Eurozone warning as Germany on brink of recession – panic ripples through bloc

Putin 'continues to use energy as a weapon' says Von der Leyen

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Gas scarcity is causing panic across the Eurozone, with Germany anxious about the arrival of winter. Vice-Chancellor and Economics Minister Robert Habeck has sparked fears across the European Union with his regular TV warnings that Germans should prepare for hard times ahead.

In 2020, gross domestic product (GDP) shrank by 4.6 percent before jumping again by 2.9 percent in 2021.

At the beginning of the year, Mr Habeck announced a growth of 3.6 percent for this year. But after four months after war broke out in Ukraine, not much of that is left.

The latest forecasts from the Federation of German Industries (BDI) and the Leipzig Institute for Economic Research consider only 1.5 percent to be realistic – and only if gas from Russia returns.

All eyes in Berlin currently on July 21, when Nord Stream 1, a major gas pipeline from Russia to Germany is due to get back to operation after being brought out of action what the operator says includes “testing of mechanical elements and automation systems”.

Germany, however, is concerned Moscow may not resume the flow of gas as scheduled.

Mr Habeck said he suspects Moscow may cite “some little technical detail” as a reason not to resume gas deliveries through the pipeline after this month’s maintenance.

The operator’s data showed the gas flow dropping as planned on Monday morning.

Yet, German officials are suspicious of the Kremlin’s intentions, particularly after Russia’s Gazprom last month reduced the gas flow through Nord Stream 1 by 60 percent.

Gazprom cited technical problems involving a gas turbine powering a compressor station that partner Siemens Energy sent to Canada for overhaul.

That turbine could not be returned because of sanctions imposed over Russia’s war on Ukraine.

Canada said over the weekend that it would allow the part to be delivered to Germany, citing the “very significant hardship” that the German economy would suffer without a sufficient gas supply.

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German politicians have dismissed Russia’s technical explanation for last month’s reduction in gas flows through Nord Stream 1, saying the decision was a political gambit to sow uncertainty and push up prices.

A spokesperson for the economy ministry said that while Germany is in a serious situation when it comes to its gas supply, the security of supply is for now guaranteed.

Monika Schnitzer, of the German Council of Economic Experts, told national media a recession “has become more likely” but is “not inevitable”.

The past four months, she said, have been important for filling up gas storage facilities and pushing ahead with the construction of LNG terminals.

Now, she continued, it was crucial that energy suppliers also pass on the higher prices to customers, “with targeted help for those who can no longer afford to heat their homes”.

Estimating that energy prices will remain high for two to three years, Ms Schnitzer said: “A high gas price is not as bad as not getting gas at all.”

Additional reporting by Monika Pallenberg

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