Notre Dame economics professor’s policy memo draws international attention in Germany’s Russian gas debate // The Observer

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The controversy started with Twitter, then the German Chancellor called economic research on a popular talk show, and soon enough The Washington Post was on the trail, phoning Notre Dame economics professor Rüdiger Bachmann.

Bachmann was watching ‘Anne Will’, a German talk show seen by millions, when German Chancellor Olaf Scholz criticized a guidance note explaining that Germany could cut Russian oil imports without detrimental economic effects. Bachmann was co-author of the only memoir published at that time.

“I knew immediately who he was talking about,” Bachmann said. “It wasn’t particularly subtle. It was anything but by name.

Quoted in a Washington Post article on March 29, Bachmann became one of the economists opposed to the Chancellor without ever speaking to him.

“I find it funny that the Post is picking this up,” Bachmann said. “The whole story of my fight against the German Chancellor was fun.”

Since co-authoring his memoir, Bachmann said other economists have conducted analyzes showing Germany can ban Russian oil imports without adverse economic effects. However, the Chancellor argues that a Russian oil embargo would spell economic disaster.

Despite the Chancellor’s remarks that it is “irresponsible to add up numbers that don’t work”, Bachmann said the guidance note had had an impact.

“I think we moved the needle a bit,” Bachmann said. “There was a lot of resonance in parliamentary circles.”

Bachmann said he and his co-authors never intended to recommend an embargo on Russian gas and oil. They simply sought to determine the economic effects of the potential supply shock – whether due to a voluntary oil embargo from Germany or a forced sanction from Russia.

“It was pure scientific curiosity,” Bachmann said. “We wanted to know what the maximum damage could be.”

Contrary to the prevailing notion that the economic impacts of the Russian oil cut would be similar in magnitude to the Great Depression, Bachmann’s policy brief found that the impacts would be at worst similar to those of the COVID pandemic. -19. The document forecast a fall in GDP of 0.5% to 3%, compared to a pandemic of 4.5%.

Bachmann acknowledged the difficulty of the current situation for German politicians but stuck to the conclusions of the document.

“To be fair, there’s a lot of uncertainty in doing this,” Bachmann said. “[Politicians] only play once.

William Donahue, a professor of European studies who has studied German for decades, said he supported the mix of views from those in favor of an embargo and those against it.

“I try to balance both sides and have a sympathetic point of view,” Donahue said. “When the German chancellor says it could be economically devastating, I take it seriously, but since he made that claim a number of economists have suggested it’s something Germany could bear. “

If he had the chance to speak to the Chancellor or other top German politicians, Bachmann said he would support his work.

“I would present my economic analysis and try to convince them that they are exaggerating the cost,” he said.

Although Germany must take significant steps to avoid a recession, especially ahead of winter when demand for natural gas is much higher for heating, Bachmann said the potential recession could be mitigated.

“We’re not saying it will be easy,” he said. “We’re not saying it won’t be a recession, but there are things you can do to mitigate costs ahead of winter.”

These steps – detailed in the guidance note – include three key elements: increasing supply, decreasing demand and introducing fiscal policy safety nets.

Because oil is more substitutable than gas, Bachmann said those steps must focus on natural gas, given its unique chemical properties and complicated transportation infrastructure. Germany currently sources 55% of its natural gas comes from Russia, compared to 34% of its oil.

“Natural gas is the biggest problem,” Bachmann said, calling it a “de facto local good” that isn’t easily substituted or outsourced to other countries, especially for industries that depend on its profile. chemical.

Donahue agreed that natural gas presents the biggest conundrum for an embargo.

“Germany could embargo oil much faster because dependency is lower and resupply is easier to organize,” Donahue said. “Natural gas is the real headache, and I just don’t have the answer.”

Bachmann said that Germany had already started pursuing liquefied natural gas (LNG) as a potential answer. Replacing the gas supply currently pumped into Germany from a pipeline to Russia with imported LNG would require more floating LNG terminals in the medium term and more permanent landlocked LNG terminals added in the long term, it said. he adds.

Regarding supply cuts, Bachmann said Germany could incentivize households and affected industries to use less natural gas while limiting negative economic impacts through fiscal policy.

To minimize the effects of a possible embargo on Russian oil and gas, Bachmann said Germany should implement short-term work programs for laid-off workers, protect banks linked to the chemical industry and redistribute money to low-income people. who may find it harder to afford food and other necessities as gas prices rise swell the cost of necessary goods.

Bachmann said these policies are feasible because Germany could have up to six months to adopt economic measures if it declares an embargo or soon loses access to Russian natural gas.

“In the summer, nothing dramatic would happen,” Bachmann said. “They would have six months to make it a manageable thing.”

Although Bachmann’s policy brief asserts that adequate reactionary policy would minimize the economic effects of the Russian oil embargo, he said trade unions and lobbies play a role in Germany’s reluctance to stop importing Russian oil.

“It’s one of the best-connected industries with huge lobbies and unions,” Bachmann said.

Donahue said some right-wing German politicians are also involved in opposing the embargo.

“Imposing embargoes on Russian gas and oil, although supported by a majority of Germans, is particularly unpopular among the right,” he said.

In addition, Donahue identified other sources of uncertainty in the face of a possible embargo, including the Chancellor’s political conservatism, his concerns about rising unemployment which could worsen the right wing Alternative for Germany (AfD) and the interdependence of the German economy.

“The economic results could extend far beyond Germany itself, as it is the world’s fourth-largest economy,” Donahue said.

Weighing the other side of the scale, Donahue said Germany’s reputation for respecting human rights – built up over years of support for refugees – is in play.

“If Germany doesn’t act boldly now, it risks sacrificing the ‘redemption’ narrative it won after welcoming more than a million refugees in 2015,” Donahue said. “It may further send the message, however unintended, that he is on the wrong side of war crimes.”

Donahue said Germany’s history will come into play as an apparent Russian war crimes come to light.

“I think the real tipping point will be the new discovery of Russian atrocities and war crimes in Ukraine. German intelligence recently overheard Russians discussing indiscriminate killings north of kyiv,” Donahue said. “That includes the targeting of civilians, and that will put more pressure on Germany to act, given its Holocaust history.”

Bachmann also mentioned the historic significance of Germany’s actions, stressing its post-Holocaust commitment to “Never again” allow crimes against humanity or wars of conquest.

“As a young German, I grew up with this slogan ‘never again’. Never again need to mean anything – not just a warm, fuzzy buzzword,” Bachmann said. fight Russia ourselves, everything else should be maxed out.”

Bachmann said he would ask one final question of German leaders still reluctant to sanction Russian gas and oil.

“How do you want to be remembered in 50 years when the history of this war is written?” He asked.

Tags: economy, embargo, Germany, Holocaust, never again, policy brief, Rudiger Bachmann, Russia, Ukraine

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