The German government is being forced to ration hot water; street lights are being dimmed; and special heated halls are being set up for those who can’t afford central heating – in a country where winter temperatures regularly drop well below freezing. Many Germans are stocking up on wood to burn for warmth, as many predict that gas supplies will completely or nearly run out by early 2023. These are the grim prospects faced by the working class in the economic powerhouse of Europe.
The combined impact of generalised inflation, the war in Ukraine and Russian sanctions is causing a surge in gas prices worldwide. The Dutch TTF gas contract, used as a benchmark in European markets, is trading at 10 times the average seen in the decade up to 2020. This all adds up to what Alex Munton, an analyst of global gas markets, describes as: “...the most extreme energy crisis that has ever occurred in Europe… [which is] looking at the very real prospect of not having sufficient gas when it’s most needed, during the coldest part of the year.”
These conditions mean Germany is heading towards a crisis at all levels: social, economic and political. A country that was once a pillar of stability has joined the rest of the world by entering into a state of chaos and dislocation.
German reliance on Russia
Over the recent period, Germany has become increasingly reliant on Russian energy. Just before the invasion of Ukraine, Germany received one third of its oil and over half of its gas from Russia. These two fuels together accounted for 60 percent of its primary energy needs. This dependence is not an accident, it is because Russian gas is the cheapest source of fuel.
Heavy industry provides 30.7 percent of Germany’s GDP and the sector guzzles 37 percent of the country’s gas consumption. Much of what is produced ultimately ends up being exported, with Germany being the third-biggest exporter in the world. As the chief executive of a major chemicals company puts it, “low-priced energy has brought wealth to Germany”, though of course German capitalists have swallowed up the vast bulk of this wealth.
As we have explained, the war in Ukraine is essentially a proxy war between Russian imperialism and the much-stronger US imperialism, which is fighting “to the last drop… of Ukrainian blood”. Being unwilling to intervene with boots on the ground, the US and its allies have instead utilised economic sanctions against Russia, while sending tens of billions of dollars worth of weapons to Ukraine.
Since Putin is also unwilling to engage in a full-scale war with US imperialism, which would risk the total annihilation of both sides, he is resorting to economic means as retaliation. Russia’s control over a big chunk of the energy market represents one of the best cards in his hand. It must be pointed out that, despite all the crocodile tears of the Western media, the West has frequently employed methods of economic warfare against its opponents, with the 60-year economic blockade of Cuba as just one example.
With Western countries attempting to reduce imports of commodities such as fuel, from Putin’s point of view, it also makes perfect sense for Russia to limit exports, since this pushes up the price. In fact, despite reduced fuel exports to Germany, Russia is still estimated to be taking in $800 million a day due to the increased prices for oil and gas, combined with countries such as India and China stepping in and consuming more.
It seems that Russia has been trying to tighten the screws on its enemies by using gas supplies as a weapon. Gazprom, which is controlled by the Russian state, manages about 20 percent of Germany’s gas-storage capacity and, according to Robert Habeck, Germany’s Vice Chancellor, these have been “systematically emptied” over the past winter. In addition to this, Gazprom has slowly reduced the flow of gas to Germany, using all manner of excuses. These flows now stand at 20 percent of capacity.
Bloomberg claims that “insiders” in the Kremlin are doing this intentionally in order to exert pressure on the EU. The same article quotes Andrey Kortunov, from the Russian International Affairs Council, which was founded by the Kremlin. He says that this policy is probably not carried out with the actual hope of changing the EU’s policy, but that it could accelerate “internal difficulties” within the bloc, and thus lead to “changes in government in a number of European countries”, which will be “more focused on domestic affairs”.
In other words, Russia hopes that throttling gas supplies will create enough pain in Europe that current European governments will be replaced with ones less interested in prosecuting the Ukraine war, and more committed to ending fuel shortages and tackling the economic crisis at home.
What we see is that, rather than resorting to fighting each other with bullets in a direct conflict, the major powers are attempting to exert power through economic means. Both sides pile misery on the mass of the population on the other side, in an attempt to get what they want.
Internal difficulties in Germany
Even before the outbreak of the war, the economic picture in Germany was gloomy. With the pressures on global supply chains following the impact of the COVID-19 pandemic, GDP shrank in the last three months of 2021. However, the bleak outlook has since moved towards the catastrophic.
The latest figures show that inflation reached 8.5 percent in July. With the extra pressure on consumers, retail sales dropped at the largest annual rate since records began in 1994, and this is now feeding into the outlook of the capitalists, with business confidence at the lowest level since the early months of the pandemic.
Germany, being reliant on exports, is particularly exposed to any problems with global trade. With the COVID-related lockdowns still in effect in China, exports to the country have declined 3.9 percent year-on-year. Shortages of semiconductors and wiring harnesses that are made in Ukraine are also hitting the auto industry, which is a very important part of the German economy. In total, 73.3 percent of manufacturers reported supply problems last month.
More than anything else, though, the German ruling class is extremely worried about the reduction (or halting) of the flow of gas from Russia. Martin Brudermüller, the chief executive of the world’s largest chemicals company BASF, has said that, if this were to happen, it could destroy Germany’s “entire economy”, triggering the worst economic crisis since 1945. Some of the most important industries in the German economy simply will not be able to operate without sufficient gas supplies.
BASF, for example, says that if gas deliveries dropped below 50 percent of the normal level, they would have to completely shut down the machinery they use to produce substances used for medical and food products. Additionally, if the furnaces used to produce glass have to be shut down, this means that the molten glass will begin to solidify, thus rendering the machines unuseable in the future. The glass industry cannot just be turned on and off at will, and the same is true for a number of different sectors.
To make matters even worse, the Rhine is drying up. The river is a critical waterway used to transport coal, oil and gas, as well as providing water for engine cooling. The water levels are approaching a point where the passage of barges will become impossible. This could not have occurred at a worse time, and will compound the energy crisis even further.
Can the gas be replaced?
There is a school of thought in Germany claiming the crisis is overblown. Rudiger Bachmann, an economist, has claimed that replacing Russian energy imports would be “manageable” and would only cause “a temporary crisis”. He points to the ability of the German government to protect jobs with short-time work (reductions in hours or wages, with the state making up for some or part of the wages), and save companies from bankruptcy with capital injections. He concludes that the hit to the economy would ‘only’ be between 0.5 percent and 3 percent of GDP.
Moritz Schularick, part of the same team as Rudiger, claims that Germany will be safe because of trade. They can look to other countries to import energy “indirectly at other points in the value chain”. Giving the example of glass, he says that, whilst interruptions of gas supplies would be bad for “producers”, “consumers” would be fine, since they could just buy products from other countries. As for energy-intensive industries, they will no longer be able to maintain domestic production, but this was “on the cards anyway” due to the “green transformation” of the economy.
However, this view is not shared by Chancellor Olaf Scholz, who criticised this approach as “irresponsible”. It is not hard to see why. Replacing Russian gas at the drop of a hat is not exactly easy. These shortsighted economists believe that everything can be solved through ‘trade’, but they underestimate the limitations imposed upon the capitalist system by the barrier of the nation state.
For example, the second-biggest supplier of pipeline gas in the world (after Russia) is Norway. However, the country is now considering limiting power exports due to concerns over supplying their own population. Any extra gas that does come through will be fought over by all of the countries of Europe, which will mean prices will continue to soar.
As opposed to pipeline gas, Germany could look to Liquefied Natural Gas (LNG) from Qatar or the US. However, in order to import LNG, it needs to be ‘regasified’ at terminals, of which Germany has none. These would take years to build. Germany has acquired some floating regasification ships, but these are unlikely to be running until early next year.
Even if Germany had regasification terminals, LNG does not represent a silver bullet that will solve all its problems. To put things into context, Europe imports more pipeline gas than the entire LNG export capacity of either the US or Qatar. Moreover, up to 95 percent of Qatar’s current output has already been sold on long-term contracts and, whilst they are looking to increase production, this will not happen for years.
Equally, it is estimated that new capacity from the US can only replace between 5 percent and 9 percent of the gas previously supplied by Russia and, much like the situation with Norway, the same article points to “talk of limiting exports” of gas from the US to try and limit costs internally. When the capitalist system is stable, limited agreements and deals are possible between nations. However, when the system goes into crisis, each nation looks to secure its own interests above all others.
Some optimists amongst the strategists of the ruling class have tried to claim that this is an excellent opportunity to ‘green’ the German economy. However, in order to utilise renewable energy, new infrastructure that will allow the storing of energy needs to be built. This is necessary because, unfortunately, the sun does not always shine and the wind does not always blow. Not only will this take time to build, but the economic picture of soaring inflation means that the cost of infrastructure for renewables could be as much as 20 percent higher than before the war.
This war is the result of the building up of inter-imperialist rivalries over the course of decades. With the relative decline of the US, Russia seeks to assert its interests in its ‘near abroad’. Because of this, for the time being, the allies of the US are scrabbling around to ensure they can still power their economies and heat their homes. In the absence of a global plan, what you are left with is a chaotic situation of soaring prices and increased tension between nations. As always, those who have to foot the bill are the working class of each nation.
Teetering on the brink
At present, the German economy is teetering on the brink of chaos. One government adviser has estimated a hit of anything between 3 percent of GDP (if Russian energy is easily replaced) and 12 percent of GDP (if Germany can not easily replace Russian energy). There are a huge range of different predictions for the German economy but the reason for this was perhaps best expressed by Ira Joseph, an energy consultant, who said that “prices are so high that we don’t really know how the economy or demand is going to respond”. As the Bundesbank has explained, it is extremely hard to measure the potential impact on the economy, because it is hard for economic models to capture the possible knock-on effects that could be triggered by disruptions to energy supplies. Commerzbank points to the risk of a “chain reaction with unforeseeable consequences”.
The world economy is a complex system of different elements that all act on and interact with each other. If one link in the chain is damaged, quantity can turn into quality and the impact can be far greater than initially feared.
One fear is that the pressure on the energy markets could spark a “Lehman effect in the energy system”, as Habeck has warned. Already, Germany has had to bail out the energy company Uniper. It was only getting 40 percent of its contracted gas and so, in order for it to keep up supply to customers, it was forced to buy gas on the far more expensive spot market. At one point, it was losing $35m a day.
Beyond very substantial fears about the next year or so, there is an existential dread settling in amongst many of the German ruling class. The fear is not just about a temporary shutting down of industry, which will have a significant impact, but one that can be overcome. The fear is that German industry, an extremely important component of the German economy, will effectively become uncompetitive on the world market. If this is the case, we are looking at the deindustrialisation of the country.
This fear has been expressed by various serious strategists of the German ruling class and, already, 16 percent of manufacturing companies are saying that they would respond to higher prices by scaling back production or partially abandoning some areas of business. Others, such as the chemicals company BASF and more, are considering moving production to where it might be cheaper such as China, Turkey or the Mediterranean.
Germany is in a situation of surging costs and tumbling demand. For an economy based on exports, this is a very bad situation to be in. Already, we see that, for the first time in more than 30 years, Germany had a deficit in the trade of goods.
Some companies are attempting to substitute natural gas with other forms of fuel, such as oil. However, BASF, which is one of these companies, points out that the “precondition” for this “is the sufficient availability of fuel oil.” A sudden burst of demand for oil (of which Russia is also one of the world’s top producers) will cause the price of this commodity to spike as well. We therefore merely have the same problem transferred to a different commodity.
However, even if Germany was able to source alternative forms of fuel, the role of gas as a raw material is much harder to replace. The country’s largest steelmaker, ThyssenKrupp, needs gas to run its blast furnaces whilst companies in the chemicals industry need it to make chemicals derived from hydrocarbons. Indeed, Jorg Rothermel of the German chemicals industry trade body claims that only between 2-3 percent of the gas consumed can be replaced by alternative fuels such as coal or oil.
The chemicals industry employs over 1 million people, but to appreciate the impact that a crisis here could cause, it is not enough to just look at that sector in isolation. H&R is a specialist chemicals producer. The chief executive has said that, for them, “gas is essentially irreplaceable”. The company itself is a big producer of waxes, emulsions, petroleum jellies, cable compounds and motor oils. These are used in a wide variety of industries from pharma to food.
Similarly, Henrik Follman, the head of chemicals manufacturer Follman Chemie, has said that if they don’t get gas, “the refineries are going to stop, then the chemical industry will stop and the whole of German industry will stop”. He points out that they supply chemicals to the wood and furniture industries. Martin Brudermüller, the chief executive of BASF points out that if production was to stop at their Ludwigshafen plant, “there will be no more cars, no more pharmaceuticals and no more many other things.”
The economy does not develop in a straight line. A crisis in one sector can create a domino effect that results in a much-wider crisis. If the industries described above, which provide the ‘inputs’, were to collapse, this can feed right up the chain to put pressure on the whole of German (and European) industry. It is impossible to know exactly how hard the German economy will be struck, but it could be truly disastrous, with widespread layoffs and extreme pressure on wages and terms and conditions, as companies intensify exploitation, squeezing their workforces in order to survive.
What is the solution?
There has been a desperate attempt to prepare the population for what is coming. Robert Habeck has said that people will need to “do their bit”, whilst former President Joachim Gauck called on Germans to “freeze for freedom”. Since, as the Guardian points out, monitoring the gas use of every individual would be impossible, the way that consumption will be reduced is through increased prices. Germans will therefore be forced to freeze for the freedom of US imperialism to act in whatever way it wishes.
At present, around half of Germans say that the government should continue backing Kyiv despite the increasing energy costs. However, when asked whether they were prepared to “freeze for freedom” in April, rather unsurprisingly, only 24 percent were in agreement.
Initially, when the consequences are largely yet to be felt and the jingoistic mood is at its height, a war can create an atmosphere of national unity. However, as the economic fallout begins to bite, this can turn into its opposite. What is being prepared in Germany is an almighty social explosion.
Alongside this, there are proposals for German industry to “shake off the gas fuelled ‘illusion of competitiveness’.” Companies like BASF are recommended to move from selling things like fertiliser to offering fertilising services. This is an argument for the deindustrialisation of Germany. It may be presented as a nice, friendly, ‘green’ transition. However, those living in the rust belts of the US, Britain or France will know what this kind of policy really means: a huge attack on the living standards of the working class.
Leon Trotsky once said that it is not necessarily a reduction in living standards in itself that causes radicalisation, but the instability associated with transitions from booms to slumps, which shocks people out of any possible conservatism. The future being prepared for the mass of the German population is soaring bills, pressure on wages, unemployment and mass deskilling. Sooner or later, this rapid change will produce an equally rapid radicalisation in consciousness.
Already, around a quarter of Germans live in so-called energy poverty. However, this is going to get far worse. The government plans a surcharge in order to ‘spread’ the extra costs of gas and also will allow Uniper, the firm it bailed out, to pass on extra costs to its customers. Bills, which are expected to filter through to households in the Autumn, could increase by 200 percent, which would mean an extra €2,700 per year for each one-person household. These extra costs will force working-class people into action. People will need to fight for wage increases and for the government to act just to keep their heads above water.
This conclusion is being drawn, not just by Marxists, but by the capitalists, their strategists and their representatives. Frans Timmermans, the Vice President of the European Commission, says that European countries are at risk of descending into “very, very strong conflict and strife”. Marcel Fratzscher, the head of the German Institute for Economic Research, points to the risk of a “social backlash”, and Annalena Baerbock, the Foreign Minister, warns of “popular uprisings”.
As the pressure from below mounts, the much-vaunted unity of the West will begin to crack. Already, the CDU’s Michael Kretschmer has called for the war to be “frozen” because its continuation risks the country being “deindustrialised”. This goes against the policy of the West up until now, because it would basically mean freezing the current front line. It is not currently the majority position of the CDU, but if a mass mood against the war develops, some group or party could well begin to represent this view.
There are also signs of disquiet in the ruling party. In June, when addressing accusations that Germany had not done enough to support Ukraine, Jens Plötner, Olaf Sholz’s foreign policy adviser, implored the media to focus more on “Germany’s future relationship with Russia than on supplying Ukraine with heavy weapons”. Whilst Scholz did not directly comment on these remarks, he did rule out a return to a normal relationship with Russia. Nonetheless, Scholz has consistently taken a softer line on the conflict compared to the US or the Baltic countries, consistently saying that Russia “must not win”, rather than calling for a Ukrainian victory. This milder tone is clearly a result of Germany’s reliance on fuel from Russia. As the pressure mounts, these cracks could turn into deep fissures.
What all of this means is that the class struggle in Germany, which had lagged behind that in other countries for some time, is about to catch up with a bang. The period we live in is one of war, crisis and revolution. It is a “spiralling crisis”, which will force the mass of the working class into action. In one country after another, we are going to see a titanic battle as workers resist attempts by their ruling classes to shunt the burdens of capitalist decay onto their shoulders. Germany is no exception. What is needed is a revolutionary leadership that can direct the workers towards victory, finally freeing human civilisation from the fetters of the nation state and private property relations, and charting a course towards socialism.