Bernd von Jutrczenka/picture-alliance/dpa/AP Images
Christian Lindner, German federal minister of finance, speaks during the February 27 special session of the Bundestag on the war in Ukraine.
Vladimir Putin’s invasion of Ukraine is not going very well. Rather than a quick victory he was clearly expecting, the Ukrainian military (whose entire budget is just over half that of the New York City Police Department, by the way) is putting up a dogged fight, while Russian forces are struggling with fuel supplies and other logistical problems. Wartime disruptions and tough sanctions from the U.S. and EU, particularly the freezing of Russian central bank reserves, have created a galloping economic crisis within Russia itself—possibly fueling incipient mass protests against Putin’s rule in Russian cities.
However, thus far European powers have carefully avoided taking the step that would hurt Putin the most: ending their purchases of Russia’s natural gas exports. The reason is that they need that gas, especially in Germany. Instead of building out green energy systems to fight climate change as fast as possible, and ending their dependence on dirty fossil fuels sourced from a brutal dictator, EU elites strangled the European economy with austerity, and now they’re paying the price.
Before the pandemic, I wrote about how the undersized Recovery Act stimulus in 2009, and the subsequent years of austerity, created an economic lost decade. As of 2019, American GDP was something like 15 percent below the previous 1947–2007 trend—more production than California and Virginia put together, flushed straight down the toilet.
However, the performance in most of Europe, and especially the euro currency area, has been even worse. Here is a chart comparing eurozone inflation-adjusted GDP to that of the United States, with both figures indexed to 100 in the second quarter of 2009. Since then, the American economy has grown by about 30 percent—a lousy figure by the standards of American history. But the eurozone grew only half that much.
St. Louis Fed
That eurozone-wide average obscures huge divergences between the core and peripheral countries. France and Germany have not grown much, but they have had reasonably high employment and at least some growth. Greece and Spain suffered a Great Depression–scale catastrophe. Greek unemployment soared to nearly 28 percent and fell glacially slowly. Even today it is over 12 percent, or two percentage points higher than it ever got in the U.S. after the 2008 recession, 14 years after the original shock. In Spain, the peak was over 26 percent, and today is about 13 percent.
The various deep structural reasons behind this are too complicated to get into here, but the proximate cause was simple: austerity. Eurozone elites responded to the financial crisis and the ensuing euro debt crisis with sweeping budget cuts and tax hikes—imposed at economic gunpoint in the case of Greece—creating a prolonged depression (that, incidentally, made countries’ debt burdens worse, not better).
One of the worst aspects of an economic depression is its pure waste: jobs not created, money and investments not made, and human potential squandered. A whole generation of Greeks and Spaniards grew up in an environment where jobs of any kind were extremely difficult to get, let alone fulfilling careers. The depravity led to mass emigration.
Often, austerians justify their neurotic fixation on keeping down the budget deficit with reference to protecting future generations from allegedly having to pay off the debt. This isn’t even true (the debt can just be rolled over indefinitely), but economic depression actually does harm future generations—the effects of austerity on European families’ income and wealth will reverberate for decades.
But in geopolitical terms, the most important effect of the austerity binge had to do with investment. The whole European continent, not just Greece and Spain, has been starved of investment for a decade. Even Germany has struggled with crumbling roads, canals, and other problems.
By far the most obvious candidate for investment after 2008 would have been green energy. EU countries are far from the worst culprits when it comes to greenhouse gas emissions (that would be the U.S. and China), but they aren’t innocent either. That’s particularly true in the case of Germany, the strongest economy on the continent. Whereas France has had remarkably low emissions for decades thanks to a huge build-out of nuclear power in the 1970s, and Denmark has nearly matched the French mark with massive wind power construction, Germany still emits nearly twice as much per person as its European counterparts.
Germany has conducted a significant build-out of solar and wind power, but that only really got going in 2013 or so. Plus, it made things worse by planning to decommission its six nuclear power plants back in 2011, in a hasty overreaction to the Fukushima disaster. This created an even steeper hill for renewables to climb. Three nuclear plants were indeed turned off at the end of 2021, and the remaining three are scheduled for this year, though it seems that this decision is being reconsidered in light of the Ukraine crisis.
Not just Germany, but much of the EU relies on Russian natural gas for some power generation and especially heating. If European elites had seized the moment back in 2008 and responded to the recession with an all-out attack on climate change, they would be a lot less vulnerable to Putin’s bullying tactics, and Russia would either be a lot less rich, or would have been forced to develop a non-petrostate economic model. By the way, Spain, Greece, and Italy, with their sunny climate and Mediterranean winds, would have been perfect candidates for a crash renewable buildout.
Now, of course, EU countries are scrambling to compensate for their past dithering by investing heavily in domestic energy supplies. War clarifies these matters. But Germany, for example, spent over a decade hording its budget surpluses when it could have invested them into sustainable-energy projects. Nations fight with their real resources, not with figures in an accounting ledger, and austerity has left the EU weak.
Alas, because of the wasted decade, as the Quincy Institute’s Anatol Lieven points out in an interview for the Prospect, the easiest immediate source of domestic energy would be filth-spewing coal. Indeed, Germany has floated extending its coal phaseout beyond the current schedule of 2030. But the Intergovernmental Panel on Climate Change report released this week only makes the urgency of zero-carbon energy more urgent. The best time to do a crash green-power investment was 2008 (if not earlier), but the second-best time is now.
