Due to the current war in Ukraine, United Europe discussed the impact of the war with an engaged panel at the Bertelsmann Foundation (Berlin) on 21 March 2022.
Irrespective of how this war will end and when, it has already caused a humanitarian catastrophe, upended decades-long business relations, changed the discussion on self-defense and military spending in Europe.
What are the geopolitical consequences of this war, what impact does the war already have on the European economy? Dr Katharina Gnath, Senior Project Manager at the Bertelsmann Foundation, hosted the discussion, on the panel were Günther H. Oettinger, President of United Europe e.V., Prof Dr Alan Riley, Senior Fellow at the Atlantic Council, Washington DC, Member of the Advisory Committee of the Energy Community, Vienna, Dr Daniela Schwarzer, Executive Director for Europe and Eurasia, Open Society Foundation and Stefan Kägebein, Regional Director Eastern Europe at German Eastern Business Association (OA) at Federation of German Industries (BDI).
Highlights of the discussion
Katharina Gnath: Germany, the European Union, the international community and the political and economic actors will be after the war in a very different place from where they started before. Where do we stand in terms of Europe’s response to the Russian invasion? What does that tell us about Europe’s geopolitical role?
Daniela Schwarzer: We do not know Putin’s endgame. However, it is becoming apparent that it is an ethnic-nationalist vision of an enlarged Russia that fundamentally questions the right to an independent state in Ukraine, Belarus and probably beyond. Putin will not withdraw from the war for the time being. We see no progress in the negotiations. On the other hand, we see Ukraine, a country that wants to build close relations with the EU and the Western liberal world of democracy.
The EU response was far quicker and far more decided than anything we saw after 2014, after the annexation of Crimea and the beginning of war in eastern Ukraine. The response was also well prepared across the Atlantic. We have seen a public diplomatic effort by the United States, consisting of a systematic disclosure of intelligence on Putin’s plans, combined with constant exchanges with key European players in Brussels. To this end, there are several economic sanctions and more to come.
We can positively evaluate the cohesion of the EU, but we must know that the cost of this war will be enormous. Not only do we have to consider the cost of sanctions, but 3.7 million people from Ukraine have left their country. The whole number of displaced people is 10 million. An honest effort of burden-sharing between the EU and its neighbours is needed here. Then there is the debate on security and defence. It is about much more than Ukraine and it will possibly reach a far more geopolitical dimension at the moment China takes sides. That’s the big unknown.
Katharina Gnath: The war will have medium-term consequences on the way we conduct our economic policymaking. What impact does the war already have on the European economy? How is the war affecting the future of the single market and its economic framework?
Günther H. Oettinger: Let me start with two sentences: Putin is a war criminal. We are talking about genocide. Even if the economic consequences of this war will be drastic, what is happening in Ukraine right now is more important. There is no city in Ukraine that is not under siege. As Aleppo was, as Grozny was. But we continue with business as usual. The Russian economy is the main loser. It will fall back to 1930. The second loser is Europe, followed by China.
I agree that it is impressive how quickly and collectively Europe acted together with the transatlantic team. But Putin is too strong, too powerful, too angry. We have to see what we can do additionally for the refugees. There will be many more, about 12 Million people are leaving their country. We have to invest Billions for the rebuild of Mariupol, Odesa and Kyiv. Every euro should be spent on a European army. Germany should develop the standards here for a European army in 2040.
Katharina Gnath: Mr Kägebein, you have heard Mr Oettinger saying we should do additional things. We are facing a war criminal and genocide in Ukraine. So we should stand firmly in defending our values and helping Ukrainians to come out of this crisis. We also talked about the costs of economic sanctions. What is your take? How do you advise your business and your companies right now?
Stefan Kägebein: Russia has invaded Ukraine. There is no discussion of what Putin did: It’s a war crime. As far as the economic consequences are concerned, we should first think about the companies operating in Ukraine and trying to maintain their production. How the impact of the sanctions will affect Russia is difficult to predict. The sanctions will not be felt in Russia in the first days, but the Russian economy and residents will feel them in the coming months and years.
It’s important for the companies that we abide by the given rules implementing the sanctions. Businesses expect us to make clear instructions and that the regulations, for example in the financial sector, can be implemented. But that is sometimes not easy. We have received a lot of regulations at short notice, which we have to follow step by step. That is our main task. As far as we can tell, companies have no objections to the sanctions.
Katharina Gnath: I want to tackle the energy question again. It’s probably the most complicated question Germany and Europe are facing. Robert Habeck, minister of the economy and climate change went this weekend to Katar to get another fossil fuel deal to decrease the dependency on Russia’s energy more quickly. What should European policymakers do regarding this energy dependency?
Alan Riley: We are at the end of one epoque, entering another unknown epoque. The European Union with the United States is actually in a stronger position. We need to have some degree of confidence in this. We can deal with the dependency on Russian oil and gas and the dependencies of Europe and Germany. The five million barrels of oil per day supplied by Russia provide 40% of the Russian tax rate. The strategic reserve in the hands of the members of the OPEC countries is 1.5 billion barrels of oil. We can make it clear to the Russians that we can draw on the strategic reserves.
Katharina Gnath: If we know how to manage it, why are people so nervous about the energy issue?
Alan Riley: We are not in a normal situation. Part of the trouble is that the policymakers in Brussels, Berlin and across the Union and the Western Alliance haven’t changed their headsets and it is very difficult to do this. It takes some time to move in another direction.
Katharina Gnath: It will cost to invest in a new energy model. How can we meet the costs at the national and European levels? Do you see other ways of how we could finance the costs of the war?
Günther H. Oettinger: This war will go on for a long time. Putin’s strategy is to starve the Ukrainian people. If the port city of Odessa falls into Putin’s hands, we can forget about any exports or imports.
Gas from Norway and the Netherlands is enough for our 40 million households in Germany, but German industry is very energy-intensive. BASF needs more energy annually than the whole country of Denmark. If we want to destroy our pharmaceutical and chemical industries, steel, copper, aluminum, we don’t need gas from Putin.
I am surprised that my political party, Merz and Röttgen, want to block gas imports and a green minister is warning that we need exactly this gas. Qatar! Nice to have, but we have no LNG terminals! No ship can come to Germany! While Poland and the Baltic States have their LNG terminals, there are terminals in Spain and Portugal, but there is no gas pipeline from Spain to France to Germany! For investors, it would be better to invest in solar plants in Spain than in Emsland. If you are looking for the best locations for wind and solar plants, you should look at the European map and not just the Bavarian or North Rhine-Westphalian one. But the member states are not willing to europeanize energy policies.
What about our nuclear power plants? Why don’t we prolonge these three nuclear power plants? You don’t have solar and wind 24/7. And the main message is: you can store oil, gas or cole but not wind. You can’t store those volumes of electricity we need in our industries. If there is no wind and no solar we need gas to power. So, we can change something, we can speed up something but on a midterm Europe and Germany are depending on imports. We have to be more realistic. We should have a more European distinction.
Katharina Gnath: Before the audience gets involved in the discussion, I come back to Daniela Schwarzer. Could you comment on Günther H. Oettinger’s statement that China is the winner in this geopolitical situation?
Daniela Schwarzer: Will Germany’s export-oriented business model be able to prevail in a world dominated by armed conflicts? From the German perspective and our business model indeed old truth can no longer be held up because for us economic openness and economic interdependence were a way not only to make money but also to build stability.
If the situation escalates in the sense that China becomes an active supporter of Russia we will have a very big problem. China and Russia have built closer ties over the past years. They have run their first military joint operation in 2018. They decided to build a new gas pipeline from Siberia to China. To date, we do not see a real strategic alliance emerging, but now Putin needs China to win the war. For Europe, if China goes into that kind of deal, that would be a huge problem. It may not only change the military dynamics in Ukraine and possibly neighbouring countries but it will also fundamentally tilt the balance between the western liberal democratic bloc towards a closer bloc of militaristic states.
We thank our panellists for the lively discussion.