Scholz Says Germany Prepared for Russia Gas Halt Amid War

(Bloomberg) -- Germany and Europe are prepared to weather the fallout should Russia decide to halt gas deliveries altogether, the country’s chancellor Olaf Scholz said in a statement on Saturday.

Germany has prepared “for Russia to largely cut off gas supplies because of the war against Ukraine,” Scholz said, adding his country has set up terminals on the north German coast to import liquid gas. 

The chancellor’s claim that the country is prepared was disputed, however, by Germany’s Association of Towns and Municipalities, which represents around 14,000 municipalities and towns across the nation, as well as by economic think tank DIW. 

Europe’s largest economy is at the center of the continent’s energy crunch as Russian President Vladimir Putin slashes supplies in retaliation for sanctions related to the war in Ukraine. Concerns have been mounting that Germany could face a wave of bankruptcies in the fallout from the crisis. 

“We saved gas. We are once again using the production capabilities of coal-fired power plants. At the beginning of next year we will have the opportunity to use the remaining southern German nuclear power plants if that is necessary,” the chancellor said.

Yet the government’s power pledge was questioned on Saturday, when the president of the Association of Towns and Municipalities said the country is running the risk of an energy crisis.

“A hacker attack and/or an overload of the electricity grid” could cause a severe blackout, Gerd Landsberg, president of the association, told newspaper Welt am Sonntag. Such an overload could be triggered if too many households plug in electric heaters instead of gas heaters, he said.

Germany has acknowledged that the situation is serious, but isn’t doing enough yet to prepare, Landsberg said, according to the newspaper.

Marcel Fratzscher, president of German think tank DIW, told media network RND on Saturday that he expects a longer downturn in Germany.

“Recession is unavoidable, we are already in a downturn,” said Fratzscher, adding he is concerned the economy won’t recover fast and instead shrink in 2023. “2024 won’t be such a good year either,” the economist said and warned Germany is at risk of having to put up with a few years of stagflation.

Fratzscher predicted that “many companies will go bankrupt” because the government can’t save them all. He suggested the government limit energy costs and offer help to transform.

Earlier this week, the German government was dealt a blow to its plans to keep some nuclear power plants online as back-up reserve. The plan, unveiled by Economy Minister Robert Habeck, was rejected by one of Germany’s nuclear power plant operators, which said it “is technically not doable and therefore not suitable as a means to secure the supply share of these plants.”

(Adds comment from economic think tank DIW)

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