Energy embargo would result in an economic downturn

Even at a price of around 900 euros per megawatt hour – four times the previous record price – only about half of the supply gap could be closed due to the lower demand, according to the IMK model. The result: Because of the high gas price, numerous companies would have to stop their production, which would lead to more unemployment.

The IMK estimates the effects of an energy embargo to be significantly higher than previous studies. Above all, the group of economists around the Bonn Cluster of Excellence Econtribute, the Notre-Dame economist Rüdiger Bachmann and the Ifo researchers Karen Pittel and Andreas Peichl: They only had a GDP minus between 0.5 and three percent with a complete embargo calculated. A statement by the National Academy of Sciences Leopoldina comes to similar conclusions.

The IMK calculations are likely to add further impetus to the already heated debate. Since the publication of the Econtribute study, a dispute has broken out among economists as to how sensible the calculations are and what political consequences they would have. On the one hand, it is about the scientific basis of the studies, but also about the personal and political views of the parties to the dispute.

Federal government blocks itself against embargo

The topic has now reached Chancellor Olaf Scholz (SPD), who, like the rest of the federal government, continues to vehemently oppose an energy embargo.

The quarrel had its temporary climax on Sunday, when Scholz accused the authors of the Econtribute study in a television program of “putting together some mathematical models that then don’t work”.

In their line of argument, Scholz and his deputy Robert Habeck (Greens) always refer to the significant impact that an embargo would have on the German economy. However, critics accused them of not being able to back this up with numbers at all.

The Chancellery and Ministry of Economic Affairs will be correspondingly pleased with the results of the IMK forecast. In his arguments, Habeck in particular had repeatedly referred to the IMK’s initial considerations on an energy embargo.

But the economists’ dispute with the new numbers is far from settled – on the contrary. Rather, new discussions are now being started: was the Econtribute study really that far off the mark? Or does the IMK completely overestimate the consequences? When looking for an answer, it is crucial to recognize where the calculations differ.

How can two studies on the same topic be so different?

In their economic forecast, the IMK researchers write that the Econtribute study neglected many things “that we know were central to the depth and duration of the slump in past crises”.

These include: the complicated trade links in energy, panic in the financial markets, limited options for the central bank to react to inflation.

In addition, both models lack so-called cascade effects: If there is no energy to manufacture a product, this leads to disruptions in the entire supply chain. If the paper industry produces fewer boxes due to a lack of energy, it may no longer be possible to pack and sell some food.

But the decisive difference that led to the fundamentally different results of the studies is likely to be different. There are two questions at stake: How far would the German economy reduce its gas consumption in the event of an embargo? And how easy would it be to find a replacement for Russian gas in the short term?

Read more about:

Moritz Schularick, co-author of the Econtribute study from the University of Bonn, is surprised by the results of the IMK. “The underlying assumptions could be chosen in such a way that they significantly underestimate the adaptability of the German economy.”

Benjamin Moll from the London School of Economics, who was also involved in the study, adds: “If the energy supply collapses by ten percent, our model can also lead to major economic damage of up to ten percent of GDP – but only if it doesn’t make sense Assumptions.” IMK Director Dullien replies: “But you can also overestimate the adaptability.”

Real effects of an embargo only visible if embargo became real

The problem: Nobody knows how adaptable companies and consumers really are. Only empirical values ​​from other crises can be used for the calculations. However, since every crisis has its peculiarities – especially the current one of the Ukraine war, an unprecedented incident in Europe in recent decades – it cannot be said whether these empirical values ​​are any good.

Gabriel Felbermayr, President of the Austrian Institute for Economic Research (Wifo), who was not directly involved in any of the studies, puts it this way: “One simply has to admit that these studies have limitations.”

The fact that companies are now aware of climate change and have a greater incentive to do without fossil fuels speaks in favor of greater adaptability.

A weaker ability to adapt is indicated by the fact that citizens might turn down the heating a little when prices are higher – but would not turn off the heating when prices rise beyond that, even if this assumes an economic model.

And so it is clear: Which embargo model is closer to reality can ultimately only be found out if the embargo becomes reality.

More: Habeck wants to rededicate 150 billion euro corona fund for the Ukraine war – Lindner walls.