The energy crisis resulting from the war in Ukraine has altered profoundly Europe’s economic performance and prospects. Countries have been affected unevenly, based on how dependent they are on Russian gas and oil.
German industry has been particularly hard hit. Beyond industry, the entire German economic model is now at stake. Here we provide an update on the prospects for the German economy for 2023-24. Then, we recall that the challenges to be met are Europe-wide, and that only a coordinated approach at the EU level will enable member countries to meet them. On this front, recent news is moving in the right direction.
The economy was overly dependent on Russian gas, oil, and coal. Germany, like all European countries, must now review its energy mix. It is clear that Germany will never return to dependence on Russia. It needs to diversify its energy suppliers, but this will take years. In the short run, despite 100% gas storage, household consumption needs to fall by 20%. Otherwise, gas shortages during the winter would be inevitable.
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