Germany without Russian gas? Not a disaster, say two Nobel laureates – Politics Abroad

In BILD, two Nobel laureates in economics discuss the effects of an immediate embargo on gas, oil and coal. And who do you think can most influence the German government on this issue.

Franco-American Esther Duflo (49) and American of Indian origin Abhijit Banerjee (61) are professors of economics at the famous MIT University in Massachusetts (United States). They won the Nobel Prize in 2019 for their research on poverty reduction. They are married and have two children.

The couple Esther Duflo (49) and Abjihit Banerjee (61) won the 2019 Nobel Prize in Economics. Among other things, you do research on poverty reductionFoto: Bryce Vickmark/MIT

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The couple Esther Duflo (49 years old) and Abhijit Banerjee (61 years old) in Boston. When this photo was taken in 2019, the war in Ukraine had not yet escalatedPhoto: Bryce Vickmark/MIT

BILD: You have researched and published on the subject of poverty alleviation and received the Nobel Prize in Economics for this in 2019. Do you think that Germany would be at serious risk of poverty if it stopped importing raw materials from Russia with immediate effect?

Abhijit Banerjee: “Definitely not. You have to put things in perspective. Germany is a rich country that has the resources to redistribute so that no one becomes poor under the shock of an immediate embargo. Yes, it would cost something, but using the The word ‘poverty’ in this context is downright absurd.”

Esther Duflo: “There would be painful cuts. But we can be sure in Western societies that the most vulnerable are protected. This was possible during the corona pandemic. It will be possible again. And this must be compared with the incredible suffering of the Ukrainian people. It seems inappropriate to worry about our economic costs in this context, although of course it is deeply human. We would like to quote the German pastor Martin Niemöller from 1946 on the dangers of acting too late:

“When the Nazis got the Communists, I kept quiet; I was not a communist.
When they went to get the trade unionists, I kept quiet, I was not a trade unionist.
When they went to get the Jews, I kept quiet, I wasn’t a Jew.
When they took me away, there was no one left to protest.

How do you rate the influence of business and industry on politics in Germany?

Duflo: “Industry appears to be very influential, with trade association reports being cited as evidence of the alleged costs. It’s not a specifically German problem, it’s everywhere. Too many of those who present themselves as “economists” on television are usually not academics, but people who explicitly represent the interests of industry or business. Their advice is of course influenced by their origin. It’s like when an auto repair shop tells you that your car needs a lot of work. It is viewed with some skepticism. It is also striking that the same industry groups that claimed for a decade that German energy import levels from Russia were safe are now saying that stopping those imports would be catastrophic.

Energy-intensive factories like this special foundry in Leipzig are already feeling the effects of rising gas prices.  Many manufacturers fear an immediate embargoFoto: Waltraud Grubitzsch/ZB

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Energy-hungry factories like this special foundry in Leipzig are feeling the effects of rising gas prices. Many manufacturers fear an immediate embargoPhoto: Waltraud Grubitzsch/ZB

Do you understand how the German government came to the conclusion that an immediate embargo on gas, oil and coal would be disastrous for Germany?

Duflo: “Economics needs professionals because intuitive assumptions are often misleading. There is the intuitive logic that an embargo would mean that Germany would lose 30% of its gas supplies from Russia and that production would also have to fall by 30% – perhaps even more because the employees of these companies would find themselves unemployed and not Spend more money and the disaster is already there. But that’s just plain wrong. Firstly, contrary to the facts, it is assumed that every company in Germany implicitly uses some gas and that this gas is absolutely essential. In fact, many companies indirectly consume gas as part of their electricity supply, which comes from the grid. But there are many other ways to generate energy, including delaying the dismantling of nuclear power plants.

What do you think of the fact that ex-Chancellor Gerhard Schröder became one of Russia’s most important lobbyists immediately after his election?

Banerjee: “It’s embarrassing. It’s probably no coincidence. Germany has long relied on a close relationship with Russia to get cheap energy. This has led to close ties, mainly in the energy sector. It is dangerous not to diversify, and that is exactly what we are going to learn today. Here too, there is a more general problem which is far from being limited to Germany There should be no revolving door between politics and lobbying.

Gerhard Schröder (78, SPD, left) called war criminal and dictator Vladimir Putin (69, right) a 'staunch democrat' when he received the Russian state payslip immediately after his election .Foto: STRINGER/REUTERS

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Gerhard Schröder (78, SPD, left) called war criminal and dictator Vladimir Putin (69, right) a ‘staunch democrat’ and was put on the pay slips of Russian state-owned companies after being elected chancellor . A picture on the former Berlin Wall pokes fun at this constellationPhoto: STRINGER/REUTERS

Some professors of economics said that an embargo would be feasible, studies were also presented. Do you know what figures are used by those who think an embargo would be catastrophic?

Duflo: “Germany is blessed with many very capable economists and they have rightly made their voices heard. We have based our thinking on their work, but also on the common understanding of how economies work, shared by a large majority of economists. Their standard model indicates that the negative impact of an embargo will be 0.3% of the gross domestic product and that the notorious worst-case scenarios reach at worst 3%. Note that three percent is about what the coronavirus has done economically. It was painful, but manageable. Considering that the whole future of Europe as a political entity is at stake, the sacrifice seems worth it.

Vladimir Putin's army is murdering civilians in Ukraine - and Germany is transferring about 200 million euros a day, which is also flowing into the military machineFoto: Giorgos Moutafis

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Vladimir Putin’s army is murdering civilians in Ukraine – and Germany is transferring about 200 million euros a day, which is also flowing into the military machinePhoto: Giorgos Moutafis

Banerjee: “On the other hand, the doomsday scenarios do not seem to be based on serious analysis. These are just verbal statements from industry groups that an embargo would be “really bad”, using scary words like “deindustrialization” and “cascading effects”. There are also one or two outlier studies that predict a 6% decline in GDP, which is still not catastrophic. These appear to have been written by economists close to industry or trade unions. So, again, as the auto repair shop tells you that your car needs a lot of repairs: you should take such statements with a grain of salt. Worryingly, these panic mongers, the industry and labor lobbyists and economists close to them, apparently have the ear of Habeck, Scholz et Co.

Do you think German politicians listen enough to the advice of scientists?

Duflo: “We have written extensively in our articles about why economists sometimes get trapped in their own fantasy world, an ivory tower, and find the wrong answers. The downside, however, is that you shouldn’t rely on unscientific hunches. The beauty of the current embargo studies is that they are very transparent – the key is how important gas is to the average business and how difficult it is for households to reduce gas consumption to any extent. On both of these issues, we have a wealth of experience to draw on, and so we can be reasonably confident that the proposed figure of a 3% contraction in GDP represents a plausible worst-case scenario.

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