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September 25, 2020

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Germany first

It looks to us that Germany will not abandon NordStream 2 and will also not kick out Huawei from its 5G network, at least not completely. The government has been dangling the possibility of a more forceful stance against oppressive regimes to pacify the critics, as Angela Merkel put it. But the reality is that Germany is so dependent on Russian gas and Chinese telecommunications technology that it has left itself no other choice. 

Our suspicion was largely corroborated by Peter Altmaier yesterday. Handelsblatt quotes him as saying that sanctions never end up hurting the intended target country, only the companies that are doing business with it. He said Germany's decision to switch off nuclear power stations and to exit from coal-fired power at the same time requires increased volumes of gas imports which only Russia is currently capable of supplying in bulk. The German government is happy to co-finance terminals for liquid natural gas, a form of gas that can be shipped in containers. That would reduce Germany's dependence on Russian gas and allow it to buy gas from the US. But this is a long-term project.

He did not talk about Huawei, but the same logic applies here, too. German telecom companies, more so than French or British ones, are dependent on Huawei's technology. If Germany really ended up frustrating Huawei's involvement in its 5G network, it would take a lot longer for Germany to build it up. Germany also needs 5G more than other countries, since its existing network is the worst in the whole of the EU. The new technology offers the promise to plug the many coverage gaps.

Not everybody in Germany agrees with Altmaier, even within the CDU. There is definitely a shift in public opinion. But the dependences are real. 

What Altmaier did not address is the feasibility of pushing ahead with Nordstream 2. Most of the pipeline has been built, but there is still a formidable gap of 160km. The US administration, and in particular the US Senate, have been very effective at bullying European contractors into abandoning their involvement with Nordstream 2. We are told that Russia does not have the capacity to lay the remainder of the pipeline itself. So, how does Altmaier think Nordstream 2 can become operational? We think that the Germans are betting on an election victory by Joe Biden. But the big problem is the US Senate, not the Trump administration. 

If Germany were to give the go-ahead to Huawei, we expect that the country would be cut off from intelligence-sharing from the US and the entire Five-Eyes group, which also includes the UK. This would be a very big political decision, which is not at all reflected in the German political discourse right now. If Germany takes unilateral decisions in favour of Nordstream 2 and Huawei, it would divide the EU and weaken the common foreign and security policy. It would be a case of Germany-first in its purest form. A lot is at stake here. 

Our other stories

We also have stories on doubts that EU countries can absorb all the recovery fund grants; on Spanish firms not taking on government guarantees for investment for fear of recession; on the Swiss referendum on freedom of movement and the ratification of its EU framework agreement; on the saga of Greece's chief statistician; and on French regional revolts against selective lockdown.

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