Scholz's Tank Battle: How the German economy survived Putin.

• Author: Engelen, Klaus C.

When the Russian Federation under Vladimir Putin invaded the Ukraine on February 24, 2022, the fundamental basis of the German economy--cheap Russian gas--was put in doubt. "In both the short and the long term, Germany will be unable to end Russian gas imports without triggering economic chaos, public outrage, and opposition from many firms," warned Hans-Werner Sinn, the former head of the prestigious Ifo Institute, a few weeks later. "For this, years of misguided energy strategy must bear much of the blame." As Putin's war of relentless destruction of Ukraine goes into the second year, some gloom and doom predictions on the German economy--by far the largest in Europe--didn't pan out despite Russia's termination of gas deliveries. Though the cost has been high, Germany, its huge export-oriented economy, and its 84 million people are surviving without Russian gas.

CONTROL OVER THE CRISIS?

"We Have Gained Control Over the Crisis," read the headline of a Der Spiegel interview in January with German Economy Minister Robert Habeck. "Last year, it looked like Russia's war in Ukraine was going to plunge Germany and Europe into a deep recession and a winter of gas shortages. Things have turned out differently, but major progress is still needed on climate protection." And the key crisis manager continued: "The year was primarily awful for the people in Ukraine, those who had to die in Vladimir Putin's ludicrous war, who were tortured and who lost sons and daughters. The main thing for us is: We, as a government, had to navigate a constantly changing and worsening crisis. In a short amount of time, we were able to assemble regulatory packages, mobilize huge amounts of capital, nationalize companies and build up a new natural gas infrastructure. It was all quite challenging. But because of that work, we are in a far better position today than we could have imagined."

On January 31, 2023, Germany's leading business daily Handelsblatt came out with the front-page headline warning that 2023 will be a "Year of Stagnation" with only minimal economic growth. It also predicted "no upward movement on the financial markets." But the paper concedes: "The German economy so far came through the energy crisis better than feared. The threat of a sharp economic downturn is subsiding. The signals are in the direction of stagnation."

Looking at the Ifo Business Climate Index published January 25, 2023, Habeck and the governing traffic-light coalition of Social Democrats, Greens, and Liberals are able to show impressive results.

Sentiment in the German economy has brightened. The Ifo Business Climate Index rose to 90.2 points in January, up from 88.6 points in December. This is due to considerably less pessimistic expectations. Companies were, however, somewhat less satisfied with their current situation. The German economy is starting the new year with more confidence.

"The third quarter of 2022 in particular was much better than expected, with [growth of]...