Germany faces a spring of discontent
The country recorded its highest inflation rate in 40 years
Julia Neumann is struggling to keep her crêpe stand on the market in Nuremberg running as the gas that fires her hotplates doubles in price. Julia Kresser, the florist next door, has similar problems: gas is needed to heat the greenhouses where her flowers are grown, and diesel prices are up for the lorries that deliver them. Both women are battling to keep prices low as more and more German consumers are beginning to feel the squeeze of a mounting economic crisis.
The figures released by Germany’s Federal Statistical Office on Wednesday make for grim reading indeed. Consumer prices have risen by 7.3% in the year to March 2021. This marks the highest inflation rate recorded for over 40 years, comparable only to the spikes of the 1970s when the price in crude oil shot up and caused economic turbulence in the West.
Like what you’re reading? Get the free UnHerd daily email
Already registered? Sign in
The tone struck by European Central Bank president Christine Lagarde when she spoke at an event in Cyprus this week was decidedly gloomy. Calling on Europeans to find “resilience in times of uncertainty”, she warned that the war in Ukraine is not just a human tragedy but “also a significant economic shock, owing to our proximity to Russia and our dependence on its gas and oil”.
This is particularly keenly felt in Germany, whose economic relationship to Russia is impossible to untangle at the speed that the moral and economic circumstances might demand. While Berlin has now managed to source some gas from elsewhere, reducing imports from Russia to 40%, the country is still hugely exposed to price fluctuations triggered by actions in Moscow.
The government is at pains to reassure people that this will not lead to an existential crisis. Economy Minister and Vice-Chancellor Robert Habeck said that “there are currently no supply shortages” and that storage tanks were still a quarter full. But he also triggered the first of three warning stages and created a crisis group that will meet daily to assess the situation.
Meanwhile a report in Russia has suggested that the state-owned supplier Gazprom is “actually considering the possibility to stop gas deliveries to ‘unfriendly countries’ completely”. The deadline for paying for these ‘unfriendly countries’ to pay in roubles is today. Asked about this, Habeck remained defiant: “If Russia was to halt oil and gas deliveries, we will be able to deal with it.” But the third level of the state’s warning system includes rationing policies and sets out priority areas such as hospitals should there not be enough energy supply to satisfy demand.
Germans are also feeling the pressure at the petrol pump where prices have reached record highs. Diesel is now €2.20 a litre, leading industry experts like Frederick Beckmann, who owns the garage chain Q1, to warn that if Germany runs out of diesel, “millions of cars, buses, lorries, tractors, machinery, refuse trucks and some trains” will grind to a halt, “and with it also many parts of our economy”. There is, of course, a worldwide fuel crisis, but again Germany is particularly vulnerable to Russian whims as it imported 30% of its diesel from there last year.
What’s more, Germany imports steel, timber, grain, concrete, car parts, corn, cooking oil and many other products from Ukraine and Russia, which has led to shortages and sharp price increases since the invasion, exacerbating the pre-existing strains from the pandemic. In some parts of Germany it is difficult to buy flour and other affected products as people have begun to stockpile again.
While many of the problems Germany currently experiences are global issues, its dependence on Russia has exposed it particularly sharply to the immediate effects of the war in Ukraine. Lagarde was right to end her speech with an uncharacteristically sharp warning: “The longer the war lasts, the greater the costs are likely to be.”
An expression involving eggs and a basket springs to mind. Only a fool makes his nation reliant on others.
Sometimes I catch myself thinking that the avoidable consequences of bad, ideologically driven choices will shake people out of their myopic certainties and lead to more careful, thoughtful decision making. But that’s not how the deluded mind works. People simply double down. A decade of money printing inspired by ‘modern monetary theory’ – which said old Milton Friedman was a fool and we didn’t need to worry about inflation – and suddenly we have … runaway inflation?? Time to reconsider? Of course not – the magical thinking persists – its only ‘transitory’, or its a ‘temporary supply chain issue’. Or let’s tinker with the data to hide it better. (Asset inflation doesn’t matter – who needs a house?) Next it will be the fault of the war that started long after the inflation did. Similarly, the naïve decision to constrain long term fossil fuel production (rather than consumption) leading to dangerous dependency on autocratic regimes. Do we now see the catastrophic error of our decision making? Nope. We are doubling down – politicians simply declare that we need to shift to ‘green’ technology faster! Never mind that our world will simply stop functioning without fossil fuels, our wealth will evaporate, the masses will starve and our teetering social stability will collapse. Justin Trudeau has already ordered his trillion dollar battery powered private jet – raise the gas tax on the peasants to pay for it! ‘Let them drive Teslas’ is the modern version of ‘let them eat cake’.
“What’s more, Germany imports steel, timber, grain, concrete, car parts, corn, cooking oil and many other products from Ukraine and Russia”
Just like 1940
Meanwhile, Slow Joe allows the US to sit on huge reserves of exportable oil and gas while depleting the Strategic Petroleum Reserve. But *no mean tweets!!*
Oh!!! Those Prussians!!!
(With a nod to Boney M).
‘The government is at pains to reassure people that this will not lead to an existential crisis’
What’s the difference between a ‘crisis’ and an ‘existential crisis’?
Roughly the same as the difference between ‘experience’ and ‘lived experience’.
To paraphrase Sir Humphrey, ‘crisis’ is when the government of the day loses popularity. ‘Existential crisis’ is when it looks set to lose the next election.
Join the discussion
To join the discussion in the comments, become a paid subscriber.
Join like minded readers that support our journalism, read unlimited articles and enjoy other subscriber-only benefits.Subscribe