The war in Ukraine will cost Germany, Europe’s largest economy, €175 billion ($190 billion) this year, which equates to €2,000 per inhabitant, German media outlet Deutsche Welle reported on Monday, citing a report by the Institute of German Economics (IW).
Authors of the study compared the current situation to an imaginary scenario in which there was no military operation in Ukraine or problems related to it, such as skyrocketing energy prices, spiraling inflation and supply disruptions. They calculated that the real loss to the German economy from the conflict in Ukraine will be as high as 4.5% of the GDP next year.
The study pointed out that the outbreak of hostilities in Ukraine coincided with an already difficult economic situation in Germany.
The economists pointed out that the country’s federal development bank KfW had already warned of a threat to prosperity in Germany due to a lack of qualified personnel and insufficient productivity growth.
In 2020, Germany recorded a loss of about €175 billion, another €125 billion in 2021, and almost €120 billion in 2022. The expected €175 billion in losses this year brings the total damage to the country’s economy between 2020 and 2023 amid Covid-19 and the conflict in Ukraine to €595 billion, the report said.
The situation with the economy will remain “extremely unstable” in the coming months, hindering growth in prosperity in Germany, according to German Economic Institute professor IW Michael Gromling.
He said uncertainty in the energy sector, surging prices on energy and other raw materials, and the associated restraint in investment will continue causing headwinds to the country’s economy.
Energy Subsidies, At Huge Cost For German Economy
A financial aid package aimed at helping German businesses and households deal with the energy crisis will cost the federal government more than €16.6 billion ($18 billion) by the end of May, shows a document seen by Reuters.
Berlin is expected to spend some €14.5 billion ($15.75 billion) to set an electricity price cap, and an additional €2.14 billion ($2.33 billion) on subsidizing transmission network costs over the next two months, according to a document signed by Finance State Secretary Florian Toncar, addressed to parliament’s budget committee.
The electricity price cap, which is projected to relieve the pressure of skyrocketing prices on consumers, will be entirely funded by the federal government. The cost of the measure, which is set to expire in April 2024, is expected to considerably top the €16.6 billion ($18 billion) Berlin will spend through May.
The German parliament’s budget committee is expected to approve the spending plan on Wednesday.
Last year, Berlin announced plans to spend some €83.3 billion ($82.8 billion) on funding the electricity price cap for 2023. It is part of the €200 billion ($199 billion) “defensive shield” which the government said it would allocate to help the country’s business and households cope with soaring energy prices.
Over the past several months, European benchmark gas prices have been lower than anticipated thanks to mild weather that helped to keep gas inventories at higher-than-usual levels. Moreover, weak demand for the fuel from Asian consumers helped European buyers acquire the redirected cargoes that were initially destined for Asia.
Germans Believe State Becoming ‘Dysfunctional’, Says MP
Germany faces a serious risk of going bankrupt due to the government’s inability to find a viable solution to the current energy crisis, the vice president of the Bundestag and FDP member, Wolfgang Kubicki, said in an interview published in the national Sunday newspaper Bild am Sonntag.
According to the official, Germans now have the impression that their country is on the way to becoming a “dysfunctional state.”
“Infrastructure, energy prices and the inability of the Bundeswehr [the country’s armed forces] to protect us are challenges that require immediate action from the German authorities, otherwise things will go wrong,” he said.
Kubicki blasted Economy Minister Robert Habeck over purchases of liquefied natural gas (LNG) from Qatar, the United Arab Emirates and the U.S. for “a lot of money” while at the same time refusing to mine cheaper shale gas in Germany “for purely ideological reasons.”
He added that the German authorities should revise their approach to nuclear power plants, which should continue operating while the country is facing an energy crisis.
“We do not want gas and oil supplies from Russia any more, at the same time our ‘green’ friends are restarting coal-fired power plants, while preventing a reasonable extension of the nuclear power plants,” Kubicki said, commenting on Habeck’s latest decisions
The MP called for a change in the government’s strategy and the rejection of excessive financial assistance in the face of the energy crisis.
“If we continue to pursue the policies of paying out money for years as part of the fight against the energy crisis, then we are at risk of national bankruptcy if not state socialism,” Kubicki warned.
According to the vice speaker, the funds that Berlin is planning to spend on additional purchases of energy resources amid the crunch were originally destined for investments in other areas.
“This money cannot be printed or covered by taxpayers. We cannot exist in a state of financial crisis for a long time due to the risk of shortage of funds to support other areas,” he said.