Thread by @mo_osterhuber

While this statement by 🇩🇪 Ambassador to the U.S. Emily Haber sounds positive and agreeable enough, I think it is too optimistic about recent 🇩🇪 policy and puts wrong emphases at every turn. Here’s why in a 🧵. 1/n.

https://twitter.com/GermanAmbUSA/status/1514194890552492032

1. The „sea change“ in 🇩🇪 foreign, security, and energy policy (exporting arms to 🇺🇦 and “cutting“ 🇷🇺 energy imports) is overstated. Of course, policy is changing. However, 🇩🇪 provided military supplies to war-torn areas in the past. The shift is not paradigmatic. 2/n

🇩🇪 supplied arms to the regional Kurdish government in the fight against the IS in 2014. aicgs.org/2014/09/german… Also, praise for an #embargo that is only planned for 2024 seems misplaced given the urgency of the war in 🇺🇦. Plenty of time for the status quo to change. 3/n

Until 2024, 🇩🇪 is targeting a tiny fraction of energy imports: coal (pushed to August 2022) and, eventually, oil (which has a global market and can be substituted relatively easily. Economic interests continue to reign supreme in 🇩🇪 and int. partners are no doubt noticing. 4/n.

https://twitter.com/surajev/status/1511714100757336064

Lastly, military spending: that indeed is a significant shift, and even though there is a lot to criticize about Angela #Merkel’s 16 years in office, she had already vowed in 2019 to hit NATO’s 2% spending target in the medium-term. 5/n

2. A “massive, instant disruption” and “knock-on effects” if 🇩🇪 goes cold-turkey on energy imports. That language is ambiguous and harkens back to warnings from @BASF, other industry lobbyists, and not least minister Robert #Habeck who cautioned against mass #unemployment. 6/n

This language has been ubiquitous in gov. communication. Yet, modeling suggests a manageable recession. Take it from some of the best researchers we have @ben_moll @MFratzscher @BachmannRudi @DIW_Berlin @DBaqaee @kuhnmo @andreasloeschel @MSchularick @APeichl @christianbaye13 7/n.

Depending on assumptions (i.e., substitutability of #gas), their models predict a small to medium-sized recession not exceeding 5-6% (under very pessimistic scenarios) as a result of an energy #embargo. A new study by economic institutes agrees. handelsblatt.com/politik/konjun… 8/n.

For comparison: this is nowhere near the dramatic recession that ordoliberal politicians in 🇪🇺 insisted 🇬🇷 go through during the euro area financial crisis. Notably, the correction of past policy mistakes in 🇬🇷 had to be rapid and immediate. 9/n.

https://twitter.com/lukaszrachel/status/1511467451787067393

3. Effects of an “abrupt import ban” on the war “would not be clear”. This overstates uncertainty and lacks substantiation by data. Economist and winner of the Clark medal @itskhoki, together with @sguriev, explains that an #embargo makes it harder for 🇷🇺 to sustain war. 10/n

https://twitter.com/itskhoki/status/1506554394355019779

4. It’s important to note what @GermanAmbUSA does not mention: recent energy subsidies for firms to compensate for rising prices. Please substitute away from Russian oil and gas. Also, here is a little bit of cash to dilute the price signal. This is part of German policy. 11/n

https://twitter.com/n_roettgen/status/1513798390622175232

A final thought: 🇩🇪 policy seems to disregard the significant costs and risks associated with inaction. Maintaining the status quo is an active and risky choice (even from a purely rational perspective). 12/n. End of 🧵. @HannoLustig @ThomasPHI2

https://twitter.com/bornecon/status/1512726887965077507