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German energy solutions are key to European stability

Last week, with the German people facing soaring energy prices, their new coalition government decided to spend the equivalent of $65 billion to ease the burden.

The action might seem like a national matter, but it will have far-reaching geopolitical effect as the country grapples with the economic and social implications of the Russian war against Ukraine. Ensuring German stability could be a defining moment for European history and even the global balance of power.

Protesters in East Germany shouted at German Chancellor Olaf Scholz; his recent visit to Canada failed to secure new short-term energy sources such as liquid natural gas; and members of his cabinet were publicly criticizing each other. During one of these moments, the chancellor for almost a year must have understood that he has to do something big, really monumental. And he did.

“You’ll never walk alone,” he said in English — unusually emotional wording for a German politician and especially so for a person as placid as Scholz but maybe proper wording for a sum equaling almost 20% of the country’s federal budget of the previous year.

The package is good news — not only for Germans, but for Europe as a whole. The problem is the actions might not be big enough. Rather, it can only be a starting point for a broader concept.

Much more is at stake than warm German living rooms this winter. If the government doesn’t counter the economic dangers and social pitfalls, its very existence is in danger — and the political and social peace in the country.

That would not bode well for all of Europe, the U.S. and the world. A strong, stable Germany is a crucial counter to Putin’s aggression on the world order — which is exactly why the Russian president is escalating the conflict on energy.

The coalition is a new team of unlikely partners: the Social Democrats, the Liberals and the Greens, facing a new and serious challenge — a war in a country so close. Add the complication of serious uncertainty, with Russian President Vladimir Putin gaming the system in terms of when and how much gas would flow. The inflation rate since has spiraled up to 10%.

Where to find affordable gas and energy is only the foremost question among many. How to deal with high energy costs in a country that is recovering from economic challenges due to the pandemic? How to plan manufacturing when you don’t know if you can keep your factory running? How to support poor households conveniently without throwing government money at people who are able to pay a higher bill?

The debate generated interesting ideas from all political sides in Germany. One of the more sensible ones was a price-reduced ticket for regional transport for the summer. But most measures were temporary and for particular groups. The longer the debate, the more charged it got, and the clearer it became that a bold deal was needed.

So the coalition’s solution was overdue. Among other measures, retired people and students will get one-time payments, parents will receive increased support and the sales tax in restaurants will stay at low pandemic level.

Will this be enough? There are — for good reasons — jokes about German “angst.“ But this time, the angst is justified and whether this package can diminish it remains to be seen.

A lot of details remain unclear, such as how price caps for basic energy costs will be put into practice or how to avoid companies randomly benefiting from increased gas prices. Middle-class people and mid-size companies will nevertheless suffer.

Even if more money was distributed, it cannot be the only solution. An energy-related crisis can cause a downward-spiral. Crucial industries such as the automobile sector might come to a halt, the consumer industry could suffer once industrial production is prioritized over entertainment venues, such as movie theaters. According to economists, whole branches may break down. This can increase unemployment, cost the state more and decrease tax revenues.

But the true reason why more fiscal measures and a committed search for energy sources have to remain Scholz’s main task is a social one. A crisis might harm morale.

On a small but important scale, people had to live under restrictions since the pandemic and will now be frustrated to see similar developments all over again. There already is a regulation prohibiting private owners from heating their pools. Closing public pools due to energy-delivery restrictions and high prices is debated as well. But not being able to pay the gas bill is only the first of a whole list of possible personal consequences, the worst being losing your job or home.

This fear and frustration — if not met with practical support, political empathy and the demonstrated will to really let no one “walk alone“ — will play into the hands of the far right. Until now, their political branch in the parliament, the AfD (“Alternative for Germany“), couldn’t profit from 1 million Ukrainians seeking shelter as they could in 2015 when a lot of Syrians were arriving. But as the German intelligence service pointed out in a recent report, the party and their supporters plan to exploit whatever frustration might develop.

Demonstrations were announced hours after the relief package was presented. The debate already showed potential cracks in the governing coalition that started to develop a new future for Germany.

A fragile or broken coalition, however, will not only harm Germany, which more than ever needs the transformation promised by the Scholz government. It also has serious implications for Europe as a whole. Among a right-leaning France, an Italy in constant crisis and Eastern countries focusing on not becoming the center of Putin‘s attention, a stable Germany is crucial.

So $65 billion might sound like a lot. But for a whole continent? Not so much.

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