A warm welcome to this episode of the Krautshell! Today is all about the most important minor matter in the world. And we’re not talking about soccer, but MONEY. And, of course, what political significance it has momentarily. In addition, our guest contributor Dr. Steven E. Sokol looks at the current geopolitical developments and explains why “resilience” must become a leitmotif for politics in the coming years. Enjoy this issue of Krautshell and have a great weekend! Anna Christian Tax-Financed Profits Refueling is more expensive than ever. Thank goodness, here comes the fuel rebate! Or is it? A few weeks ago, at the instigation of the FDP, the traffic light coalition of the SPD, the Greens and the FDP decided on a VAT rebate for petroleum companies to reduce prices at the pump. The tax rebate, like other measures in the relief package, has been in effect since June 1. But it doesn’t quite want to take effect. To be fair, we should mention that gas stations buy their gasoline on stock and that silos at present do not offer reduced prices. Nevertheless, many gas stations raised their prices once again last week. During the Covid crisis, there were already temporary VAT reductions on almost all products and services in Germany. Studies show that only about half of this reduction was passed on to consumers. The rest ended up in the pockets of companies as tax-financed profits. The current fuel rebate was unpopular even among liberal economists. For the FDP, it was clientele politics – many of its voters earn well and drive many cars, so they are disproportionately affected by high prices at the gas station. Now, however, clientele politics will probably not reach their clientele, but will merely cost the taxpayer a lot of money. Everyone lacks understanding for this, regardless of which clientele one belongs to. The German government has commissioned the Federal Cartel Office to monitor whether the oil companies are passing on the discount to consumers. That’s good in theory. In practice, the cartel office can intervene only against price agreements, but is powerless against supposedly unjustified maximum prices. It can be assumed that the VAT rebate will only remain a tax-financed profit for mineral oil companies. By the way, the five largest oil companies made a turnover of €30 billion in the first quarter of 2022. That’s more than twice as much as the previous year. Money > Rule of Law This week we witnessed a major conflict within the European Commission. The institution, which effectively acts as the EU government and has been headed by Ursula von der Leyen since 2019, is responsible, among other things, for the disbursement of the EU’s Corona Recovery Program. While much money has already flowed here, Poland has still not received any money for a long time. There are several reasons for this. The EU (rightly) sees the rule of law in Poland at risk. Poland has declared that EU law is no longer superior to Polish law in many areas. The country has also introduced a disciplinary chamber to oversee judges and their rulings. The chamber is political and overturns such decisions and suspends judges who do not agree with the right-wing conservative government. However, Poland has also taken in large numbers of Ukrainian refugees and provided Ukraine with large amounts of military aid. As an ex-Soviet state, Poland is a role model for what a meaningful European response to Putin’s war of aggression could look like. It is a role that other states are failing to play. With rising inflationary pressures and higher food and goods prices, and in view of the commitment to Ukraine, Commission President von der Leyen obviously felt obliged to start disbursing Recovery Fund money to Poland after all. But von der Leyen is facing headwind from within her own ranks. Commission Vice-Presidents Timmermans, Vestager and Jourová have expressed their reservations or, in the case of Timmermans, even outright opposition to this step. In order to ensure the protection of the rule of law in Poland, a strategic plan has been developed by the President and her confidants, whose steps have been met with great irritation and little sympathy by her colleagues. In Poland, they are celebrating this as a great success, not so much with but over the EU. This could justify the concerns of von der Leyen’s colleagues. We’ll keep you posted. Inflation: German Trauma Last month’s inflation numbers are out, and they make for grim reading. In a country proud of the “Swabian housewife’s frugality” where many still believe in the quaint concept of savings accounts, a consumer price hike of 7,9 percent is a serious threat to lower- and middle-class households. The numbers mark a record in reunified Germany and are roughly at the same level as 1973, when the Yom Kippur War triggered an oil embargo and Germans walked the Autobahn on Sundays. Which brings us to history. To an extent hard to fathom in the United States, inflation is quintessential German Angst. Stories no one today is alive to tell have somehow creeped into the national psyche as reminders not only of the fleeting value of money, but of the political dangers that ensue when life savings turn to paper. Take 1923: In modern history’s greatest episode of hyperinflation, when 1 dollar traded for 4,2 trillion Reichsmark, it became literally cheaper to burn last month’s earnings than to buy firewood. Was it a coincidence that Hitler chose that year to attempt his bizarrely named Beer Hall Putsch? Twenty-five years and one world war later, galloping inflation contributed to the Cold War’s first major crisis by compelling a currency reform which in turn led to the 1948-49 Berlin Blockade. One final example: Inflation is such a recurring fear in German history that when Albrecht Dürer published his chilling Horsemen of the Apocalypse in 1511, they personified plague, war, death – and inflation. Check out this terrifying figure swinging scales in the foreground and you get idea. Back to the less dramatic but no less relevant present: The coming months will put serious pressure on the average consumer, and count on politicians making analogies to the dark past times of high inflation. But this isn’t 1923, and we hope today’s little dive into German history helped put that into perspective. by Dr. Steven E. Sokol, President, American Council on Germany Setting the Stage With the conflict in Ukraine in its fourth month and an uptick in Covid-19 cases despite warmer weather, political leaders and the public find themselves preoccupied by war and the pandemic – both of which have created shocks for the world economy and disrupted global supply chains. But, there have been other things going on that merit our attention. For example, in mid-May the second meeting of the U.S.-EU Trade and Technology Council (TTC) took place in Paris. And, later this month we’ll see the highpoint of Germany’s G7 Presidency when leaders meet in the Bavarian Alps. Both forums are taking place against the backdrop of – and have been influenced by – Putin’s war of aggression in Ukraine. The first TTC Ministerial Meeting took place in Pittsburgh last September – and the stated objective at that time was to align U.S. and European approaches to key issues like AI and global supply chains, deepen transatlantic ties, and encourage the spread of democratic and market-oriented values. While these objectives still hold, the geopolitical backdrop has changed dramatically since the Council’s last meeting. At the beginning of its G7 Presidency in January, Germany set out to make “progress towards an equitable world” with a focus on sustainability, economic stability, public health, and investment in a better future. But, external pressures have required some adaptation of the initial set of priorities. The conflict in Ukraine has put the global economic and security order at risk. What can we truly expect from these international gatherings in light of the current conflict and how do they fit into the broader geopolitical context? What Came out of the TTC Meeting? In Paris, the EU and the U.S. reaffirmed their close cooperation to address global trade and technology challenges in line with their shared commitment to democracy, freedom, and human rights. Both parties reiterated the central role of the TTC for the renewed transatlantic partnership, which has already served to coordinate joint measures being taken by the EU and the U.S. in face of the Russian aggression against Ukraine. In the TTC’s ten working groups, it was clear that the United States and Europe stand together in support of Ukraine. For example, the working group on export controls has been instrumental in organizing sanctions and export controls against Russa – and the TTC is considered to be indispensable for transatlantic cooperation in this area. The parties also made a commitment to secure supply chains in key areas, including semiconductors. This includes committing to an early warning system: Every two weeks, representatives from the United States and the European Union will meet to discuss shortages of semiconductors. Among many other things, Brussels and Washington also made a commitment to cooperate on food security. This should have a long-term effect in addition to addressing the unfolding global food crisis due to the conflict in Ukraine. What Can We Expect from the G7 Summit? Germany’s priorities for its G7 Presidency may have been in place before Russia invaded Ukraine, but their relevance has only been magnified by the current conflict. Ministerial meetings have been taking place to lay the foundation for the Summit on June 26-28 – and from what we’ve seen Germany is committed to strengthening democracies and democratic values, and the war in Ukraine underlines the importance of “resilient democracies.” Climate change and energy are also extremely important issues for Germany’s G7 Presidency. Germany envisions combating climate change by forming an open and inclusive “Climate Club” to show unity among nations. At the moment, G7 members employ diverse tactics to fight climate change. And, although there is some skepticism from Japan and the U.S., there is hope that a common approach can be developed through such a “Club.” In the face of the pandemic, global public health remains a priority. There is also a desire to coordinate the United States’ Build Back Better World initiative and the European Union’s Global Gateway to work on financing sustainable infrastructure globally. Furthermore, Germany is also looking for multilateral approaches to address global food security and to ease today’s supply-chain issues. The (Guest) House View: It’s all about Resilience! From climate to Covid to conflict, each of these forums has an ambitious and overlapping agenda – not to mention all other areas where collaboration and coordination are essential. But, what they also have in common is the desire to shore up liberal democracies and economic resilience in the face of authoritarian and autocratic regimes. Similar to after the end of World War II and the end of the Cold War, we are now experiencing a third major tectonic shift that will reshape the global economy. With Russia’s invasion of an independent and sovereign Ukraine, we are seeing the reality of great-power conflict (and rivalry) in the 21st century. From Moscow, Russia’s Putin wants to weaken the postwar liberal international world order; and from Beijing, China’s Xi continues to subvert Western interests. Meanwhile, we are still suffering from the lingering effects of the pandemic and strong populist movements putting pressures on democratic institutions. We live in an age of disruption, in which everything that connects us globally can also be used to disrupt us. To meet the challenges of the day, “resilience” will need to become more than just a buzzword, but rather a strategy to deal with disruptions to globalization without becoming protectionist. Hopefully, when G7 leaders meet later this month and when the next TTC Ministerial Meeting is held in the United States before the end of the year, leaders will take this to heart. LONG STORY SHORT: WHAT’S ON OUR MINDS By Anna, Senior Consultant ALL ABOARD As a reaction to the Ukraine war, the German cabinet in late Marchdecided on a package of relief measures, kind of a cushion addressing the rising energy and gas prices. One of the measures: the 9-Euro-Ticket, which allows you to use the public transportation in the whole of Germany, for a rather symbolic price. Awesome, right? Well, yes, overall. Just some thoughts: But I don’t wanna be the party pooper. Public transportation is good for the environment and might convince some car users to abstain from their beloved vehicle…for three months at least. Now the only thing left to worry about are the people living on Sylt, who are terrified of hordes of Germans getting on a train and invading their beautiful North Sea island over Pentecost weekend. Issue #89
Guten Morgen!
FIRST, SOME SOLID INTEL:
TAKE A BREAK, GIVE YOUR EYES A REST.
Promoting Resilience in Light of Today’s Challenges
