Germany is one of the world’s great trading nations. In
2019, it imported $1.2 trillion worth of goods from all over the world. Only
about 2 percent of that total came from Russia. In fact, the Russian
Federation, with roughly 144 million people, was only slightly more important
in German trade than Ireland, with around 5 million people. Ordinarily, then,
you wouldn’t expect a disruption of economic relations with Russia to have a
big effect on the German economy.
اضافة اعلان
Unfortunately, Russia is a key supplier of one good Germany
will find it hard to replace: natural gas. Nearly all of Germany’s natural gas
consumption is imported via pipelines, and about 55 percent of its gas comes
from Russia.
This situation should never have been allowed to happen;
successive US administrations going all the way back to that of Ronald Reagan
have warned Germany not to let itself become so dependent on a despotic regime.
(I witnessed some of those discussions during my own brief stint in government,
in 1982–83.) But here we are. And while democratic nations have imposed a wide
range of economic sanctions on the Putin regime, restrictions on Russian gas
sales remain conspicuously absent from the list.
Yet Russian atrocities have been rapidly changing the
political calculus of the West’s response. Three weeks ago, it seemed
inconceivable that German politicians would be willing to impose any
significant pain on their voters in response to Vladimir Putin’s aggression.
Now there are serious discussions underway about whether and to what extent
Germany can wean itself from Russian gas.
A small reduction in gas consumption shouldn’t be hard to
achieve. Precisely because gas has been cheap, some of it is currently being
burned in low-priority ways, easily discouraged with moderately higher prices
and/or modest regulation. Large reductions, however, are another matter.
Put it this way: An important new study by a group of German
economists (there are nine authors, so I’ll just refer to it as Bachmann et
al.) estimates that eliminating gas imports from Russia would require cutting
gas consumption by about 30 percent, to around 600 terawatt-hours (TWh) from
around 900TWh. Why not 55 percent, the Russian share of German gas? Because
Germany can probably get somewhat more gas from other sources and limit the use
of gas for electricity generation by relying more on coal and nuclear power.
(Yes, coal must be phased out to save us from climate catastrophe — but not in
the middle of a war. It’s the St. Augustine principle: “Make me chaste, but not
yet.”)
Germany could, in fact, do without Russian natural gas ... because the country currently spends so little on Russian imports.
Even a 30 percent fall in consumption will, however, be hard
to achieve on short notice. Cutting consumption from 900 to 800TWh might not be
that costly; the reduction from, say, 700 to 600TWh would be a lot more
painful.
The German economists focus on a key economic concept called
the elasticity of substitution — roughly speaking, how much demand for natural
gas falls off for every 1 percent rise in its price. If that elasticity is low,
the amount Germans would be willing to pay for an extra bit of gas once
consumption has already been substantially reduced is large, implying that the
economic cost of further reductions is also large.
Unfortunately, empirical estimates suggest that the
elasticity of substitution for natural gas is low, at least in the short run.
It’s not zero: Given high gas prices, households will turn down their
thermostats, consumers will stop buying goods whose production requires burning
a lot of natural gas, and so on. Still, the best guess is that we’re talking
about an elasticity of around 0.18, which in turn means (if I’m doing the
arithmetic right) that the price of natural gas would have to rise by around
600 percent to cut demand by 30 percent.
That sounds like a lot, and Bachmann et al. deliberately use
an even more pessimistic estimated elasticity of 0.1.
Yet even with those pessimistic assumptions, they find that
Germany could, in fact, do without Russian natural gas, precisely because the
country currently spends so little on Russian imports. The costs would be
serious: German real income might fall by around 2 percent, the equivalent of a
moderate recession. But it wouldn’t be the end of the world.
Such drastic action would have been inconceivable a month
ago. But Putin seems to be in the process of achieving something remarkable:
reminding the world’s democracies what they stand for. He has already ruined
Russia’s reputation as a military superpower; he’s now in the process of
reducing whatever economic power it had, too.
Read more Opinion and Analysis
.jpg)
.jpg)
