The EU thread

[Admiral Yi]

Peak Merkelism. Enact a policy with decades-long impact to quiet a hot-button discussion topic that's bound to be forgotten in a week.

Are you saying there are other decisions Merkele took that fit this description?  Sounds like you want to throw shade at her granting asylum to six billion Middle Eastern refugees but I wanted to give you the chance to clarify. 

[Tamas]

My overall impression is that her only stable policy was to not rock the boat, whatever that would cost. Although her going to the wall on the prevailing sentiment of the day regarding refugees also fits in there, I was not focusing on that. In fact, it was another specific example which I called out as her peak bad move. Focus on the immigration policy is something you just did so perhaps you should clarify your position on it.

[Admiral Yi]

I think her decision was awesome.  And incidentally it did rock the boat. 

[Sheilbh]

Given that we're still collecting debt as if there's infinite money I'd say that there's 'austerity' and austerity.
And stupid energy policies result in stupid prizes/prices.

My issue is the debt fetishisation. The state does not exist to achieve balanced budgets or to serve an arbitrary debt target. Obviously you shouldn't be relying on debt for current spending.

But, for example, I do not think energy transition, Ukraine, European de-industrialisation v US and China are policy issues that should be subordinated to fiscal balance.

What happened in 2018 to German energy policies that would explain this decline? I am aware of the extreme 2022 energy price hike. But that's now mostly mitigated. What energy policy caused this before 2022?

I don't think you can really disentangle Germany's energy and Ukraine policies - which is the context of the extreme spike in 2022. It's a little "aside from that Mrs Lincoln, how was the play?"

Similarly I think we should be careful about mitigation. We've had some helpfully mild winters and Europe has been able to pivot so the lights don't go out. My understanding is energy prices (gas and electricity) are still multiples higher than they were pre-war (I think 2-4 times higher). Crucially Europe's economic competitors do not have that issue and energy prices there have largely reverted to pre-war levels.

It's why I quite like the framing of "carbon shock therapy" because the underlying policy you're trying to address may well have worth but it's how you do it and the global context. But setting up a policy framework of the price signal for carbon, without any measures to adjust or protect local industry is just going to lead to deindustrialisation as "market discipline". The Bundesbank is broadly comfortable with this, in 2023 they said that "a certain convergence in the size of the German industrial sector to the proportions seen in other advanced economies would not be cause for concern, per se, especially if it were to occur gradually." (I'm not sure how much you can achieve the gradual occurring if you rely on price signal alone - hence shock therapy).

I think that energy is just one of many factors, some from public policy, others from private mismanagement that have caused the industrial decline.

I agree I think there are many other factors.

But I do think a number boil back to policy decisions.

I tried finding a graph that track Russian oil exports to Germany but couldn't (probably just bad at it). That could offset loses from the nuke plants, right?

As I say I think this is why it's difficult to disentangle and why I flag fiscal policy (as spread to Europe), energy, Ukraine and China particularly.

So to take nuclear you can absolutely see how that makes sense on its own. I believe it provided around 25% of German electricity in 2010 and I believe Germany's an energy exporter within Europe. So the context for scaling it down to closure over 10 years: Europe's a leader in renewables and the pace of growth of that type of power is high, in addition you have increased security of supply of cheap-ish gas from Russia through Nordstream and Germany is a large and increasing trade partner with China which is the major growing economic centre, to the extent there are issues German industry moves up the supply chain.

But the policy becomes a lot more challenging if any of those go wrong and, in fact, all of them went wrong. So on energy transition, European renewable roll-out collapses in the early 2010s because of austerity (Italy, Greece, Spain and Portugal were the early adopters and it falls apart). For the rest of the 2010s the pace of renewables in Europe basically flatlines and Europe loses its early lead in the renewables to China. Separately, in 2015, China launches their "made in China 2025" policy of wanting to remove their dependencies on foreign trade partners and also to move up the supply chain themselves, which will increase competition in other markets for their German trade partners. Plus it turns out that Russia's gas polciy (as was repeatedly stated by Germany's allies: UK, US, Poland, Baltic states and other neighbours like Ukraine) actually increased risk and exposure rather than being a win-win solution.

And I think that's the case for all of them is that on everyone of those issues the policy decision as a standalone, singular issue but strategically when they are linked they rely on, at best, nothing changing - or perhaps even quite benign outcomes. Which is the end result of that 25% of Germany's electricity supply gone, Germany now importing electricity (primarily from nuclear heavy France or lignite coal heavy Germany so not even necessarily helpful from a decarbonisation perspective), Europe's lead on renewables is gone, the cost of gas for industry is about 4 times higher than in competitors and (with all those issues impacting competitiveness) China is moving up the supply chain.

Then you have Draghi coming out with a detailed, really important report (at the request of the Commission) on how Europe addresses this which is basically that Europe needs to leverage its role in the global economy to count and increase competitiveness and security through energy transition, industrial policy and defence industry. And the German immediately rejects it - which I think will just reinforce and build on those issues in a vicious cycle And why I think the shock therapy explanation helps as faced with an age of eco-mercantilism, increasing geopolitical risks and supply shocks, particularly around fossil fuel prices, Germany is very committed to their particular version of rules based liberalism.

[Admiral Yi]

Does "debt fetishization" have an actual meaning?

[Sheilbh]

Enough for the CDU to do campaign posters based on it in the 2019 European elections:

("We stand by our fetish.")

[Zanza]

My understanding is energy prices (gas and electricity) are still multiples higher than they were pre-war (I think 2-4 times higher).

At least in Germany, energy (electricity, gas, heating oil, car fuel) is now cheaper than it was in February 2022.

Source: https://www.zeit.de/wirtschaft/energiemonitor-strompreis-gaspreis-erneuerbare-energien-ausbau

[Sheilbh]

Is that for households or industry though? Because I think households have (rightly) been supported through carbon "shock therapy", nowhere more than Germany:


But, from my understanding, less so for industry. And worth noting - to tie to the industrial performance chart - that consumption is down by 10%. From my understanding the industrial decline so far is overwhelmingly concentrated in the energy intensive sectors. It's why I find the "shock therapy" analogy quite helpful - and households/individuals have been protected

[Admiral Yi]

Enough for the CDU to do campaign posters based on it in the 2019 European elections:

("We stand by our fetish.")

Fair enough.  You're in effect saying there is or there have been debates in Germany about the constitutional debt ceiling, and the arguments made were encapsulated in the word fetish.  I've got no argument with you there.

The potential disagreement would arise if the word were the argument, i.e. debt ceilings are based on irrational thinking and therefore primitive and on that basis we should do away with them.  Or in other words debt ceiling fetishes are bad because all fetishes are bad.

And I would like to note that you immediately proposed your own debt fetish, i.e. "you shouldn't be relying on debt for current spending."

[The Brain]

So to take nuclear you can absolutely see how that makes sense on its own. I believe it provided around 25% of German electricity in 2010 and I believe Germany's an energy exporter within Europe. So the context for scaling it down to closure over 10 years: Europe's a leader in renewables and the pace of growth of that type of power is high, in addition you have increased security of supply of cheap-ish gas from Russia through Nordstream and Germany is a large and increasing trade partner with China which is the major growing economic centre, to the extent there are issues German industry moves up the supply chain.

In the best case scenario forced shutdown of nuclear power plants while still using coal power plants means people needlessly dying, climate change being needlessly enabled, and vast sums of money being needlessly lost. Merkel didn't even have the feeble defense of being personally ignorant, her science background means she was very well aware of this. Of course, from her perspective it made perfect sense, she is the kind of person who will make the world burn to cling on to power.

[Zanza]

Is that for households or industry though? Because I think households have (rightly) been supported through carbon "shock therapy", nowhere more than Germany:


But, from my understanding, less so for industry. And worth noting - to tie to the industrial performance chart - that consumption is down by 10%. From my understanding the industrial decline so far is overwhelmingly concentrated in the energy intensive sectors. It's why I find the "shock therapy" analogy quite helpful - and households/individuals have been protected

Industrial electricity is back at 2017 cost level. Gas is not as the cheap pipeline gas is not coming back. That hurts industrial processes that need heat (as substitution with electricity or hydrogen takes lots of investment first) and those that use gas a chemical precursor.

[Sheilbh]

Fair enough.  You're in effect saying there is or there have been debates in Germany about the constitutional debt ceiling, and the arguments made were encapsulated in the word fetish.  I've got no argument with you there.

And across Europe. As I say that campaign was from the 2019 European elections.

The potential disagreement would arise if the word were the argument, i.e. debt ceilings are based on irrational thinking and therefore primitive and on that basis we should do away with them.  Or in other words debt ceiling fetishes are bad because all fetishes are bad.

And I would like to note that you immediately proposed your own debt fetish, i.e. "you shouldn't be relying on debt for current spending."

Nothing wrong with a bit of irrational thinking or primitivity (not that they're anywhere near the same). I'm also not a kink-shamer - even for the CDU

I think debt ceilings are wrong because they're an artificial constraint on politics, in a world which isn't constrained or orderly. So at best you'll either need to make a mockery of them, or live in states of emergency which I don't think is a good thing. Just be prudent on the everyday stuff.

I think you see the impact of that in Europe and in Germany - the point I made to Ivan - that the state and politics is subordinated to fiscal target. Debt is literally a fetish. It is the objective and key measure - not the actual policy goal. Germany is halving bilateral support for Ukraine in order to meet their debt rules; Europe is not investing in industrial capacity in the same way (or at the same scale) as the US or China because of opposition to common European debt from the German government. Those are bad outcomes driven because the focus is on the debt not the politics and the outcomes we want to see. If we're faced in a future of Russia nibbling at the Baltics caught between an indifferent US and hostile China, I'm not sure the sacrifices made to achieve schwarze null will really compensate.

And, if these debt rules lead to a halving of German bilateral support to Ukraine and retrenchment in France and at a European level, then the outcome will be like Trump winning and doing the worst we expect. If the policy outcome is the same as the GOP crazies, then while it may not be because "irrational thinking" and was instead because of very sensible, centrist figures who profoundly believe in the rules based order - then what is the point of them?

[Sheilbh]

Industrial electricity is back at 2017 cost level. Gas is not as the cheap pipeline gas is not coming back. That hurts industrial processes that need heat (as substitution with electricity or hydrogen takes lots of investment first) and those that use gas a chemical precursor.

Okay so looking into it (ignore the red circle which was a computer glitch causing panic) that's sort of true at some points. There's some volatility in 2017 but basically it's broadly between 0 and 50 EUR. 2024 is far more volatile and the range is broadly between 0 and 100 EUR. I don't know on the average level but it does look about double the level it was between 2015-2020:


Given that I imagine the price for industrial users is hedged in some way, given the levels of volatility I expect there's some premium there.

[Admiral Yi]

Debt is literally a fetish. It is the objective and key measure - not the actual policy goal.

Debt rules are instituted in furtherance of *a* actual policy goal.  There is always more than one.  Sometimes they conflict and we have to choose.

[Sheilbh]

Debt rules are instituted in furtherance of *a* actual policy goal.  There is always more than one.  Sometimes they conflict and we have to choose.

If it's a constitutional rule or quasi-constitutional rule as in Germany and the EU (where it's in the treaties) it isn't a policy goal. It's not a question of them conflicting and choosing. It is the condition of other policies and structures the debate and choices you can make over them.

I don't think it's directly related to the Ukraine decision, but in Germany I believe the constitutional limit on deficit spending is 0.35% of GDP. There are exceptions for states of emergency, such as over covid. A lot of the recent budgetary issues is because the government basically agreed to spend leftover deficit money allowed for the covid emergency to be used for other purposes (largely climate spending). The Constitutional Court, I believe, ruled this wasn't allowed as it had to be related to the underlying emergency - which means all the coalition commitments were pushed into the normal budget - so either abandon them or cut other spending.

But I believe zeitenwende and Ukraine spending have also been using the special rules to incur debt without deficit spending. As I say we're moving from a debate about what is the right, how to pay for it and trade offs to debates about how to account for it, get around rules or (when that's exhausted) cancelling really important policies (like energy transition and supporting Ukraine) for accounting reasons. Debt becomes a fetish, distorting and displacing the actual politics.