15 mar 2023 9:19 p.m
The banking crisis spills over into the EU ‒ a few hours after Chancellor Scholz assured that it would not happen. The crisis hits an already weakened economy. Thanks to sanctions, Russia is well protected from the effects of the financial crisis for the time being.
By Gert Ewen Ungar
Admittedly, it is difficult not to gloat over the current events on the financial markets. The aim was to damage Russia as much as possible and destroy its economy. Now the sanctions and the associated measures to curb inflation are having an impact on the economies of Western countries in a way that is plunging them into a deep economic crisis. Germany will be hit particularly hard. Anyone who, in view of the lockdown and interrupted supply chains, thought that things couldn’t get any worse for the German economy will now be taught otherwise. It gets worse. Much worse.
What is happening now has the potential to cause lasting damage to the German economy, because the blows are coming from very different directions and they are hitting an economy that has not yet fully recovered from the previous shocks.
First of all, there are the sanctions. They were intended to ruin Russia. They were imposed immediately after the start of Russia’s military special operation in Ukraine, which suggests that they have long been prepared in a drawer. However, the sanctions are primarily having an impact in the EU and the USA. The countermeasures that Russia has taken are cleverly thought out. At just over two percent, the Russian economy collapsed much less severely than expected and has been back on course for growth since the third quarter of 2022.
This is a long way from a double-digit slump, such as the German Economics Minister Habeck thought possible in the autumn. All the scenarios that the West gleefully imagined were far removed from Russian reality. People would take to the streets in the face of a collapsing Russian economy and the associated rapid deterioration in living conditions. They would rebel against the government and demand an end to the war. There might even be an overthrow.
In the meantime, people in Germany, France, Italy and Belgium are taking to the streets and demanding a fundamental change in policy in the face of rising inflation and falling living standards. The protests are often linked to the demand to finally work towards an end to the Ukraine war. Something didn’t go as it should and is still not going as expected.
For Germany, however, it was a bit more hearty, because one of the most important infrastructure projects in Germany was blown up. Pulitzer Prize-winning investigative journalist Seymour Hersh claims President Biden personally ordered the attack. Hersh relies on a source he knows and says he had direct access to it. If true, it would mean that Germany had been attacked by its most important ally.
Instead of picking up the clues and following them up, German journalism does exactly the opposite. He attempts to refute Hersh’s story and personally defames Hersh. He presents an implausible story about a sailing yacht that sails undisturbed through the Baltic Sea loaded with explosives and a few diving gear and, as a hobby, does what experts say only states are able to do due to the technical complexity: A “pro-Ukrainian group” blows up North Stream and ship back undetected. Well, it’s fairy tale time again in quality German journalism.
In any case, authorship is a secondary question for the effects on the German economy. In addition to wage dumping, the German economic model, which has regularly made it the “world export champion”, is primarily based on the availability of cheap Russian energy. That time is over. Russian crude oil and its products are dispensed with, and with the blasting of Nord Stream inevitably also Russian gas. That makes German products more expensive – a competitive disadvantage.
Part of the production is shut down. It’s no longer worthwhile. Some emigrate abroad. Many large companies feel courted by the USA and are relocating there. The US tempts with massive subsidies and low energy costs. Under no circumstances should one say in Germany that the USA could have eliminated a competitor by blowing up Nord Stream, because that would be serving a Kremlin narrative.
A banking crisis is now looming on the horizon, which will also have a severe impact on the economy. One is reminded of 2007, the collapse of the investment bank Lehman Brothers, which was followed by difficult years that brought the EU to the brink of collapse. Now it’s that time again: the banks are falling in droves.
The Federal Chancellor has assured the Germans that the risk of the banking crisis spreading from the USA to Europe is low. “There is no reason to worry,” said the chancellor, but less than 24 hours later, Credit Suisse, a major European bank, is stumbling.
The central reason for the banking crisis lies in the massive increase in key interest rates by the US Federal Reserve. The European Central Bank (ECB) did exactly the same thing, so it would be surprising if this had any other impact on the banking sector. Central banks are raising interest rates to combat inflation, which – another Russian narrative – has been rocketed by sanctions.
All of this affects a German economy that has barely overcome the previous crisis caused by the pandemic and that is in a long downturn due to many wrong economic decisions.
Something went horribly wrong.
You just imagined it. The Russian economy, which is small in relation to the EU, is ruined with extensive sanctions – filling station with nuclear missiles, Russia was made fun of. Every day, every hour, it becomes more and more clear that the West, and above all Germany, has thoroughly miscalculated. Now you are lying where you would like to see Russia lying: on the ground.
Incidentally, thanks to sanctions, Russia is relatively well protected from the effects of the financial crisis. As is well known, the decoupling from SWIFT was aimed at ruining Russia. However, that is now the fate that awaits Germany.
more on the subject – What the ten EU sanctions packages against Russia include – an overview
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On February 24, Russian President Vladimir Putin announced that he would launch a special military operation in Ukraine together with the armed forces of the Donbass republics to protect the population there. The goals are to demilitarize and denazify Ukraine. Ukraine speaks of a war of aggression. On the same day, Ukrainian President Vladimir Zelenskiy declared a state of war across the country.
The West condemned the attack, reacted with new deliveries of weapons, promised help with reconstruction and imposed sanctions on Russia.
Scores of soldiers and civilians have been killed on both sides of the conflict. Moscow and Kiev have accused each other of various war crimes. Thousands of Ukrainians have now fled their homeland.