German position on Russian energy could affect the future of the euro | Greenberg PC Flaster
Since the execution of the Treaty of Maastricht in 1992 which led to the establishment of the single currency of the euro, different countries of the European Union have faced problems in meeting the requirements of the treaty in terms of maintaining the currency, in particular the obligation that no country can have a budget deficit higher than 3% of its GDP. An example is Greece, which in 1992 used large amounts of financial gimmicks to claim compliance initially, then often fell into overt violation.
In 2012, Greece hoped the EU would give it a break to resolve its financial difficulties, including a potential default at the International Monetary Fund. Germany, as the most powerful member of the European Central Bank, has taken a very hard line on any rescue of Greece. He insisted that Greece cut its federal budget, regardless of the economic pain it might cause Greek taxpayers.
Germany feared that in the event of a bailout, Germany would pay the bulk of the Greek fiscal irresponsibility, so it demanded that individual Greeks suffer a dramatic drop in living standards in order to approve a bailout of the IMF and the continuation of Greek participation in the European Union. Central bank.
The same Greek situation repeated itself in 2015. The German position was essentially that the vulnerable country should tighten its belt and suffer for the greater good of Europe.
It took Ukraine to denounce Germany’s hypocrisy. Knowing that Russia derives most of its income from energy, the EU considered placing an embargo on Russian oil and gas. One country resisted such a measure the longest and loudest: Germany.
Heavily dependent on Russian gas and oil, accounting for around 50% of its natural gas consumption, Germany reluctantly approved some measures against Russian supply, while continuing to allow Russian energy to flock to Germany as the situation in Ukraine has worsened. Indeed, Germany depends on a Russian refinery, the pCK refinery in Schwedt, which is majority-owned by the Russian oil company Rosneft, for 90% of the fuel destined for Berlin. Payments for this energy and for its refining undoubtedly helped keep Vladimir Putin’s economy afloat.
Last week, Russia was still earning nearly $500 million a day from energy, with Germany among the top buyers. This money supplies the Russian army, which continues to invade Ukraine, killing Ukrainians without mercy, bombing Ukrainian cities and infrastructure into oblivion, risking a potential world war and threatening the world’s food supply. In short, because Germany would not do what it demanded of others when they themselves faced potential financial difficulties, the Ukrainians are dead, the country is in ruins and the rest of the world is now facing to the prospect of mass starvation, if not worse. .
It is difficult to see how Germany will square this circle in the future. How does he ask other countries to lower their standard of living in the face of future financial peril, when he refused to lower his own standard of living when another European country faced Russian military peril – EU membership or not? How do other EU countries deal in the future with a German nation willing to accept and even indirectly finance the most aggressive war in Europe since World War II rather than accepting a significant level, but ultimately manageable, out of its own economic pain to minimize the devastation of Ukraine and its people? If Russia prevailed in its bid to conquer eastern Ukraine, including taking control of much of the fertile wheat fields that historically fed much of the world, how would Germany Will it deal with a future Russian state that now also controls a large percentage of the world’s food supply, in addition to its semi-monopoly oil and gas reserves? Perhaps more specifically, how will other countries treat Germany in the future, after that country allowed itself to become so dependent on Russia that it unwittingly but undeniably helped finance the Russian invasion from Ukraine?
Predictions are usually a wild ride, but it certainly doesn’t take a crystal ball to imagine that Germany’s future influence will decline dramatically in the EU, both fiscally and morally, the longer it remains tied to the EU. Russian energy. Indeed, when an EU country’s next potential default occurs, it is hard to imagine that country accepting any lesson from Germany about the need to maintain economic discipline – especially when many Observers (including this author) have long criticized Germany’s dependence on Russian energy. long before anyone predicted the current war in Ukraine.
While this situation may produce a more humane approach to future EU economic problems, it is also likely to weaken the foundations of the single currency. As with any currency, the euro is accepted because people readily accept that it represents a standard of value that can be trusted. Once this foundation begins to weaken, the reliability of the currency itself can be called into question.
Watch carefully over the coming months and years how the European Central Bank handles the Euro, especially now that we are entering a global period of inflationary pressure. It would be both ironic and sad if one of the casualties of Russia’s war against Ukraine turns out to be the disappearance of the single euro currency.