Germany braces for ‘big impact’ over Russia sanctions

Germany can expect a "big impact" from the ripple effects of Western sanctions against Russia for its invasion of Ukraine, Economy Minister Robert Habeck said Thursday.

Robert Habeck (Greens), Minister for Economic Affairs and Climate Protection, talks to press on Thursday.
Robert Habeck (Greens), Minister for Economic Affairs and Climate Protection, talks to press on Thursday. Photo: picture alliance/dpa | Michael Kappeler

The fallout from the war is likely to derail Germany’s hoped-for economic rebound in the second quarter of 2022 on the back of eased coronavirus curbs, Habeck told reporters.

“The impact of the sanctions and of the war on all sectors of the economy is so strong that we can fear a big impact,” he said.

But despite the “difficult business climate”, Habeck praised companies for backing the sanctions and supporting the international response against
Moscow’s aggression.

The United States and European allies have imposed sweeping sanctions aimed at isolating Russia from the global financial and trade system, including punitive measures targeting businesses, banks and billionaires.

German car giants Volkswagen, Daimler and BMW have announced that they are suspending operations in Russia as a result, while plants in other countries are being idled as the fighting in Ukraine disrupts supply chains.

READ ALSO: How Russian sanctions could affect travel to and from Germany

“We must be grateful for the fact that all the companies I have spoken to, both in the US and here, fully support the sanctions, even though it is a considerable burden for them, even though employees are affected and the situation is tense,” Habeck said.

Export powerhouse Germany traditionally has close commercial ties to Russia, and Habeck said Berlin would help shield affected companies from the fallout.

“German firms have invested around 20 billion euros in Russia,” he said, of which only around 7.4 billion euros was covered by insurance.

The German government would make cheap credit available through its public lender KfW to help compensate for some of the losses, he added.

Habeck also warned of the impact of rising energy costs and disruptions in the delivery of certain raw materials, at a time when Germany, like the rest of Europe, is already grappling with soaring inflation.

After the lifting of pandemic restrictions and a gradual easing of the supply chain woes that had plagued global trade, “we had all hoped that we
would experience an economic upswing this spring” that would return the German economy to its pre-pandemic level, Habeck said.

But Germany now has to factor in “the consequences of the war”, he said.

“And it must be said once again that it is Vladimir Putin alone who has burdened the global community with these consequences,” he added.

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Scholz says Germany to become biggest NATO force in Europe

Germany's investments in defence in the wake of Russia's invasion of Ukraine will transform it into the biggest contributor to NATO in Europe, Chancellor Olaf Scholz said on Tuesday.

Scholz says Germany to become biggest NATO force in Europe

Alongside the United States, Germany is “certainly making the largest contribution” to NATO, Scholz said in an interview with the ARD broadcaster.

Speaking at the close of a summit of leaders from the Group of Seven rich democracies, Scholz said Germany was in the process of creating “the largest conventional army within the NATO framework in Europe”.

Days after Russia invaded Ukraine in February, Scholz announced a 100-billion-euro ($105-billion) fund to beef up Germany’s military defences and offset decades of chronic underfunding.

READ ALSO: Germany’s Bundestag approves €100 billion fund to beef up defences

He also promised to meet NATO’s target of spending two percent of GDP on defence, answering years of criticism from close allies that Berlin was failing to contribute enough to the alliance.

Russia’s invasion had led to a renewed conviction “that we should spend more money on defence”, Scholz said.

“We will spend an average of around 70 to 80 billion euros a year on defence over the next few years,” he said, meaning “Germany is the country that invests the most in this”.

Scholz’s announcement in February was seen as a major policy shift, upending Germany’s traditionally cautious approach to defence as a result of its post-war guilt.

Germany had steadily reduced the size of its army since the end of the Cold War from around 500,000 at the time of reunification in 1990 to just 200,000.

NATO allies are from Tuesday gathering in Madrid for a summit, where the United States is expected to announce new long-term military deployments across Europe.