Bad policy decisions and soaring energy prices have angered the public
There was an almost celebratory mood among German economists this week, triggered by the news that industrial gas consumption fell by 20% — something that supposedly seemed impossible just a few months ago. If one views this demand destruction as positive, there indeed is reason for celebration: German industrial orders are continuing to drop and heavy industries are reducing or stopping production, like the aluminium producer Speira that plans to halve its output, or Arcelor Mittal, the steel producer that will close down two blast furnaces indefinitely.
Outside of the economists’ bubble, however, the German people are less sanguine. In a disastrous interview on a popular German talk show, the Green Vice Chancellor Robert Habeck opined that German companies are not threatened by insolvency, they just might have to stop producing — for an unknown period of time. In the mind of many German politicians and journalists, the approach to the intensifying crisis appears to be to shut down industry, provide bailouts (to companies) and handouts (to the population). Then, once the war in Ukraine is over, things will return to the status quo ante before the Russian invasion.
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This attitude has invited a lot of wishful thinking in Berlin. Despite immense pressure from the public, the phase-out of nuclear energy will remain on the agenda, including the absurd provision to keep two of the three remaining nuclear power plants “in reserve” until April for cases of emergency. In other words, Germany will now pay money to keep nuclear power plants on stand-by, while simultaneously preventing them from producing electricity. Adding insult to injury, neighbouring Hungary is building two new nuclear reactors — not with the help of European companies, but with Russian power giant Rosatom, since Russia’s nuclear industry is exempt from sanctions. And to make matters more absurd, due to the shutdown of European heavy industry, the EU is now importing more aluminium from Russia than in previous years.
There are no long-term plans on how to address these issues: neither fracking nor a significant expansion of nuclear power is planned, and all hopes are on the US to bail out Europe via LNG. Can the continent and its major economic player, Germany, really afford to just turn off large parts of its industry and turn it back on at will? This might work in economics departments and party offices, but no business can plan under such circumstances, so they will either leave or close down for good.
Pressure is now mounting on the German government, with more criticism of Berlin’s course of action surfacing in the public. Based on current polls the coalition of Social Democrats, Greens, and Free Democrats would no longer have a majority, while parties on the Left and Right fringes are creeping upwards. The Greens, who not long ago were riding high in the polls thanks to the personal appeal of Habeck and foreign secretary Annalena Baerbock, are sliding — even the most charismatic politician cannot compensate for the skyrocketing energy prices that are crushing small business and households as well as inflationary pressures on everything from food to toilet paper.
Some have been arguing we are at the peak of the crisis, but this is only the beginning. If current trends continue, European governments will start to fall to pressures from an unhappy public.