Right now German grand strategy is in the crosshairs of criticism. Germany is faulted for having appeased Putin. It is faulted for having neglected the Bundeswehr and on top of that, the Federal Republic is facing an energy crisis like none other in its history. Gas deliveries from Russia have been severely curtailed if not halted altogether, exposing the dependence of German energy consumers - both households and industry - on pipelined gas from the East. Critics of German strategy point out that the risks of dependence on Putin should have been obvious at least since the Russian annexation of Crimea in 2014. And despite that, the share of Russian gas in German consumption continued to increase not decrease. At the same time, Germany phased out its nuclear reactors and failed to accelerate the energy transition, leaving itself even more vulnerable.
It wasn't "naive". Germany could have a functional economy, or it could have NATO expansion. It tried to have both, and when these conflicting agendas came into conflict, they chose poorly.
Now EU will spend $1T to enforce an agenda that consists of NATO expansion, and no federalism for Ukraine.
But hey, NATO was irrelevant 15 years ago and NATO is not irrelevant now. The US sickness for pursuing military solutions to adult problems has a new constituency.
Strategic snare? While definitely not the only source of German economic success, having reliable, cheap source of energy and predictability of prices through longer term contracts made (and still makes) perfect economic sense and immensely benefited German economy. Soviet Union / Russia delivered without missing a beat for 40+ years through all the geopolitical turmoil and numerous provocations that invariably came from the West (ridiculous Skripal and Navalny affairs come to mind).
In the current crisis the EU political class proved itself to be:
(a) pathetic hypocrites because they never sanctioned Saudi Arabian oil no matter how many Yemenis they bombed or starved with their blockades, this way they also exposed their own deep racism as obviously for these beacons of liberal values blond European lives are infinitely more important than brown Arab ones.
(b) compradors, not better than ones in Columbia or Guatemala - working in interest of US but not their home country or EU as a whole. It was entirely predictable that sanctioning / boycotting Russian gas (and other commodities) will cause economic and social hardship, yet none of these geniuses wanted to seriously engage either on Minsk I or II, or in December of 2021 when Russia offered a new European security architecture with NATO which would have prevented the war, they dismissed it and openly mocked it.
(c) plain morons - take for example Ursula Von den Leyen's recent tweet how Ukraine will supply EU with electricity this winter, alleviating the energy crisis in EU while providing much needed funds for bankrupt Ukraine. Well, Russian reply didn't come through twitter but they promptly blew up CHPP-5 (biggest combined coal power and heating plant in Ukraine, finally taking a page from NATO playbook against Serbia, Libya, Iraq) giving the clear message that if soon EU doesn't push Ukraine towards some negotiation, this winter EU will have to supply Ukraine with some power, in addition to provide for even more refugees from frozen lands.
It is not as simple as merely thinking about the industrial end point in Germany that for instance happens to be the BMW Assembly Plant in Regensburg. It is critically important to understand the supply chains to that assembly plant. A good percentage of that supply chain in now rooted in Eastern Europe.
Add to this the metals industry that supplies e.g. aluminium (“electricity in solid form”) to Germany’s autosector, a sector reportedly facing an existential threat.
There is a 13th century German proverb that goes: Diz ſagent uns die wîſen, ein nagel behalt ein îſen, ein îſen ein ros, ein ros ein man, ein man ein burc, der ſtrîten kan. ("The wise tell us that a nail keeps a shoe, a shoe a horse, a horse a man, a man a castle, that can fight.")
You probably know its English derivative.
For want of a nail the shoe was lost,
for want of a shoe the horse was lost,
for want of a horse the knight was lost,
for want of a knight the battle was lost,
for want of a battle the kingdom was lost.
So a kingdom was lost—all for want of a nail.
Understanding the economics of Germany’s autosector requires far more analysis than merely understanding Germany’s direct exposure to Russian energy supplies.
It may very well be more morality tale than economic analysis, but which one of those decides the fate of the next German (and likely pan-European) generation that comes from these energy decisions? You have often argued yourself in other contexts (e.g climate change) that the interaction of morality and economics is not one where pure technocratic decisions are value-neutral.
I found the arguments non-convincing and full of holes and at time disingenuous.
The chart with the price of NG (US, Germany, Dutch hub spot prices) are only until 2016.
US market gets all gas internally, and was overflowing in that time period with shale gas, for which an outlet needed to be found. Thus the fierce opposition against Russian NS2 and prodding for the present war. Hungary's president Orban has described recently the staggering profits energy companies in US are making now.
The Poles, in the past, have sued Gazprom to sell them at spot prices. They won in the EU courts and got their wish. But the incomplete chart provided would have shown how the Dutch Hub prices have exploded and far exceed long term Gazprom contracts. And this is before the war. So much the lines have changed, that Poland again has sued Gazprom again, but this time to go for long term contract instead of spot prices and demanding some payback for asking for too much money.
With Russian gas off the market, it is not only Germany, but the entire Western Europe that suffers, with everyone chasing that ever more illusory and more expensive LNG tanker, because there are not enough of them, there are not enough trains for loading and unloading LNG, and there are not spare capacity for producing NG in the rest of the world.
Coal is a problem and wind solar are intermittent while nuclear is hard to build.
Russia was trying to buy peace with cheap gas. Europe gets, hopefully, its much deserved comeuppance. While Germany has not paid enough for the sins of WWII, by bringing the Soviet regime in the heart of Europe and giving a leas in life to the communist dictatorship (the emphasis in dictatorship) to begin with, with attacking Russia.
If we look at world natural gas production and consumption for the period, say, 2000-2022, the surprising thing is the smooth growth of both, from about 2 trillion cubic meters to 4 trillion cu.m.
In the first decade, prices were consistently above $6, and in the second decade consistently below $6.
Currently it's about $8.50. Just as interesting is the speed at which prices spike and fall, usually within one year.
It's hard not to come to the conclusion that price variations have little to do with supply or demand, and a lot to do with pure politics. But overall, it's like the weather in a lot of places: if you don't like it just wait a bit.
Diz ſagent uns die wîſen, ein nagel behalt ein îſen, ein îſen ein ros, ein ros ein man, ein man ein burc, der ſtrîten kan. ("The wise tell us that a nail keeps a shoe, a shoe a horse, a horse a man, a man a castle, that can fight.")
An interesting collection of circular arguments against cheap Russian gas being a factor in German exports.
1) If the gas is cheap, then by definition it is a small factor in end value.
2) Just because other nations didn't take advantage of cheap gas to be able to succeed in exports, doesn't mean that the cheap gas isn't a significant or major factor. There is nothing which says that only 1 factor drives success - the real world of business competition almost always involves many factors.
3) Pointing at pre-2022 or even pre-late 2021 studies is utterly ludicrous. What we are witnessing in real time is just how important cheap energy was for Germany competing in the world export market.
4) Accelerating the energy transition - good lord, just how much more should Germany have accelerated its energy transition after Energiewende and ongoing massive subsidies for alternative energy? It is highly problematic that this blithe assumption of more money for alternative energy would have prevented this dependence on cheap Russian gas problem.
Guilty as charged! But I'm definitely happy and glad to be corrected by your intellectual and academic rigor professor. Cheers to you and your exceptional brain!
It wasn't "naive". Germany could have a functional economy, or it could have NATO expansion. It tried to have both, and when these conflicting agendas came into conflict, they chose poorly.
Now EU will spend $1T to enforce an agenda that consists of NATO expansion, and no federalism for Ukraine.
But hey, NATO was irrelevant 15 years ago and NATO is not irrelevant now. The US sickness for pursuing military solutions to adult problems has a new constituency.
Strategic snare? While definitely not the only source of German economic success, having reliable, cheap source of energy and predictability of prices through longer term contracts made (and still makes) perfect economic sense and immensely benefited German economy. Soviet Union / Russia delivered without missing a beat for 40+ years through all the geopolitical turmoil and numerous provocations that invariably came from the West (ridiculous Skripal and Navalny affairs come to mind).
In the current crisis the EU political class proved itself to be:
(a) pathetic hypocrites because they never sanctioned Saudi Arabian oil no matter how many Yemenis they bombed or starved with their blockades, this way they also exposed their own deep racism as obviously for these beacons of liberal values blond European lives are infinitely more important than brown Arab ones.
(b) compradors, not better than ones in Columbia or Guatemala - working in interest of US but not their home country or EU as a whole. It was entirely predictable that sanctioning / boycotting Russian gas (and other commodities) will cause economic and social hardship, yet none of these geniuses wanted to seriously engage either on Minsk I or II, or in December of 2021 when Russia offered a new European security architecture with NATO which would have prevented the war, they dismissed it and openly mocked it.
(c) plain morons - take for example Ursula Von den Leyen's recent tweet how Ukraine will supply EU with electricity this winter, alleviating the energy crisis in EU while providing much needed funds for bankrupt Ukraine. Well, Russian reply didn't come through twitter but they promptly blew up CHPP-5 (biggest combined coal power and heating plant in Ukraine, finally taking a page from NATO playbook against Serbia, Libya, Iraq) giving the clear message that if soon EU doesn't push Ukraine towards some negotiation, this winter EU will have to supply Ukraine with some power, in addition to provide for even more refugees from frozen lands.
It is not as simple as merely thinking about the industrial end point in Germany that for instance happens to be the BMW Assembly Plant in Regensburg. It is critically important to understand the supply chains to that assembly plant. A good percentage of that supply chain in now rooted in Eastern Europe.
https://www.statista.com/statistics/1115534/cee-car-components-and-parts-export/
Add to this the metals industry that supplies e.g. aluminium (“electricity in solid form”) to Germany’s autosector, a sector reportedly facing an existential threat.
https://www.ft.com/content/46d3c3fb-e79a-464c-afe1-7079d3e4f23c
There is a 13th century German proverb that goes: Diz ſagent uns die wîſen, ein nagel behalt ein îſen, ein îſen ein ros, ein ros ein man, ein man ein burc, der ſtrîten kan. ("The wise tell us that a nail keeps a shoe, a shoe a horse, a horse a man, a man a castle, that can fight.")
You probably know its English derivative.
For want of a nail the shoe was lost,
for want of a shoe the horse was lost,
for want of a horse the knight was lost,
for want of a knight the battle was lost,
for want of a battle the kingdom was lost.
So a kingdom was lost—all for want of a nail.
Understanding the economics of Germany’s autosector requires far more analysis than merely understanding Germany’s direct exposure to Russian energy supplies.
It may very well be more morality tale than economic analysis, but which one of those decides the fate of the next German (and likely pan-European) generation that comes from these energy decisions? You have often argued yourself in other contexts (e.g climate change) that the interaction of morality and economics is not one where pure technocratic decisions are value-neutral.
I found the arguments non-convincing and full of holes and at time disingenuous.
The chart with the price of NG (US, Germany, Dutch hub spot prices) are only until 2016.
US market gets all gas internally, and was overflowing in that time period with shale gas, for which an outlet needed to be found. Thus the fierce opposition against Russian NS2 and prodding for the present war. Hungary's president Orban has described recently the staggering profits energy companies in US are making now.
The Poles, in the past, have sued Gazprom to sell them at spot prices. They won in the EU courts and got their wish. But the incomplete chart provided would have shown how the Dutch Hub prices have exploded and far exceed long term Gazprom contracts. And this is before the war. So much the lines have changed, that Poland again has sued Gazprom again, but this time to go for long term contract instead of spot prices and demanding some payback for asking for too much money.
With Russian gas off the market, it is not only Germany, but the entire Western Europe that suffers, with everyone chasing that ever more illusory and more expensive LNG tanker, because there are not enough of them, there are not enough trains for loading and unloading LNG, and there are not spare capacity for producing NG in the rest of the world.
Coal is a problem and wind solar are intermittent while nuclear is hard to build.
Russia was trying to buy peace with cheap gas. Europe gets, hopefully, its much deserved comeuppance. While Germany has not paid enough for the sins of WWII, by bringing the Soviet regime in the heart of Europe and giving a leas in life to the communist dictatorship (the emphasis in dictatorship) to begin with, with attacking Russia.
If we look at world natural gas production and consumption for the period, say, 2000-2022, the surprising thing is the smooth growth of both, from about 2 trillion cubic meters to 4 trillion cu.m.
https://www.iea.org/data-and-statistics/charts/world-natural-gas-production-by-region-1973-2020
https://www.statista.com/statistics/282717/global-natural-gas-consumption/
But if we look at the world price over the same time, it's literally all over the place, from US$2.00 to $20.00.
https://www.macrotrends.net/2478/natural-gas-prices-historical-chart
In the first decade, prices were consistently above $6, and in the second decade consistently below $6.
Currently it's about $8.50. Just as interesting is the speed at which prices spike and fall, usually within one year.
It's hard not to come to the conclusion that price variations have little to do with supply or demand, and a lot to do with pure politics. But overall, it's like the weather in a lot of places: if you don't like it just wait a bit.
For those interested youtube will auto translate to English
Diz ſagent uns die wîſen, ein nagel behalt ein îſen, ein îſen ein ros, ein ros ein man, ein man ein burc, der ſtrîten kan. ("The wise tell us that a nail keeps a shoe, a shoe a horse, a horse a man, a man a castle, that can fight.")
An interesting collection of circular arguments against cheap Russian gas being a factor in German exports.
1) If the gas is cheap, then by definition it is a small factor in end value.
2) Just because other nations didn't take advantage of cheap gas to be able to succeed in exports, doesn't mean that the cheap gas isn't a significant or major factor. There is nothing which says that only 1 factor drives success - the real world of business competition almost always involves many factors.
3) Pointing at pre-2022 or even pre-late 2021 studies is utterly ludicrous. What we are witnessing in real time is just how important cheap energy was for Germany competing in the world export market.
4) Accelerating the energy transition - good lord, just how much more should Germany have accelerated its energy transition after Energiewende and ongoing massive subsidies for alternative energy? It is highly problematic that this blithe assumption of more money for alternative energy would have prevented this dependence on cheap Russian gas problem.
Who cares how much the gas cost? The point is they’re entirely reliant on it and now they’re fucked.
Adam is there a good book in English that looks at the Germany-Russia relationship since WW1?
Thanks. Good to know.
Guilty as charged! But I'm definitely happy and glad to be corrected by your intellectual and academic rigor professor. Cheers to you and your exceptional brain!
Thoughtful. Enjoyed the video of your speech too, in my every other sixth word fluency.
What would the other economic reasons for ostpolitik be? Markets for German exports and mineral imports?