The war adds to pre-existing interruptions to supply chains and to consequent high inflation, and Commerzbank is therefore girding itself for increasing numbers of bankruptcies among German commercial and manufacturing firms. Inflation in Germany hit 7.3 per cent in March, and consumer prices have risen by 7.5 per cent since the war started in late February. “[W]e mustn’t delude ourselves” he told the German business newspaper Handelsblatt.
Clearly, Germany is in a critical situation due to rising energy prices, the risk of shortages in energy powering the manufacturing sector, and shortages in primary materials for industry and reductions in consumer demands – all due to sharply rising prices. As a consequence, German industrial production at home and abroad has shrunk in comparison with its Chinese and other Asian counterparts. This helps to explain why Germany has complied with the new gas purchasing regulations Russia introduced in April and opened a ruble account with Gazprombank, as we learn from Italian Prime Minister Mario Draghi explaining why his country, too, agreed to purchase Russian gas in rubles instead of US dollars.
In fact, Germany is the Western country most dependent on Russian energy imports. Russia meets more than half of Germany’s gas needs and about 40 per cent of its oil needs. Already economists estimate that the German economy will lose at least €90 billion as a result of the war. The only industrial sector that has begun to boom is the defence industry. According to military analysts, German defence strategists see great opportunities for investment in areas opened up by the war in Ukraine. The focus appears to be on new types of combat tanks and fighter planes. Negotiations over collaborations in producing this hardware are reportedly underway between German defence manufacturers and their French counterparts. In this context, we should recall that German Chancellor Olaf Scholz announced in late February that defence allocations in Germany will exceed the two per cent cap on military spending to which EU economies had committed themselves.
If the war in Ukraine had this effect on Europe’s strongest economy, imagine the impact in other European nations.
*A version of this article appears in print in the 26 May, 2022 edition of Al-Ahram Weekly.