Berlin The economist Veronika Grimm has spoken out in favor of an energy embargo against Russia as soon as possible. “The longer we wait, the more time Putin and his allies have to adjust to the sanctions,” she said in an interview with the Handelsblatt. She warned that this might take away the clout of an embargo.
Long-lasting military conflicts in Europe would have much more serious consequences than stopping energy supplies, Grimm said. “Both the human suffering, which cannot be compensated for with money, but also the economic costs would be far greater in the long term,” she emphasized.
She also contradicted the Federal Minister of Economics Robert Habeck (Greens), who had warned that an energy embargo would endanger social peace in Germany. “Fortunately, Germany is able to cushion the social consequences of an import ban,” she said. The traffic light still has room to maneuver beyond the relief that has already been implemented, for example through lower energy taxes.
In order to finance this, Grimm – who is considered an iron advocate of the debt brake – could even imagine a short-term suspension of it. In principle, she still wants to stick to the rule. “The current series of crises should by no means be used to water down the fiscal rules,” she said.
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Grimm was also pragmatic when it came to climate protection. The coal-fired power plants would have to continue to run and replace gas-fired power plants in the power supply. “Wherever gas can be replaced, we have to save it in order to fill the storage tanks as much as possible for the coming winter,” she said.
Read the full interview here:
Ms Grimm, should we try to stop Russia’s President Vladimir Putin with an energy embargo?
If an energy embargo can curb the escalation and make the spread of war in Europe less likely, then we should take the step. Long-lasting military conflicts in Europe would have significantly more serious consequences than the cessation of energy supplies. Both the human suffering, which cannot be compensated for with money, and the economic costs would be far greater in the long term. The longer we wait, the more time Putin and his allies will have to adjust to the sanctions. And that can under certain circumstances take the clout out of an embargo. One should therefore act quickly.
Economics Minister Robert Habeck contradicts: He says an energy embargo would endanger social peace in Germany.
Social peace is likely to be endangered to a much greater extent by a possible escalation of the war. It’s like climate protection: we have to act now if this helps to avert serious consequences in the future.
What would be the consequences of an oil embargo? Does it make sense to bet on Venezuelan or Iranian oil instead of Russian?
There is a world market for oil, trade flows can be diverted more easily. In general, Germany will always remain an energy importer. But we have to become more resilient. Ideally, we position ourselves in such a way that we can always compensate for the loss of a single supplier.
However, a ban on imports of Russian gas, oil and coal would lead to a significant increase in prices.
Fortunately, Germany is able to cushion the social consequences of an import ban. In addition to the relief that has already been implemented, the traffic light still has leeway, for example through lower energy taxes. Incidentally, one should not wait until yellow vest protests are on the streets before granting relief. Rather, the relief should be designed wisely and with foresight. And in such a way that people with low and middle incomes are relieved and the incentives do not counteract climate protection.
How is this to be financed given the debt brake?
There is the exception rule of the debt brake to have fiscal leeway in emergencies.
Do I hear you right: as an iron advocate of the debt brake, you want to suspend the rule again?
Yes. One should certainly examine the possibility of applying the exception rule due to the burdens in the event of a supply stop of raw materials from Russia. The debt brake is suspended this year due to the corona pandemic. But that only allows additional debt to fight the pandemic.
What about 2023?
We’ll have to wait and see how the situation develops. There is no time pressure to decide that today, but I wouldn’t rule it out.
If we keep suspending the debt brake, we might as well abolish it right away.
That would be a fallacy. We are in a very comfortable fiscal position, precisely because we managed to reduce the level of debt in the years before the corona crisis. The current string of crises should by no means be used to water down the fiscal rules. However, various climate protection plans have to be put on the table again in the light of the new framework conditions.
What exactly do you want to analyze?
The war increases uncertainty, particularly in energy markets. It could become more difficult to mobilize private investment. Some transformation paths will become more expensive, especially those in which gas was planned as a bridging technology. An example is the transformation to green steel. This may necessitate higher government spending or a rethink. But it is too early for conclusions.
Actually, the coal-fired power plants in Germany should be shut down gradually for reasons of environmental protection.
(Photo: dpa)
Can we even afford to stop trading? Especially when it comes to gas, there are few alternatives.
Going without Russian gas is a challenge, but doable. We would have to procure gas on the world market in the short term to ensure supply in sectors where no substitution is possible. International cooperation could also help, similar to 2011. When the Japanese nuclear power plant in Fukushima crashed, Europe and the USA helped the Japanese with energy supplies at short notice.
Do we have to keep coal-fired power plants running?
Yes. Where gas can be replaced, we have to save it in order to fill the storage tanks as much as possible for the coming winter. Coal-fired power plants should therefore be reactivated and replace gas-fired power plants in power generation. To do this, coal has to be procured on the world market, and we now import 50 percent of that from Russia.
Also read: Russia’s economy: The sanctions are hitting the country with full force
And nuclear power?
I’m more skeptical, but you shouldn’t categorically rule it out. However, the contracts for the dismantling have already been concluded and the supply contracts for the fuel rods have expired. In addition, they are base load power plants. However, we need capacities to absorb peaks in electricity consumption.
Will that be enough so that we don’t have to freeze this winter and next?
The gas reserves are sufficient for the current winter. The challenge is the winter of 2022/2023. We must start preparing immediately. With gas imports from other countries, the use of coal-fired power plants and lower consumption, however, this is feasible. It will be challenging and expensive, but not cold.
A lower consumption? In the case of energy rationing, industry would always be the first to be affected. is this coming up
Not necessarily. First of all, energy efficiency efforts should be accelerated. A lot can be done here, even in the short term, and the willingness of the numerous players should be great due to the high energy prices. You should use that. In addition, the rising prices are leading to a drop in demand for gas.
More: Where does the substitute for hard coal, oil and natural gas come from? The consequences of the sanctions for the energy supply