A blow to the heart: German industry is suffocating without Russia

MOSCOW, September 13 — PRIME, Andrey Karabyants. Germany is losing power: this country is more dependent on cheap Russian gas than others. Without it, companies and citizens line up for subsidies, and demand for goods falls. The state is ready to provide assistance, but this will once again spur inflation. Problems in the strongest economy in the eurozone will certainly affect the whole of Europe.

Ukraine’s last revenge: gas transit to Europe hangs in the balance


Energy companies enter into contracts for the supply of electricity that they will produce in the future. Such trading requires a “margin deposit” to be paid to the bank in case of an inability to fulfill contractual obligations. Due to the rise in natural gas prices, many market players found themselves on the verge of default, as they cannot fully pass on the increased costs of purchasing fuel to consumers.

At the end of last week, VNG, a member of the EnBW group, applied for financial assistance from the government. Without this money, it is not able to continue its activities due to high gas prices.

Earlier, the German coalition government led by the Social Democrat Olaf Scholz decided to provide financial assistance to another player – Uniper. Experts estimate its volume at 19 billion euros. Uniper is one of the leaders in the German energy sector, before the start of the special operation in Ukraine, it was the main buyer of Russian gas.

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Another German energy company, RWE, is not yet planning to apply for government bailouts, but has been forced to borrow 9 billion euros to stay afloat.

On September 6, the Norwegian oil and gas company Equinor reported that more than 1.5 trillion euros would eventually be needed to prevent the default of European market participants.


However, the provision of financial assistance cannot stop the rise in prices. The German government is allocating 65 billion euros in subsidies for those segments of the population who will not be able to pay their electricity bills this winter.

Chancellor Scholz promised in early September to provide funds for low-income families, students and retirees, as well as to impose a ceiling on electricity prices. In addition, the German government supports the proposal of the EC to deprive those energy companies that use other types of energy carriers instead of gas, including renewable energy sources.

The allocation of subsidies is a necessity, since the rapid rise in the price of electricity before the heating season is already causing protests from the population. However, the Dutch banking group ING Groep NV believes that 65 billion euros is not enough for this.

“The announced aid package will bring some relief to the underprivileged. But it is doubtful that this package will be enough to fully offset the increased costs of electricity,” says ING Groep NV economist Karsten Brzhetsky.

Insufficient support from companies and the public threatens the German economy with a recession, which could be followed by a full-blown economic crisis.

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Commerzbank economist Jörg Kraemer warns that the Berlin aid package creates the illusion that part of the population will be protected from rising energy prices. However, this approach significantly increases the risks of rising consumer prices and accelerating inflation.

Greg Fusesi of JPMorgan Chase & Co. estimates that a €10bn cost subsidy could reduce it by 0.6%. At JPMorgan Chase & Co. recognize that after the shutdown of Nord Stream and the reduction in Russian gas supplies to Germany, the risks of accelerating inflation will increase significantly. The situation may worsen if, due to the aggravation of the military situation, the transit of Russian gas through Ukraine to Europe, which now amounts to 40-43 million cubic meters, is completely stopped. m/day


Inflation and cutbacks in Russian gas supplies led to a decrease in orders for the supply of industrial goods in Germany. Their number has been declining for six consecutive months.

According to updated data, demand for industrial goods in June – primarily for consumer goods, including pharmaceutical products – fell by 1.1%. Experts expected a reduction of 0.7%.
Germany spends huge sums on building gas reserves before the start of the heating season. The German government plans to fill underground gas storage facilities to 95% by November 1st. Even if the planned volume is accumulated, expensive gas will become a heavy burden for the German economy – not only for industry, but also for the service sector, which has not yet recovered from the losses inflicted during the coronavirus pandemic.

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Gas prices in Europe

Europe in shock: countries one by one betray it for the sake of Russian gas

“Businesses are still experiencing great difficulty in fulfilling orders, as the crisis in Ukraine caused supply disruptions. In addition, distortions (in the economy – ed.) caused by Covid-19 remain,” the German statistical office said in a statement.

In early September, S&P Global reported a slowdown in industrial production in many regions of the euro area due to a decrease in the purchasing power of European consumers.

Barclays predicts that Germany’s GDP could shrink by 2.3% this year, more than any other European country. The opinion is already being expressed in the West that the “German economic miracle” would have been impossible without cheap energy sources from Russia. There is no doubt that such a failure of the region’s leading economy will be reflected in the rest of Europe – and this, judging by the pace of the decline, is not far off.

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