trade war would cost Germany tens of billions of euros. Ifo calculates that the price tag would be six times what Brexit has cost the German economy.

Car manufacturers, vehicle parts and machinery would be the big losers if industry is forced to onshore supply chains. Ifo suggests that industries should be looking for a diversified list of suppliers to cut dependencies, advice that was not heeded in energy policy in the past.

The report calculates that a long-wished-for EU-US trade deal could cushion some of the negative aspects of a China-Europe decoupling but not all of them. Attempts to broker a commerce pact have failed before and are unlikely in the short-term.

Germany looks to be damned if it does, damned if it doesn’t these days, thanks largely to suspect policy decisions made over the last decade or so. Policies are slowly changing, for the better, but have little chance of easing the short-term pain being felt.

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