Saturday, July 09, 2022

We Told You Provoking Russia Was A Bad Idea: Germany Is Shutting Down As Energy Crisis Paralyzes Economy


Avreport to Financial Times  confirms G that as we have warned (and been called conspiracy theorists and Putin supporters for our trouble,) Germany is now rationing fuel for heating, dimming street lights and closinf public swimming pools as the impact of its energy crunch brought about by the failure of 'green' energy policies and its sanctions on Russia and their retaliatory actions arising from the war in Ukraine start to hit hard. Everything from industry to offices, leisure centers and residential homes is being subjected to pressures.

Germany's creeping paralysis is exacerbated by the huge increase in gas prices triggered by Russia’s move last month to sharply reduce supplies to Germany. Russian retaliation for EU sanctions has plunged Europe’s biggest economy into the worst energy crisis since the oil price shock of 1973 (see "What's Unfolding In Europe In Recent Days Is A Fresh Big Negative Supply Shock")

With electricity prices rising to new, record levels almost every day, gas importers and utilities are fighting for survival while consumer bills are going through the roof, with some warning of imminent hyperinflation and warnings of a return to the days of wheelbarrows full of cash that resulted from similar mismanagement of the economy under the Weimar Republic in the 1920s, a social catastrophe that triggered the rise of the Nazis.

“The situation is more than dramatic,” said Axel Gedaschko, head of the federation of German housing enterprises GdW. “Germany’s social peace is in great danger.”

Unfortunately, as tensions over Russia’s war in Ukraine escalate with NATO, Washington and the EU seemingly set on a course for all out war with Russia, German officials fear the situation could quickly get worse. On Monday July 11, Russia is shutting down its main pipeline to Germany, Nord Stream 1, for 10 days of scheduled maintenance. Many in Berlin fear it will never reopen.

Commenting on the infamous July 22 day when Russian  is expected to resume flowing, DeutscheBank's Jim Reid writes that "while we all spend most of our time thinking about a global recession, I suspect what happens to Russian gas in H2 is potentially an even bigger story. Of course by July 22nd parts may have be found and the supply might start to normalise. Anyone who tells you they know what is going to happen here is guessing but as minimum it should be a huge focal point for everyone in markets."

The bank also warns that "if the gas shutoff is not resolved soon this would lead to a worsening energy disruption with material effects on economic growth, and of course much higher inflation."

Anticipating the worst case outcome, Germany last month took its first step towards rationing gas when economy minister Robert Habeck activated the second stage of the country’s gas emergency plan. “The situation on the gas market is tense and unfortunately we can’t guarantee that it will not get worse,” he said on Tuesday. “We have to be prepared for the situation to become critical.”

Habeck, who says he is now taking shorter showers, has appealed to the population to save energy — and municipalities and property owners have heeded the call.

Earlier today, Vonovia, the country’s largest residential landlord, said it would be lowering the temperature of its tenants’ gas central heating to 17C between 11pm and 6am. It said the measure would save 8 per cent in heating costs.

A housing association in the Saxon town of Dippoldiswalde, near the Czech border, went a step further this week, saying it was rationing the supply of hot water to tenants. From now on they can only take hot showers between 4am-8am, 11am-1pm and 5pm-9pm.

“As we announced in our general meeting, we have to save for the winter,” a notice in the affected blocks reads.

Such measures could become routine in the coming weeks.

Some have already taken measures. The district of Lahn-Dill, near Frankfurt, is switching off the hot water in its 86 schools and 60 gyms from mid-September. a The city of Düsseldorf has temporarily closed a massive swimming pool complex, the Münster-Therme. Meanwhile, Berlin has turned down the thermostat on open-air swimming pools, reducing their temperature by 2 degrees. In western Germany, Cologne is dimming its street lighting to 70 per cent of full strength from 11pm.

Residential customers are also taking action, reactivating wood-burning stoves and fireplaces. Sales of firewood, wood pellets and coal, as well as of gas canisters and cartridges, have shot up.