Germany is particularly vulnerable to Russian threats to reduce gas flows. The volume of gas that Berlin imports, nearly 52.5 billion cubic meters in 2020, is almost double that of the nearest nation, Italy, with 28 billion.
London: Faced with the dismal performance of his troops in the war against Ukraine, and the disappointing effectiveness of his weapons, Vladimir Putin played his trump card: natural gas. On Monday, Russia’s state-owned Gazprom said it would further halve gas deliveries to Europe via Nord Stream 1 to up to 20% of the pipeline’s capacity from Wednesday. The company cited equipment repairs to a previously unnamed turbine as the reason, but no one believes a single word out of the Kremlin these days. “Putin is playing a treacherous game,” German Energy Minister Robert Habeck said on Tuesday ahead of the Brussels summit to find a solution to the looming problem. “He is trying to weaken the great support for Ukraine and drive a wedge into our society.”
Russia supplied the EU with 40% of its gas last year, and since the invasion of Ukraine, European leaders have held talks on how to reduce its dependence on Russian fossil fuels. In May, the EU agreed to ban all Russian oil imports by sea by the end of the year, but an agreement on the gas ban has taken longer. The vast majority of gas arrives through the huge network of gas pipelines from Russia and Norway. Very little arrives in Europe in the form of liquefied natural gas (LNG) by LNG carriers, the only alternative to gas pipelines. Gazprom completely cut gas supplies to Bulgaria, Denmark, Finland, the Netherlands and Poland over their refusal to comply with a Kremlin order to pay their bills in rubles, instead euros or dollars.
The Brussels summit ended with a voluntary agreement to cut gas consumption by 15% between August and March, in case Russia completely cuts off its supplies. It’s full of compromises and some countries will have exemptions to avoid rationing. An EU diplomat said the plan looked like Emmental cheese – full of holes.
Germany, which imports by far the most Russian gas of any member state, faces a 30% cut. However, many point the finger at Germany for the problem in the first place. The fiasco is a legacy of Angela Merkel, the former German chancellor, who ignored 15 years of warnings from her top energy experts that an overreliance on Russian energy would leave the country vulnerable to blackmail from Putin. Despite repeated warnings about the risk of this dependency, successive German governments have only deepened it, putting the country at risk of Russia exploiting exactly what Putin is doing: using gas as a weapon of war. .
Germany is particularly vulnerable to Russian threats to reduce gas flows. The volume of gas that Berlin imports, nearly 52.5 billion cubic meters in 2020, is almost double that of the nearest nation, Italy, with 28 billion. Since Germany hardly produces its own gas, imports account for 95% of annual consumption, supplying the main manufacturing industries as well as heating hospitals, nursing homes and homes. Gas is delivered to Germany almost exclusively through pipelines and, unlike other EU countries, there are no LNG installations at any of its ports. Nord Stream 1 is by far the most important route for bringing Russian gas to Germany, which means that by shutting down just one pipeline, Russia is cutting Germany’s gas imports by more than half.
Already, German business sentiment has plummeted as rising fuel and property prices are severely hampering growth prospects. The drop in confidence represents a new downward trend, after more than a year of recovery since the lows seen in 2020 when the coronavirus pandemic broke out. “The massive fall in the business climate reflects German companies‘ deep fear of a gas crisis,” said Jorg Kramer, chief economist at Commerzbank. If Putin cuts the gas completely, an increasingly likely scenario, huge swathes of German industry would have to shut down or continue to work part-time. The economic power of Europe would be paralyzed, and with it the rest of Europe.
The European Central Bank (ECB), under pressure from Germany, has started to scale back its quantitative easing, a euphemism for printing money. This means that it can no longer easily redeem the huge sovereign debt incurred by many EU countries, especially Italy. In addition to a looming economic crisis, Italy is simultaneously undergoing a political crisis, which has become the norm in this unstable country. Its Prime Minister, Mario Draghi, an internationally admired former head of the ECB hailed for “saving the euro”, was never elected but was called in 2021 to lead a provisional government of national unity. This unity ended last week when the coalition government decided to boycott a confidence vote. The collapse of Draghi’s government appalled other European leaders and created disbelief among many Italians. When new elections are held in the fall, current polls suggest the vote will yield Western Europe’s most extreme right-wing government, made up of Giorgia Meloni’s post-fascist Brother of Italy party, the Nationalist League and de Forza of former Prime Minister Silvio Berlusconi. Italian party. As leader of the largest party, Ms Meloni, whose illiberal policies closely resemble those of Hungarian Prime Minister Victor Orban, would be the favorite to become prime minister. This prospect would be alarming in any context. In the continental context of Putin’s war in Ukraine, a related energy crisis and the risk of recession, it poses a threat to European unity on several fronts.
Of course, the EU has survived setbacks in the past, from the first Eurozone crisis in 2011-2012 to the migrant crisis of 2015, but it has not been without great economic pain, including the mass youth unemployment and numerous political disruptions. Today it faces the greatest crisis of all at a time when many of its leaders are seen as weak. The EU’s much-vaunted unity in the face of adversity will be tested, not least in the new deal on cutting gas emissions, which is already starting to crack. The ECB belatedly raised interest rates last week, ending eight years of negative rates; the deposit rate is now a whopping 0%! Financial experts consider this decision to be too small and too late, as the Bank of England and the US Federal Reserve have been raising rates for some time. The Euro has already fallen to near parity with the US Dollar and Eurozone inflation is averaging 8.6% and rising. In Spain, inflation is 10%, in Greece 12% and in Estonia 20%. In fact, much of the EU is in the grip of stagflation – while inflation is soaring, growth in the three largest economies, Germany, France and Italy, has slowed or stagnated. Goldman Sachs reported on Wednesday that the euro zone is already contracting and the recession will last at least until the end of the year, citing the disruption of energy supplies from Russia and political instability in Italy as the main causes.
The situation is totally different in Moscow where, despite sanctions, the ruble is at its highest level in eight years and the Kremlin’s coffers are full to bursting due to soaring oil and gas prices. Putin calculates that he is in a much better position to deal with a drop in gas revenues than the EU is to survive the Russian gas supply shutdown – and he is right. His shrewd plan is that as winter bites, having turned the screws in Europe and created economic and political turmoil on the continent, the EU – led by Germany, France and Italy – will press the President Zelenskiy to come to some sort of arrangement with Russia. If that happens, it will be yet another shameful episode in modern European history.