Germany fears recession if heavy reliance on Russian gas is reduced too quickly

Germany is in the teeth of a moral and economic dilemma – how to get off Russian gas without harming its economy.

At the moment, Russia supplies 40% of Germany’s gas, heating homes and powering its large industrial sector.

But every single day that Russia’s fossil fuels flow from the east, the West sends huge sums of money back the other way, effectively financing the war in Ukraine.

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Europe as a whole, for example, pays Russia around £700m per day for oil and gas.

And since the war began, Germany has paid a total of nearly £7.5bn.

Most agree on the need to stop using Russian oil and gas, but there is little consensus on how fast to do it, preventing a Europe-wide agreement on an embargo.

In large part that’s because Germany doesn’t want to damage its economy.

Network supplies 60m homes in Germany

We visited Mallnow compressor station near the eastern border with Poland to find out more. As elsewhere, much of the gas hissing through its pipes comes from Russia, powering businesses, heating homes.

Plant spokesperson Nicola Regensburger told me it provided a critical supply. The plant “is particularly important for Europe”, she said, because it is part of a network that supplies 60m homes in Germany as well as pushing gas through to western Europe.

At the India-Dreusicke plastic mouldings factory outside Berlin, Thomas Dreusicke told me he fears a sudden disruption to that supply above all else. If Vladimir Putin turns off the gas as he has done elsewhere in Poland and Bulgaria, rationing could follow and his company would fold.

“We don’t have problems with heat but we do have problems if the energy is cut off,” he said. “We are dead. We don’t produce any more.”

As long as that doesn’t happen, he insisted he was happy to shoulder more expensive energy if it meant buying from sources other than Russia.

He said: “We were founded in 1929 … we have survived different crises, and there will be life after Putin, 100%.”

Fears of a recession if Russian reliance is reduced too quickly

But his employees were not so confident. Some said of course they wanted the war in Ukraine to stop, but that they were fearful of what even a controlled reduction in cheap Russian gas could bring.

Quality manager Silke Reichardt said: “The whole cost of living is going up. Food is going up, rents are going up, all the travel costs are going up, so it’s quite distressing.”

That’s what Germany’s government is focused on. It fears a recession if its heavy reliance on Russian gas is reduced too quickly and has said it can be free of that supply by 2024.

Even Jennifer Morgan, Germany’s climate change envoy, agrees. “Germany is moving as fast as we possibly can to get off fossil fuels,” she said. “We’re seeing that in the phase out of coal and you’re seeing that moving forward on oil and moving as fast as we can on gas.

“But (we’re) doing that in a balanced way … to make sure that Germany is a stable and balanced place.”

‘We’re in a situation where we’re now dependent’

Government critics say this whole situation was largely avoidable. Astrid Hamker, president of the Christian Democratic Union’s economic council, said: “The problem is that Germany is the only industrialised country in the world that is simultaneously phasing out nuclear power and coal power.

“We have simply narrowed the supply of energy too much and are now in the situation where we are dependent.”

And some are warning that even if Europe could agree on a Russian gas embargo, it might not work.

Head of the IFO institute for economic research, Professor Cleumens Fuest, said: “We need to remind ourselves the Russian Central Bank still has $300bn in foreign reserves, a lot of that in the form of gold in the cellar, so this can be spent, which means a short term impact on the war is relatively unlikely.”

It seems there are no good options available to the world’s fourth largest economy. The war in Ukraine rumbles on, and Germany’s dilemma continues.

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