News round-up Tuesday, 25 October 2022.
“The EU’s failure to find an agreement to contain gas and electricity prices sounds like a disavowal for the French president.”
Conclusion of the day's news:
Macron's thwarted European energy ambitionsNews Elsa Conesa
The EU's failure to find an agreement to contain gas and electricity prices sounds like a disavowal for the French president.
Published on October 25, 2022 at 05h00 Time to 4 min. Lire en français
Emmanuel Macron on the second day of the European Union leaders' summit held to discuss Ukraine, energy, economic issues and external relations, in Brussels, October 21, 2022. PIROSCHKA VAN DE WOUW/REUTERS
Emmanuel Macron's pro-European identity has always been one of his key ideological markers. But five years after the Sorbonne speech laying out his vision for Europe, it seems his influence on Europe is weakened. And the resignation of British Prime Minister Liz Truss on Thursday, October 20, overshadowed an equally worrying, though less visible, reality: the failure of European negotiations on energy and Europe's inability to contain prices that defy all economic logic. This not only brings some member states to their knees, but also threatens European cohesion.
The conclusions of the Council summit from the end of last week are hardly reassuring: the 27 concluded that it was "urgently" necessary to find "concrete solutions" on the issue of gas prices. The sharp rise in these prices over the past year has caused electricity prices to skyrocket in turn. Including in France, where the energy mix, 70% of which comes from cheap nuclear electricity, should protect it from gas prices.
For nearly a year, Paris has been lobbying for an overhaul of European electricity market rules in order to bring down prices. So far, little has been achieved. But the topic is crucial: our economies are ultra-dependent energy, forcing all European states to pay for these price differences, in a new "whatever it takes" approach that is not explicitly called as such, but which has already exceeded a cost of €500 billion, according to the Brussels think tank Bruegel. France spent €50 billion to protect households from increasing energy prices in 2021, and plans to disburse another €50 billion in 2023. What will it do if energy prices do not fall?
Westerrn Officials Warn Russia Could Use a Dirty Bomb as a Pretext
Top officials from the United States, Britain and France cautioned that there was no change in Russia’s nuclear posture and that they believed no decision had been made to use a tactical nuclear weapon.
Members of a Ukrainian drone unit hunting for Russian positions to target. With Ukraine continuing to make gains against Russian forces, there has been little immediate gain for the Kremlin.Credit...Finbarr O'Reilly for The New York Times
By David E. Sanger, Julian E. Barnes, Eric Schmitt and Helene Cooper
Oct. 24, 2022
WASHINGTON — Top officials from the United States, Britain and France sought on Monday to call out what they said was a transparent ploy by Moscow to create a pretext for escalating the war in Ukraine, rejecting claims by the Kremlin that Kyiv was preparing to detonate a dirty bomb on its own territory.
The strikingly public effort to expose the suspected Russian maneuver, which began with a joint statement issued on Sunday by the three allies, reflected a belief in Washington, London and Paris that President Vladimir V. Putin’s commanders may be preparing the ground for a sharp escalation in the war.
While the officials said that there was no change in Russia’s nuclear posture, and they believed no decision had been made to use a tactical nuclear weapon, they made clear that a move in that direction was their central concern.
“We’ve not seen any reason to adjust our own nuclear posture, nor do we have indications that Russia is preparing to use nuclear weapons,” Ned Price, a State Department spokesman, said Monday. “But we’ve heard these very concerning statements, and we wanted to send a very clear signal.”
Secretary of State Antony J. Blinken and other senior officials noted a history of Russia’s accusing others of doing what Moscow is contemplating — and of attempting “false flag” operations that could create a pretext for intervention.
The Russian defense minister, Sergei K. Shoigu, had claimed over the weekend that Ukraine was preparing to detonate a “dirty bomb,’’ a phrase that describes a conventional explosive, like dynamite, that is wrapped with radiological waste. In a series of phone calls on Monday with NATO nations, Moscow’s top military commander, Gen. Valery Gerasimov, repeated the allegation.
Such a bomb is not a nuclear device; it has none of the explosive power of a nuclear weapon. But it is an effective weapon of terror, and the resulting radiological contamination can make several city blocks uninhabitable for a period of time. And because it involves nuclear material, it can often be confused, in public discussion, with an atomic weapon.
The flurry of phone calls between American, NATO and Russian officials came after more than six months in which communications were sparse. And the sudden frequency of the calls, and resultant warnings, reflected what American officials said was a greater level of concern about possible nuclear use by Russia than at any point during the war.
It came 60 years to the week after the Cuban Missile Crisis, whose lessons have been both studied and debated by President Biden’s aides in recent weeks. They say their concern is that Mr. Putin, frustrated by the failures of his conventional forces, may now reach for unconventional weapons — or bluff that he is willing to use his nuclear arsenal to try to fracture the Western alliance with Ukraine.
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The rare joint statement by the top diplomats in the United States, France and Britain had echoes of the move before the invasion of Ukraine to expose intelligence about Russia’s forthcoming moves, in hopes of complicating the narrative for Mr. Putin. While not all of those actions came to pass, some did — and Mr. Putin was not deterred from the invasion.
In the statement, the three governments confirmed that their defense ministers had each spoken with Mr. Shoigu, and they rejected “Russia’s transparently false allegations” about a dirty bomb.
“The world would see through any attempt to use this allegation as a pretext for escalation,” the statement said.
The White House press secretary, Karine Jean-Pierre, issued a carefully worded statement that specifically mentioned the dirty bomb.
“We reject Russia’s transparently false allegations that Ukraine is preparing to use a dirty bomb on its own territory,” she said. Later she added: “But obviously, we are concerned about the false allegation being used as a pretext for further escalation. And we’ve made clear, we reject these allegations. And so we have not seen any reason to adjust our own, for example, nuclear posture.”
The decision to go public with the accusations came after two conversations between Defense Secretary Lloyd J. Austin III and his Russian counterpart, Mr. Shoigu.
The foreign minister of Ukraine, Dmytro Kuleba, posted to Twitter that he had invited the International Atomic Energy Agency to come into the country to confirm that Ukraine is not building dirty bombs. He said he spoke with both Mr. Blinken and Rafael Grossi, the director general of the I.A.E.A., who is in Washington this week.
Periodically during the Ukraine war, Mr. Putin and other Russian officials have issued various nuclear threats — an apparent reminder to the United States and its allies that there are limits to Moscow’s tolerance of their support for Kyiv.
Making sure the war does not escalate to the use of nuclear weapons has hung over White House decision making since before Moscow’s invasion. As a result, the United States has not delivered weapons to Ukraine that could reach deep into Russia, even as it has stepped up its supply of arms that have had a devastating impact on the Russian army fighting in Ukraine.
A woman collecting water from a municipal truck after Russian bombardment damaged infrastructure in a residential neighborhood in Kryvyi Rih, Ukraine.Credit...Finbarr O'Reilly for The New York Times
But the phone calls and official statements over the weekend signaled a growing worry across Western capitals. The fears were explained, at least in part, by other moves Mr. Putin has made in recent weeks.
In mid-September, officials noted that even as worries of nuclear escalation lurked in the background, Mr. Putin had various steps to take, short of using such a weapon, to escalate the conflict with Ukraine in more conventional ways. Mr. Putin could conduct a mobilization of his population or launch widespread attacks on Ukrainian infrastructure, for example.
Now, a little more than a month later, Mr. Putin has taken those two steps, conducting a partial mobilization and beginning widespread attacks on Ukraine’s power grid. The mobilization is meant to shore up his faltering army. The drone and missile strikes on the electric grid are both meant to hamper Ukrainian military operations and break the will of the Ukrainian people by plunging the country into darkness as winter approaches.
Some officials note that Mr. Putin may want to see how either of those moves play out in the months to come before taking more steps to intensify the war.
Still, using a nuclear weapon could very likely undermine Mr. Putin at home.
Even before the war, U.S. officials began warning about various possible Russian “false flag” operations that Moscow was hoping to use to create a pretext for the invasion. Russia, for example, said Ukraine was planning to use a chemical weapon, and then American intelligence uncovered a plot by Russia to hire crisis actors to create a false pretext for invasion.
Pentagon officials were on edge Monday after three phone calls in four days between the Defense Department’s top civilian official and top uniformed officer. On Friday, Mr. Austin initiated a phone call with Mr. Shoigu, his Russian counterpart, the first time the two men had spoken since May.
The conversation was meant to delineate the red lines that could potentially provoke Russia to launch a nuclear attack on Ukraine and to clarify for the Biden administration why Mr. Putin has been raising the prospect of a nuclear strike in Ukraine, three officials said.
Defense Department officials were surprised when two days later, Mr. Shoigu requested another call, at 7:30 a.m. Sunday, in which he accused Ukraine of preparing to use a dirty bomb, two officials said.
The allegation, which the United States has said was baseless, spooked senior defense and military officials, who expressed concern that Moscow might be using the false flag as a distraction, masking some other more ominous development.
That possibility only heightened concerns among already jittery senior Pentagon officials about Russia’s next possible step up the escalation ladder. One senior U.S. official said there were new, troubling developments involving Russia’s nuclear arsenal. The official asked for anonymity and declined to provide any details, given the sensitivity of the issue.
At a Pentagon briefing on Monday, a senior U.S. military officer said there was no indication that Mr. Putin had made a decision to use unconventional weapons — nuclear, chemical or biological arms — but offered no details.
American officials have said they had seen no movement of any of Russia’s 2,000 or so tactical nuclear weapons. Because the weapons are small, it is unclear whether they would see the weapons — though they may see or hear activity by Russia’s nuclear-trained forces.
Also on Monday, Gen. Mark A. Milley, the chairman of the Joint Chiefs of Staff, spoke with his Russian counterpart, General Gerasimov, according to a readout of the call provided by General Milley’s spokesman, Col. Dave Butler.
“The military leaders discussed several security-related issues of concern and agreed to keep the lines of communication open,” Colonel Butler said in the emailed statement.
Rishi Sunak to meet King Charles and give first address to the nation as PM – UK politics live
Ultra rich, young and the first person of colour to become UK prime minister, Rishi Sunak will also make history as the first practising Hindu to lead the country
New Conservative party leader Rishi Sunak will be Britain’s second-youngest prime minister. Photograph: Daniel Leal/AFP/Getty Images
The Guardian
Tue 25 Oct 2022 04.56 BST
The man who will on Tuesday become the UK’s 57th prime minister is richer than the King and, at 42, younger than every predecessor except William Pitt the Younger.
Rishi Sunak will also be the UK’s first ever person of colour to lead the country, and first Hindu prime minister.
On Saturday, this newspaper asked if he was too rich to become PM. On Monday, 195 Conservative MPs answered. So how did he get here?
Youth
Sunak was born in Southampton in 1980 to Indian parents who had moved to the UK from east Africa. His father was a GP and his mother ran her own pharmacy. The eldest of three children, Sunak was educated at a private boarding school, Winchester College, which costs £43,335 a year to attend. He was head boy, and has in recent years made multiple donations of over £100,000 to the school.
Sunak went on to study politics, philosophy and economics at the University of Oxford, like so, so, so many before him. He was awarded a first-class degree. He later gained a master’s of business administration (MBA) at Stanford University, where he met Akshata Murty, his future wife, but where few others remember him.
Family
Murty, 42, is the daughter of the Indian billionaire NR Narayana Murthy, often described as the Bill Gates of India, who founded the software company Infosys. According to reports, his daughter has a 0.91% stake in the company, worth about £700m.
The couple married in her home town of Bengaluru in a two-day ceremony in 2009 attended by 1,000 guests. They have two daughters, Krishna and Anoushka. In April this year it emerged that Murty was a non-domiciled UK resident, meaning she avoided UK taxes on her international earnings in return for paying an annual charge of £30,000.
Without that non-dom status she could have been liable for more than £20m of UK taxes on these windfalls, it was reported. After a public outcry, her spokesperson announced she would start paying UK taxes on her overseas earnings to relieve political pressure on her husband.
Still, Sunak and Murty’s combined fortune is estimated to be £730m, double the estimated £300m-£350m wealth of King Charles III and Camilla, Queen Consort. They own four properties spread across the world and valued at more than £15m.
Rise to the top
Sunak has gone from MP to prime minister in just seven years – faster than any other PM in the modern era. David Cameron achieved the same in nine years, but again, Pitt the Younger holds the overall record with just two years.
Sunak’s path to the top wasn’t all smooth. After losing to Liz Truss in a vote of Tory members on 5 September, he was expected to disappear from politics – and quickly did, last speaking in the Commons the day after Truss became PM. But when Truss’s disastrous and unfunded tax cuts brought her down in flames, Sunak was ready with the backing of supporters he had gathered over the summer campaign.
Nearly man to next PM: Rishi Sunak’s rapid change of political fortune
After winning the leadership, Sunak, whose career has been defined by fiscal conservatism, told MPs his ambition was to have a “highly productive UK economy” and that he backed low taxation but that it had to be affordable and deliverable.
Ends and hobbies
Sunak “collects Coca-Cola things”, as he told two school pupils, before saying “I am a Coke addict, I am a total Coke addict,” then, as the pupils sniggered, clarifying “Coca-Cola addict, just for the record”.
He once tried to pay for a Coke at a petrol station, but was confused by the contactless credit card system.
Speaking in Tunbridge Wells, Sunak once boasted that he had changed Labour party policies “which shoved all the funding into deprived urban areas” so that funding could go to wealthy towns instead.
As a student, he told documentary makers that he had friends who are aristocrats, friends who are upper class and friends who are working class before remembering: “Well, not working class”.
Inflation, Bankruptcies and Fears of DeclineGermany on the Brink
Spiegel
Inflation, a likely recession and exploding energy prices: Germany is expecting tough years ahead with diminishing prosperity, a shrinking middle class and growing inequality. This is uncharted territory for the government and society, and both are facing some difficult choices.
By David Böcking, Simon Book, Florian Diekmann, Florian Gathmann, Simon Hage, Martin Knobbe, Timo Lehmann, Peter Maxwill, Ann-Katrin Müller, Christian Reiermann, Jonas Schaible, Michael Sauga, Thomas Schulz, Christian Teevs, Gerald Traufetter und Severin Weiland
22.09.2022, 13.53 Uhr
Nicole Geithner's family ought to be doing well. Really well. And the Geithners know it. Their apartment, in a historical building located near Dresden, is freshly renovated, her job as a paramedic and his as a project manager for an IT company are decently paid and secure. With a gross household income of 90,000 euros, they are firmly anchored in the middle class. They should be living pleasant lives.
ANZEIGE
But it doesn't feel that way for the family of four. They long ago gave up their dream of owning a home, with their plan of buying a second car meeting the same fate. The trip they planned to take to Amsterdam has also been cancelled. Moreover, the Geithners have begun paying closer attention to sales and special offers at the supermarket. "I'm afraid that soon we won't be able to afford the nice life we live," says Nicole Geithner, 35. "We're nervous."
ANZEIGE
DER SPIEGEL 38/2022Bild vergrößern
The article you are reading originally appeared in German in issue 38/2022 (September 17th, 2022) of DER SPIEGEL.
They're not alone. Political leaders in Berlin are also growing uncomfortable. When the German middle class starts worrying about decline, things start getting dicey everywhere in the country. Particularly for the government.
One doesn't have to look far for the roots of the problem: high inflation, skyrocketing energy prices and a slowing economy. Not to mention the challenges associated with tackling climate change.
And the situation wouldn't even improve particularly quickly if the war in Ukraine were to come to a sudden, unexpected end. On the contrary. Several different crises are coming together at the moment to form a perfect storm.
That the German economy will slide into recession this winter is no longer really a question. And there is growing evidence that it could become particularly severe – with a tenfold increase in the exchange electricity price, numerous corporate bankruptcies and a permanently damaged economy. The losses in prosperity, says economist Michael Fratzscher, will be permanent. Germany, according to the forecasts, is in decline.
Nicole Geithner's family has increased their grocery budget by 20 percent, and their prepayments on water and general utilities for their apartment have doubled. She suspects that this is by no means the end of the story. "There's always something on top," Geithner says. To Geithner, it feels "like we've completely lost control."
This is uncharted territory for Germany. After nearly two golden decades of rising incomes, steady economic growth and little unemployment, a tough decade is looming. At least for those who aren't happy about paying up to 1,000 euros more a month for gas and electricity, three euros for butter and purchase prices of 1 million euros for a two-bedroom apartment. In other words, everyone but the top 10 percent of the country.
ANZEIGE
At the same time, that which has been glossed over in recent years is now coming to the fore: Growing inequality. Since the 1990s, incomes have been drifting apart, and wealth even more so. The wealthy own more and more, even as the number of low-income earners is growing. The center of society is fraying.
In good years, this could be ignored politically, because it was mainly the bottom 20 percent who suffered. As harsh as it may sound, it is a demographic that traditionally hasn't had much of a say in the country. Today, though, it's also about the center of society, even comparatively well-off people like the Geithners.
Just how dramatic the situation is can be seen from one of the Germans' favorite activities: saving money. The Sparkassenverband savings banks association estimates that 60 percent of households in Germany soon will no longer be able to put money aside. Inflation and energy prices are eating up their disposable income. During the second quarter of this year, real wages fell by 4.4 percent.
A middle class family: Nicole Geithner, her partner Valentin Schulze and son Emilian
Foto: Sven Döring / laif
Among the hardest hit are the up to 14 million people who are just barely clinging to the middle class and don't want to slip any further. Families with two children and a net income of 3,000 euros per month, for example, who have had to stretch their budgets to the limit despite two full-time jobs. People, in other words, who already have their doubts about social justice in the country.
It's a dangerous situation, and not just from an economic point of view. Thousands have taken to the streets in protest in the cities of Leipzig, Magdeburg and Pforzheim in recent weeks, and it's possible this is only the beginning. Politicians in all camps are warning of the possibility of a "hot autumn," some of a winter of rage, referring to possible protests and unrest. Germany's domestic intelligence agency, the Federal Office for the Protection of the Constitution, which is tasked with monitoring extremism, has set up a working group to investigate if a movement is materializing.
The fears are justified. People who feel left behind tend to gravitate toward the political fringes. Injustice, even if only a perceived unfairness, fosters populism and extremism.
The federal government is turning to its usual practice of trying to smother the problems with money and is working on its third relief package within just a few months, this time with the aim of calming the lower middle class. The plan calls for things like a flat-rate energy price for pensioners, a flat-rate national public transportation ticket (for somewhere between 49 and 69 euros a month) and increased monthly child benefit payments for parents.
But much of it still seems half-baked. It remains an open question, for example, how exactly an electricity price cap is to be financed by skimming profits from energy utility companies. Despite the "massive" relief package, as the finance minister calls it, Chancellor Olaf Scholz is still failing to come up with a clear plan for combating the downward spiral.
Still, Germany's leaders are at least aware that quickly fabricated cash gifts to calm the masses are not a sustainable solution in the constant fire of crises around the world. There simply isn't enough money available given the large number of problems and increasingly precarious situation.
The prevailing world order is disintegrating, the age of globalization is coming to an end, and the German model of prosperity in particular is under massive threat as a result. The consequence is that there will be less to redistribute in the future.
At the same time, the government and taxpayers will be faced with hundreds of billions of euros in additional costs over the next several years. Industry must be transformed to become climate-neutral, and the country's energy supply must be shored up to ensure independence from Russia. The country must be reformed, digitized and made more competitive for the increasingly tough systemic competition against autocracies like China. Traditional industries are in danger of disappearing – and with them jobs.
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A luxury perfume ad: People at the bottom have fewer opportunities to work their way up. "To exaggerate just a bit: once poor, always poor – once rich, always rich."
Foto: Stefan Boness / DER SPIEGEL
The crisis is also a symptom indicating that a chaotic epoch is dawning. That many things aren't just changing for the foreseeable future. Rather, they are structural changes, and likely for the worse.
As such, it will be necessary to renegotiate how this will affect society – who will have to give up more and who will get how much? What fairness will mean in concrete terms in the future.
Is this the beginning of a decade of redistribution that will primarily burden the upper middle class, a group that benefited the most when times were good? Or will people have to get used to the fact that the state can no longer relieve them of every burden? And how much strength and money will then be left for reforms that have long been agreed upon, so that the coming generations won't be handed an emaciated country, but rather a modern and climate-friendly one?
These are difficult questions that could become a test for society. And even more so for a governing coalition that has highly divergent views on the definition of fairness.
I. Is Chancellor Olaf Scholz Up to the Crisis?
You can tell that nerves are frayed when the chancellor gets loud, when he almost yells. These are "serious times," Scholz shouted in the federal parliament, the Bundestag, last week, actually clenching his fists. The cohesion of society, he said, is "of the utmost importance." The chancellor has cultivated a standard appearance over a long period of time: cool, unemotional and stoic. When he deviates, as he did this time, it is a special moment, one that points to political unrest.
During that plenary debate in the Bundestag last week, Scholz spoke of a "division" in the country, of peace that is endangered. He even recited lyrics from the club anthem of the English football club Liverpool FC, "You'll Never Walk Alone," and proclaimed it to be the "motto of this government."
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Government coalition partners, from left to right: Robert Habeck of the Greens, Olaf Scholz of the Social Democrats and Christian Lindner of the Free Democrats
Kay Nietfeld / dpa
Despite these assurances, though, many people seem convinced that they will have to deal with this crisis largely on their own. They have seen how many billions of euros the government is pumping into relief and also how quickly it has evaporated. How long can the government continue to offset the costs, especially with a finance minister from the junior coalition partners, the business-friendly Free Democrats (FDP), who has made Germany's balanced-budget law, the "debt brake," his mantra?
Although the German government has now approved around 95 billion euros in aid, 60 percent of Germans feel that the relief packages are not socially just, according to a survey conducted by pollster Civey on behalf of DER SPIEGEL. And almost three-quarters of Germans fear that they will be worse off economically in the long term. There is little sign of solidarity, of any broad sense of fairness.
Some in Berlin are watching this eroding confidence in social cohesion with growing concern. It helps explain why the chancellor expects less from one-off payments like those in the current package to students and pensioners. He has higher hopes for the effects of structural change: the recent reform of the country's system of payments for people on long-term welfare or by raising the income threshold from which people must make contributions to the social welfare system. It was his idea to allow employers to provide a one-time payment of up to 3,000 euros without any payroll taxes to employees to help relieve the burden of higher energy costs, for example.
These times of crisis, in which redistribution, social fairness and solidarity are so important, should actually suit a chancellor with the center-left Social Democratic Party (SPD). One might think he would experience a political boost. But the opposite is the case: For weeks, Scholz's popularity ratings have been falling. According to a poll by Civey, almost 50 percent of respondents said they were "very dissatisfied" with the chancellor's work – even after the passage of the latest 65-billion-euro package.
Scholz won his election campaign based on promoting more societal fairness. Those close to him often relate anecdotes of Scholz addressing stagehands, drivers and security staff at big events. Hard-working people, say his confidants, are a primary focus of his.
This can also be seen in the coalition agreement, in which he pushed through one of his most important promises: an increase in the national minimum wage to 12 euros starting Oct. 1. This is a "political revolution," says the SPD. It's just that few have really noticed it. On the one hand, Economy Minister Robert Habeck's star has been shining a little too brightly compared to the more aloof Scholz – at least until Habeck got tangled up in Germany's approach to the energy crisis, natural gas prices and nuclear energy. The chancellor's bigger problem, though, is that few citizens seem to believe that the current government led by Scholz will really help them, despite all the relief packages.
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Nicole Geithner's family, for example, doesn't expect much from the relief packages. The most vulnerable, Geithner says, are always quickly helped when crisis strikes: The housing benefit is increased, child benefits are boosted, welfare payments will be adjusted for inflation, things like that. They are moves that she fully supports. And on the other side, "the rich" aren't particularly vulnerable anyway. "They don't care about three euros for butter," she says. No one, though, is thinking about families like hers, she says. "We feel forgotten. And yet the middle class is supposedly propping up the country."
At least the coalition tried to improve their approach with the third relief package. Many experts had criticized the first two attempts, arguing that the measures were too costly and, while they would provide a bit of help to everybody, the overall effect would be minimal. The government, they said, became fixated on cash handouts for everyone. Those who drive large, gas-guzzlers, for example, benefited the most from the summer rebate on prices at the pump.
The programs need to be far more targeted, argues Monika Schnitzer, professor of economics at Ludwig Maximilian University in Munich. Assistance needs to be directed at "those people whose income is so low that there is nothing left at the end of the month and who therefore simply cannot pay higher prices." Schnitzer is an economic adviser to the government and has taught at Harvard and Stanford. And she's rather perplexed by the third relief package. "At no point was it clearly spelled out how the 65 billion euros was arrived at," she says.
Presumably because the government expected the enormous sum to have a greater political impact than the individual measures. The pool of recipients is again large, with more child benefits for families, energy allowances for students and pensioners, and housing benefits for a greater number of low-income earners.
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A bottle collector in Hamburg.
Foto: Johannes Arlt / DER SPIEGEL
A family with two children and an income of around 66,000 euros will be provided with around 1,000 euros per year in relief, according to government figures. A pensioner earning 12,000 euros will be given around 850 euros in relief, while students and future recipients of long-term welfare payments are expected to be provided with 750 euros.
As with the first two packages, it is questionable how many of the money will actually end up with those who need them most. "You haven't really reached the lower incomes yet," Schnitzer says. At the same time, the upper incomes benefit the most from certain tax code adjustments. "I think selling that as relief is questionable," says the economist.
At the same time, though, the economist says that expectations of the government should be realistic and that solutions in these extraordinary times don't have to be perfect. They just need to have a clear effect, as this summer's 9-euro monthly national public transportation pass did. Although it also benefited the high-income bracket, those dependent on mass transit due to a lack of their own vehicle. That's why Schnitzer thinks the planned continuation of the offer is a good idea – even if the ticket price is expected to be significantly higher that 9 euros if it is continued. "When people feel insecure and threatened, even measures that contradict pure economic doctrine are sometimes not a bad idea," she says.
It's highly unlikely the third package will be the final crisis measure. No one knows exactly what to expect in the coming months. Even hardened experts are worried.
People like Timo Wollmershäuser, who has been researching the ups and downs of retail and industry for the past 17 years. Chief economist at Munich's Ifo institute, Wollmershäuser has experienced the global slump following the Lehman Brothers insolvency, the euro crisis and the economic shock of the coronavirus pandemic. But the barrage of issues seen in recent months is uncharted territory even for him. "It makes it very difficult to forecast what is going to happen next," he says.
Industry is still short of raw materials, supplies and preliminary products because the Chinese government has paralyzed factories and ports for several weeks at a time in the fight against the pandemic. The U.S. Federal Reserve's high interest rates are putting a damper on the global economy, a development that is being felt particularly severely by the export-oriented German economy. The war in Ukraine is making raw materials and energy more expensive and driving inflation to levels not seen in Germany in 50 years. Global trade is teetering, a debt crisis is looming in emerging markets – and China and Taiwan could become the next, even bigger crisis for the world community.
Wollmershäuser expects Russia's energy war to continue to drive up inflation rates, averaging more than 9 percent over the next year. It makes production more expensive and deprives citizens of purchasing power. "The government must be careful that the dramatic rise in energy price doesn't drive entire segments of the population into poverty," says the Ifo researcher.
His institutes's business climate index is forecasting an economic slump across the board, particularly in consumer-related sectors such as retail and catering. Wollmershäuser believes it is a foregone conclusion that the economy will fall into recession from the winter half-year onward. He believes economic output will also contract in the coming year, by 0.3 percent according to the latest forecast.
In the meantime, many companies have the feeling it could be an extremely deep crash, with no immediate return to growth. They fear that energy prices will remain high for years to come and that de-globalization will make many products increasingly expensive.
This is more than just one of the usual economic downturns. The future viability of the German economic and social model is at stake. This may sound overwrought, but a look at the global chaos unfolding helps to explain how dramatic things are becoming.
For almost two decades, Germany has presented itself as a model economy of globalization: strong in exports, cosmopolitan, financially stable and rich. This provided the government with sufficient tax and benefit contributions to maintain the welfare state at a high level despite a stagnating population.
Vladimir Putin's invasion of Ukraine has put an end to this era. Can the chemical and steel industries survive if they can no longer rely on cheap energy from Russia? Are the once successful carmakers and engineering companies prepared for hostile trading blocs?
Probably not, as the latest economic data from the eurozone shows. For more than 15 years, Germany had been the economic motor of the continent. In the second quarter of this year, though, Germany was the economic laggard, outpaced by former crisis countries such as Spain and Portugal. The formula is simple: If globalization slows down, Germany struggles.
The consequences are severe. "The middle class is depleting their savings right now to maintain their standard of living," says Wollmershäuser. "The war is making us poorer," says government adviser and economist Schnitzer. It is also making the state poorer.
In the coming weeks and months, the main issue will thus be where the money is to come from to compensate, at least in part, for the costs of the crisis. Who will fund the current relief package, and who will fund packages numbers four and five, which are expected to follow soon? A week ago Tuesday, at an annual event of employers' associations, the chancellor pledged further aid for companies. And where would the money come from to finance it? Unclear. And who will pay for saving a climate, which the Federal Constitutional Court recently ordered it is the government's responsibility to do? In the future, it will be less a question of who will be provided with financial relief and more a question of who should be made to bear a greater burden.
Economist Schnitzer has spent years thinking about this. A member of the German Council of Economic Experts which advises the government, Schnitzer sees two possibilities. "Either more debt or greater redistribution. There are good arguments for both."
Right now, Germany's "debt brake" balanced budget law is impeding an increase in borrowing. But Schnitzer believes it is possible for the government to suspend the borrowing rules in the coming year, just as it did during the coronavirus crisis. "That's quite justified because there is a temporary shock: In one fell swoop, we have much higher prices." However, Finance Minister Christian Lindner wants to reinstate the spending rule, which would make it difficult to finance further relief measures.
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German Finance Minister Christian Lindner has insisted on reapplying the "debt brake," Germany's law requiring a balanced federal budget.
Foto: Stefan Boness / DER SPIEGEL
Schnitzer also has a proposal for the second option. To redistribute costs, the state could employ a solidarity surcharge on income tax – similar to the one introduced to finance the costs of the reunification of East and West Germany. "The advantage of a solidarity surcharge would be the message: There are strong shoulders in this country, and they should carry more," Schnitzer says. With the solidarity charge, almost all workers would have to contribute, with high earners paying the most.
How broad some shoulders actually are is hotly disputed within the coalition government in Berlin, which is comprised of the SPD, the Green Party and the business-friendly Free Democratic Party (FDP). The FDP is insisting there can be no tax increases and refers to a pledge in the coalition agreement that taxes would not be raised, even though, from today's perspective, it was drawn up in a totally different era.
Whatever path the government takes to raise more money, it will only work if the whole country does its part If everyone pulls their weight and makes fewer demands. If people voluntarily agree to a bit of privation.
That, though, can be a tough sell in Germany, as seen by the clumsy effort made by Baden-Württemberg Governor Winfried Kretschmann to encourage people to save on gas by opting for a washcloth instead of a full shower. His comments drew widespread disparagement.
Schnitzer can't understand some of the outrage. "These are people who haven't yet recognized the signs of the times," she says. "We won't be going around in sackcloth. But we will be faced with some constraints for a period of time."
II. Is German-Style Redistribution Still a Good Idea?
Heinz Bude has been observing Germans and their customs for 30 years now, and if there is one trait that makes him uncomfortable, it is the tendency toward the "compensation mentality": the expectation that the state will cover every risk and compensate for any financial losses. "Social solidarity is destined for destruction when everyone is always saying: But I also have to get something," says Bude.
A professor of sociology, Bude is one of the country's leading interpreters of society and leans to the left side of the political spectrum. One might think he would be in favor of the SPD's approach to the redistribution of societal wealth.
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A Lamborghini and a man selling a magazine that donates its earnings to the homeless: Societal cohesion has been in decline in Germany since the 1990s.
These days, though, he doesn't care much for the chancellor's polices. It's a "muddle," he says of the many relief measures, adding that more and more money is being redistributed to an increasing number of social groups. Instead, he says, it might be time to openly address the fact that some people are going to take a hit.
In times of crisis, Bude's main concern isn't about who gets how much. It's about how much people are willing to support each other. That's why he doesn't believe in unilaterally placing a financial burden on those who can most afford it. "That would be completely wrong, because it undermines precisely the cohesion we need." Bude does, though, agree that those who have a lot should carry a greater weight.
Ultimately, though, it comes down to the question of what, precisely, is fair.
It is, of course, a discussion that could go on and on against the background of European thought starting with Jean-Jacques Rousseau and ending with Immanuel Kant. If only because the term has many facets, from generational fairness to gender fairness to fairness based on achievement. Is it fairer for the state to support the weaker with direct financial aid – or is it better for the state to create a level playing field for everyone?
So far, almost all political camps in Germany have been able to agree on at least one commitment: that a strong state must ensure social balance, equal opportunities and prosperity. For all. Unlike in Britain or the United States, the understanding of a welfare state has developed that has a strong link to redistribution.
Political philosopher Wolfgang Kersting criticized during the financial crisis back in 2008 that the welfare state was not originally about fair distribution, but about preventing misery or balancing power imbalances between employees and employers. Over time, "expectations of care and redistribution" have developed that "can no longer be met as usual by the all-providing state as economic conditions worsen."
In recent decades, successive governments have continually increased money flows to close the gap between the rich and the poor. But it didn't work well.
At first glance, the past decades appear to be a success story for the entire country. Average household net incomes, for example, rose by a quarter from 1995 to 2019. The unemployment rate fell below the 5-percent mark in the autumn of 2018 for the first time since 1981.
However, incomes have grown unevenly: Whereas the top 10 percent of society had more than 40 percent more disposable income available to it in 2019 than in 1995, the bottom tenth has just under 5 percent more.
The situation is even worse when it comes to assets. According to the German Institute for Economic Research (DIW Berlin), the top 10 percent of Germans now own more than two-thirds of the country's assets. The approximately 40 million citizens who belong to the bottom half have to make do with 1.3 percent. Those who are right in the middle of society had a net worth of just under 23,000 euros in 2017, including their car, private pension and grandpa's gold watch.
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A man who collects bottles for the deposit money and a couple walking in Hamburg: The center of society is fraying.
Foto: Cornelius Rönz / DER SPIEGEL
"The development since the 1980s has been characterized by two major trends," says Dorothee Spannagel, who heads the department for distribution policy at the Institute of Economic and Social Research (WSI) of the trade union-aligned Hans Böckler Foundation. She says that the distribution of income has become highly polarized, with both wealth and, especially, poverty widening. In addition, she says that people at the bottom have fewer opportunities to work their way up. "To exaggerate just a bit: once poor, always poor – once rich, always rich," says Spannagel.
She says that these trends were particularly pronounced in the late-1990s to mid-2000s. "During that time, you could literally watch incomes drift apart – more rapidly than in any other core European country."
The result is a dangerous dichotomy in society, as a study by the Organization for Economic Cooperation and Development (OECD) and the Bertelsmann Foundation shows. The lower middle class in particular is under pressure. Although the risk of social decline is lower for the upper half of society than it was in the 1990s, it has increased for the lower half.
The fact that the entire middle class shrank from 59 to 53 percent of the population from 1995 to 2018 is almost entirely due to decline of the lower middle class. "We continue to have a broad and stable middle class," Spannagel says, "but it is fraying at its lower end. The earlier prevailing feeling that with a proper vocational training one had a secure livelihood and could perhaps afford to buy a house one day has gradually dissipated." People in the bottom half, she says, "have come to realize that even though the economy is humming and they are slaving along, they're not getting ahead."
It is a feeling that often manifests itself as a diffuse fear of decline. Rampant inflation is acting as an accelerator.
The entrenched social inequality could be combated, for example with a high inheritance tax on large fortunes or a proposed "basic inheritance," a one-time government gift payment made to young people to give them better chances at the start of their careers. They are both long-term projects that are highly controversial politically.
But how can such fears be allayed in the short term? In ways other than through a constant increase in transfer payments?
"There will be individual losses of wealth. And they will not come anonymously and automatically, they will be dictated politically," says Heinz Bude. "The price question for contemporary society is: Can the threat of individual wealth loss be offset by the promise of collective gain?" For that to happen, he says, it is necessary to develop a sense of the country's public wealth.
Of course, it will be difficult to convey to the citizens that two weeks of vacation in Mallorca are no longer possible, but that good medical care and a functioning legal system also have their merits. Still, Bude says, the government must seek to convey such collective prosperity in a credible way. At least as a kind of temporary diversionary measure, if only out of self-interest.
Bude points to France. He spent time there in the spring for the presidential elections. Marine Le Pen, the far-right candidate, made the loss of purchasing power and wealth one of her main campaign issues – and by doing so, she gave herself a real shot at winning the election. "I think the decline in purchasing power will become the major issue for populists in Europe," Bude says.
III. Will Germans Take to the Streets this Fall?
Monday demonstrations are nothing new for the people of Leipzig. Demonstrators against the dictatorship in the German Democratic Republic (GDR) were already marching across Augustusplatz square in front of the opera house in 1989, and most recently, it was mainly the "Querdenker" vaccine skeptics who showed up. A march at the beginning of last week, though, was nonetheless an unusual event. The square was divided into two by the tram tracks and the police. On one side, you had around 2,000 supporters of the far-right "Free Saxons" movement; on the other, the far-left politician Gregor Gysi and around 4,000 supporters of Germany's far left. The demonstrators were from broad swaths of life, including schoolchildren, young adults, pensioners and workers.
Those who stumbled unsuspectingly onto Augustusplatz could be forgiven for thinking that the two groups were protesting about the same issue. Their signs had messages like: "Open Nord Stream 2 Immediately!" in reference to the newly built gas pipeline between Russia and Germany that never went into operation after Russia invaded Ukraine.
Both groups also spoke of an autumn full of protests and of mistakes made by the German government. Left-wing politician Gregor Gysi went after an allegedly "overmatched" federal government, while far-right mouthpiece Jürgen Elsässer ranted into the microphone: "If the government wants to freeze the people for its damn war against Russia, then the people must give the government a hot autumn."
But while the right-wing extremists want a common front, and say so clearly, the far-left distance themselves from the often bluntly anti-state slogans on the other side of the tracks, where government politicians are declared "traitors of the people." The distancing was necessary. After all, the left had deliberately chosen a Monday evening for its demonstration, a day that has been marked by extreme right-wing protesters for the last eight years.
Right-wing sympathizers in particular are now hoping for mass protests across the country soon. Like the ones that recently took place in Prague in the Czech Republic, where 70,000 people responded to a joint call by right-wing extremists and communists demanding the government's resignation.
For the past several years, new waves of anger have been rolling through the country, often mixing fear of change and legitimate concerns about social imbalances with hatred against dissenters and the country's political leaders.
Hans Vorländer, the chair of political theory and history of political thought at the Technical University of Dresden, calls this mixture of lies and legitimate demands, of far-right groups and a middle-class crowd, "hybrid protests."
Experts and politicians aren't currently expecting a popular uprising, but they do believe that some radicalization is likely. Protest expert Piotr Kocyba speaks of violent fantasies, and says it's possible that more domestic terrorist groups could emerge – as witnessed during the 2015 refugee crisis, when the "Freital Group" began a series of attacks on asylum-seekers and dissidents in Germany.