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Is Germany Sick Again?

Twenty years ago, Germany was called the sick man of Europe, owing to its high unemployment, weak domestic demand, and slow GDP growth. Today, the country seems to have caught another disease – this time, because of its misguided energy policy.

MUNICH – Say what you will about Russian President Vladimir Putin, but his war on Ukraine did open European eyes to some long-underrated truths. One is that even after more than 70 years of relative peace on the continent, neglecting military security poses grave dangers. Another is that the “green dream” of modern economies powered exclusively by renewable energies remains out of reach – and reliable access to cheap energy supplies remains essential.

While the first truth became starkly apparent as soon as Russian troops crossed into Ukraine on February 24, the second has only gradually penetrated public awareness. In fact, many have called for an embargo on European imports of Russian gas, arguing that this would not only undermine Russia’s ability to wage its war, but also accelerate progress toward green Nirvana – all at minimal cost to Europe in terms of lost GDP.

A new study exposes this argument for the fantasy that it is. If gas supplies from Russia are cut off, Germany will quite simply no longer be able to produce its 300 most gas-intensive products. To be sure, the study notes that these products can be substituted by imports. But this assessment fails to account for the welfare losses that would result from Germany having to pay much higher prices for these products – losses that would reverberate across the economy.