As Russian President Vladimir Putin amassed troops near the Ukraine border, US President Joe Biden pressured German Chancellor Olaf Scholz to cut natural gas imports from Russia and, most notably, to abandon the Nord Stream 2 pipeline, impose sanctions on Russia and send weapons to Ukraine. Yet Scholz put diplomacy before sanctions and sabre-rattling. With French President Emmanuel Macron, he sought to revive the Minsk agreement that had established a framework for negotiations following the Russian occupation of Crimea and the declaration of independence of Donetsk and Luhansk regions in 2014. The Wall Street Journal called Germany NATO’s “weakest link.”
Then came the turnaround: on February 22, the German government halted the Nord Stream 2 approval process. On February 26, two days after the Russian invasion of Ukraine, Germany joined the US, Britain, Canada, France, Italy and the EU Commission to impose new sanctions on Russia. The Germans also began sending weapons to Ukraine. One day later, Scholz announced the largest rearmament program since the Second World War.
More guns, less butter
While in office, former US President Donald Trump had called out the Germans for not paying their fair share to NATO. Then Chancellor Angela Merkel played down Trump’s demands for higher arms spending. After all, they came from a president devoid of diplomatic manners. Behind the scenes, however, the German government stepped up its military spending, led by Scholz, who was finance minister at the time. German arms spending had been on the rise since 2014, but from 2018 on the increases grew larger every year. Prior to Russia’s invasion, Germany became the world champion in terms of spending growth. But it still wasn’t enough to meet the NATO benchmark of two percent of GDP. In 2020, German military spending amounted to 1.4 percent of GDP, compared to 3.7 in the US, 2.2 in Britain and France, and 1.7 in China.
Not even members of the Social Democrats’ caucus knew that Scholz had decided to boost spending enough to reach the NATO benchmark before the end of the year. They were as surprised as anybody else in the federal parliament when Scholz announced a €100 billion fund to this end. He didn’t say how the money was to be spent but the arms industry and foreign policy hawks were quick to offer their suggestions, such as reinstating conscription, which the Merkel government had scrapped in 2010, and acquiring nuclear weapons as well as F-35 fighter jets.
While arms company stocks shot up, fiscal policy wonks tried to figure out the economics of Scholz’s spending plans. Germany is bound by the so-called debt-brake, a clause in the constitution that limits public deficits to 0.35 percent of GDP. In case of emergencies, such as the coronavirus pandemic, this rule can be relaxed by a two-thirds majority in the federal parliament. The exemption was already in place this year before Scholz launched his rearmament plans, but in future members of parliament will have to decide if rearmament constitutes some sort of permanent emergency or whether other expenditures can be trimmed to meet NATO’s military-spending benchmark and comply with the debt-brake at the same time. Finance Minister Christian Lindner, a Liberal, already made it clear that higher taxes are not an option. As the government amasses more guns, somebody will get less butter.
Better American gas than Russian
And Germans will get more American gas. Maybe. US elites have been criticizing German imports of natural gas from Russia for a long time. Contrary to the received wisdom that trade serves the interests of trading partners and therefore trumps great power conflicts, natural gas from Russia is presented as a one-sided power-tool in Russian hands—as if Russia didn’t depend on export earnings. At the same time, German elites wavered between continued junior partnership with the US and détente with the Russians.
The commodity super-cycle from 2003 (coinciding with the bombing of Iraq) to 2014 made the US a player in the natural gas market. Prices were eventually high enough to lift American fracked gas above the break-even point. However, lower production costs secured the competitive advantage of Russian gas. Market logic had to be suspended as political pressures to free Germany from its dependence on illiberal Russia mounted. On top of securing their power over Germany, as well as Europe more generally, the US also wanted to sell gas.
On February 22, German vacillation stopped, sort of. The federal government pulled the plug on Nord Stream 2, declared it would build terminals to unload liquified natural gas from the US and phase out imports from Russia. Just not yet. Pipelines other than Nord Stream 2 are still delivering.
In the face of sky-rocketing energy prices and insecurity over future supplies, the government is busy assuring people that they don’t have to worry. They won’t have to sit in the dark and freeze. At the same time, political and business circles are wrangling over securing energy supplies. The most common proposal is to continue relying on nuclear and coal-fired power plants longer than planned. Nuclear power production is slated to cease at the end of this year; the use of coal is supposed to end by 2038. The installation of solar and wind capacity is accelerating. But natural gas is mostly used for heating, so shortfalls in gas supplies, should they occur, can’t be compensated by generating more electricity unless heating systems are converted. The only thing that is certain at this point is the rising cost of energy, with no return to lower prices in sight.
Germany’s last Social Democratic Chancellor, Gerhard Schröder, ordered the German air force to take part in the 1999 NATO bombing of Yugoslavia, but it stayed out of the bombing and occupation of Iraq in 2003. At the same time as the ‘Coalition of the Willing’ invaded Iraq, Schröder shocked his party and voters by announcing the deepest cuts to the German welfare state since the Great Depression of the 1930s. These cuts were extremely unpopular. They relegated the Social Democrats to opposition benches or the role of junior partner of Angela Merkel until Scholz’s inauguration in December 2021. The preceding election campaign was dominated by hints at a Green New Deal. Though Social Democrats and Greens, who went on to form a coalition with the Liberals, avoided the term, they were quite open about their intentions to spend public money to contain climate change and guarantee a minimum of social cohesion. How they would raise this money despite the declared intentions of their Liberal coalition partner to adhere to debt-brake rules and not raise taxes was unclear.
Right from the start, the government looked weak, Scholz’s approval rates declined. But they shot up with his turn to rearmament and sanctions on Russia. In the federal parliament, where he announced the new policy, he received standing ovations. Members of parliament were surprised; they hadn’t expected this change of course. But, with the exception of Die Linke and the far-right Alternative für Deutschland, they liked what they heard. Germany’s political class was united with most of the electorate. Germany was united with NATO.
But it’s unlikely domestic and NATO unity will last. Spiralling energy prices have already triggered calls for the state to restore cheap energy supplies—sometimes coming from the same political circles that were already calling for higher interest rates to fight inflation before the invasion of Ukraine. At that time, these calls aimed at containing what some business circles, mostly fossil capital, saw as the threat of a Green New Deal. That threat is gone. The movement against climate change suffered a defeat and fossil capital has made a massive comeback. However, enthusiasm for Ukrainian resistance to Russian invaders will ebb when it becomes evident that Ukraine is a pawn in the great power game, that NATO forces aren’t always the good guys, and when high prices for guns and gas gnaw away steadily at low incomes.
Ingo Schmidt is an economist and works as the Coordinator of the Labour Studies Program at Athabasca University.