One does have to wonder who anti-Russian sanctions are actually designed to hurt.
German producer price inflation in May.
German trade balance:
Hey, the first negative trade balance in 30 years. Of course, it’s not very negative yet, but wow, that’s a decline.
Top German industries could face collapse because of cuts in the supplies of Russian natural gas, the country’s top union official warned before crisis talks with Chancellor Olaf Scholz starting Monday.
“Because of the gas bottlenecks, entire industries are in danger of permanently collapsing: aluminum, glass, the chemical industry,” said Yasmin Fahimi, the head of the German Federation of Trade Unions (DGB), in an interview with the newspaper Bild am Sonntag. “Such a collapse would have massive consequences for the entire economy and jobs in Germany.”
The German economy is essentially mercantalist. The Euro, because it includes countries which are net importers, has been undervalued. The Germans bought cheap materials, made them into high value goods and got pretty rich.
Now the Euro collapsing (it’s almost down to even with the dollar), but it’s not collapsing enough and in any case there’s a problem, one which has been forgotten in the global order.
Physical objects, like natural gas and aluminum and oil and so on are dug up in certain places, refined in other places and shipped thru specific pipelines or on specific trucks over specific roads, or specific trains over specific railroads. They cannot be magically replaced if you cut off a large supplier, and even when they can be replaced they may cost a lot more money and the replacement isn’t instant, as with buying US natural gas.
The PPI increase is “if you can even get it.”
Germany is a manufacturing state which does not have a lot of natural resources in its own borders. It must be a trading state, and Russia was the cheapest place to get a lot of what it needed, plus there isn’t enough excess on the global market to make every good and even when there is it requires logistical solutions (ports, ships, rail lines, refineries, etc…) which are not in place.
Meanwhile the EU has sanctioned goods coming from the Chinese province of Xinjiang. It turns out that Xinjiang produces about half of the world’s supply of polysilicon, which is the primary ingredient in solar panels.
It is to laugh.
Germany is committing economic suicide over Ukraine, and Germany is the industrial heartland of the EU.
Some bottlenecks just aren’t going to be broken without some sort of deal or cut-out, the supply isn’t there.
Others can be dealt with by paying more, some will require money and time measured in years. Europe is going to wind up going nuclear, there’s no other way to make the numbers work. (So will Japan and many other nations.)
But overall the people saying that the EU was hurt more by Russian sanctions are correct.
Now don’t think this is anti-democratic: polls show that most Europeans want to cut off trade ties with Russia.
But we’ll see how they feel as they take the hits required to do so.
different clue
Thou ( Germany) hast crushed ( Greece) and Thou wilt be crushed ( by Sanctions) in thy turn.
Sounds almost biblical . . .
Eric Anderson
Cold war lens:
“We have to suffer this hit if we want to maintain western world order hegemony.”
And isn’t it true? The neoliberals among all the western nations sold their souls (read industrial capacity/policy) to enrich their elite. Now, the chickens are coming home to roost. It’s very similar to bailing out wall-street because the onus of the paradigm shift won’t be borne by the billionaires (who have plenty of resources to ride it out). It’ll be borne by the rest of us. They think they can avoid the revolt among the masses by spinning capitalist propaganda and beating people over the head with clubs.
We’ll see if they’re right.
Mark Pontin
Ian W: ‘But we’ll see how they feel as they take the hits required to do so.’
By the time they wake up enough to undo some of these moronic policies, permanent damage will have been done to the German economy, and by extension that of the EU. Nor do I see how, further out, the German model of exporting overengineered, overpriced manufactured products can survive — even with the aid of the 20 percent discount the Euro gives them, as you point out — the world of higher energy costs we’re entering.
On top of this, they’ve lagged on EV development even as the Chinese are advancing rapidly and consciously to being the dominant players globally in that market.
I presume almost everybody here is familiar with Michael Hudson’s read on the situation, but if not —
https://michael-hudson.com/2022/06/ukraine-a-trojan-for-germanys-us-dependence/
https://michael-hudson.com/2022/02/america-defeats-germany-for-the-third-time-in-a-century/
https://michael-hudson.com/2022/04/the-dollar-devours-the-euro/
And so on….
Feral Finster
I don’t think that this is intentional.
The problem is that Atlanticism is a sacred cow in Germany, and questioning it is akin to standing up in the middle of a High Papal Mass to asked the assembled who just farted?
It doesn’t matter that the altar boys are fainting from the stink and a Cardinal threw up into his miter. Pretend everything is normal and carry on.
N.b. I find the idea that the G7 can by simple fiat cap prices for Russian energy to be especially funny. I plan to notify Daimler Benz that I am capping the price for a new S-Class.
bruce wilder
and these leaders did not enough about how the German economy works to anticipate the consequences
say what you will about a nationalist like Orban — he seems to know critical details about what Hungarian prosperity depends on
and Putin and Russia have been preparing for this for a long time. I think Putin is stupidly neoliberal himself in some respects, but Russia was more ready than I thought to fight the economic war.
Astrid
Bruce,
Russia has been intensively preparing since 2014. They likely accepted the Minsk Accords knowing Kiev would not fulfill them, because it gave Russia more time to prepare their domestic economy, payment systems, and combat systems for what’s to come. They saw what happened to Yugoslavia, Lybia, Iran, Venezuela, Ukraine, and Syria. They would be fools to depend on the hope of a reasonable and agreement capable West. Sure they would prefer Europe, especially for Germany, to come to their side, but their clever professional diplomats and analysts likely had very accurate reading on the current crop of European politicians.
I hope Russia imparts some of this wisdom to China. The breach (not even a hack!) of the entire national identity registry from the Shanghai security bureau is not a good look. Perhaps this is one of the weaknesses of China’a rather decentralized and experimental approach to development. I’m guessing that whatever is left (after Covid) of the Shanghai CPC power base won’t be around by the end of this year. Two massive F-ups in one year is not acceptable. Though a more conspiracy minded me think that the hack was intentionally done by a part of the state security apparatus to push China into tighter digital integration and tracking.
One thing is for sure, the West deceived itself for a long time that the Russian elite post-2000 and the Chinese elite post-1978 was neoliberal. That probably have them the breathing room to recover and strengthen.
marku52
First European leader to fall. BoJo is gone.
Geoffrey Dewan
As Ian pointed out yesterday, the phenomenology of these times leave vast segments of the population, rightly, with an overarching sense of existential dread.
In twenty years or so this will all be viewed as a carnival sideshow. Reality has an ugly habit of breaking through. Get ready however you can but in the meantime don’t be fooled by the “news”.
Dan Lynch
By winter Russia will be wrapping up military operations in Eastern Ukraine (unless something happens in Western Ukraine that expands the war). Then Russia will be in a strong position to address the sanctions war, including the possibility of cutting off oil and gas to Europe this winter.
Will Germany then come to its senses and tell NATO to eff off? Maybe, but I doubt it. The Cold War brainwashing is very strong, so NATO may survive until the Cold War generations die off. In the meantime, Europe will become a failed state, with a declining standard of living. Add millions of refugees and stir.
Ché Pasa
Hold on now. Isn’t the objective to rehabilitate Nazis and to conquer and partition Russia for the perpetual benefit of the Overclass of Germany, EU, US and Nato? If they must suffer some pain temporarily, the end result is worth it, no? And then do China, if conquest and partition can’t be accomplished simultaneously.
These plans have been in place for decades. Germany — Europe in general and certainly Britain and even possibly the US — may go through some hard times to accomplish their goals, but in the end, their triumph over the Eastern Hordes and Barbarians will be celebrated till the end of time. Yes?
What’s the alternative, anyway?
My comment is only partially in jest, as there seems to be no way to stop this descent into madness. Our rulers are insane.
Z
I think the EU leaders, and Doped Up Bojo The Clown, are all both bribed and blackmailed (the carrot and stick trick) so they have a personal stake in not standing against policies that negatively effect their countries. Michael Hudson has written about this. They’d rather force their populaces to bounce them than draw the ire of those who have the goods on them.
Many of them are somewhat easy to lure into blackmail and bribery because they are on amphetamines which makes them more impulsive.
One thing for sure though, they’re not as stupid as they appear, they can’t be or they wouldn’t have gotten to where they are, but they pretend not to know or be able to change course.
Z
Eric Anderson
We’re speaking the same language it seems, Che.
someofparts
Economically speaking, it feels like I’m watching Europe turn into South America – militarized and impoverished backwaters bullied by the IMF.
Michael Hudson mentioned that Euro leadership has been infiltrated with neoliberals. That is the best explanation I’ve found for why leadership there is behaving as it is.
When a structure that needs to be taken down is enormous, the demolition should be engineered so that it collapses inward. What if Russia obliges the West to burn through it’s weapons at a prodigious rate while, at the same time, sanctions and supply bottlenecks erode our capacity to make new ones? I wonder how that will impact American belligerence as events unfold.
Tallifer
It took enormous sacrifice to defeat Hitler and Hirohito. The West has to man upif it wants to defeat Putin and Xi Jin Ping. Thus far even our contemporary Mussolinis (Venzuela, Cuba, Nicaragua and Iran) have thwarted us. Biden is of the greatest generation, but his foes in MAGA are of the Me Generation and his allies in the young Democrats are of the identity-politics-first generation. God help the Ukraine.
Ian Welsh
Biden is a late Silent, born in 42.
Z
Another $400 million for the Ukrainians …
https://twitter.com/JackDetsch/status/1545461068192948228
Again, ask not what your country can do for you, ask what you can do for Ukraine!
Z
bruce wilder
€1.00 = $1.02
bruce wilder
Amateurs watch Germany; professionals watch Italy.
(Not sure I believe that will be how the structure of Europe crumbles, but the cracks in the plaster start in Italy and the UK.)
Feral Finster
Tallifer assumes without evidence that Ukraine deserves or is worth “saving”.
He/she/it further assumes that “saving” Ukraine would not be a repeat of our tender mercies towards Iraq, Libya, Syria, Yemen or others.