I know, I know.. I should be happy about fascism taking another punch in the mouth in the French elections but there’s something really bothering me. Actually, somebody. Olaf Scholz, the Chancellor of Germany, is driving a hypocritical truck right through the whole concept of sustainability, sovereign responsibility and ESG. Even Boris and his trucks can’t compete with this level of moral abdication. Was it only a decade ago Irish fans unfurled a banner at the Euro Football Championships in Poland and Ukraine(!)) with the cheeky message “Angela Thinks We’re At Work.”?? The German and ECB austerity messaging at the time went something like this….

• Economy: It was essential for Ireland to take the financial pain in the near term rather than limp through a long low-growth recovery ie Ireland would be storing up greater costs/wealth destruction if financial imbalances were not dealt with immediately.
• Irish Population: Austerity and debt repayments must pay for your misallocation of capital and reckless spending prior to the credit crisis.
• The European Project: If the EU and ECB shied away from imposing tough financial medicine then there would be larger nations and larger debt mountains which could be encouraged to ignore warnings and ultimately threaten the whole EU project.

All’s well that ends well, right? Possibly for Ireland, but maybe ask the Greeks whose sovereign debt yields soared to 35% in the summer of 2012 and forced an IMF/EU intervention. The €240 billion bail-out and the austerity measures demanded by international lenders caused the incineration of 25% of the Greek economy. In the light of how central banks in recent times hosed pandemic fires with trillions of dollars to counter potential GDP contractions of less than 10%, there will no doubt be further retrospective analysis on whether economic shock therapy was really the best approach. And the debate is timely in a German and EU context. Let’s consider the bind Germany finds itself in thanks to Putin’s horror show in Ukraine.

1. Whatever about Greece and Ireland’s indisciplined allocation of capital earlier this century, the “you did what….???” strategic Darwin award must now go to Germany. The Berlin government’s decision post the 2011 Tohoku earthquake and tsunami to phase out nuclear power was bad enough given this sustainable source of energy supplied 25% of the country’s electricity needs. However, the decision to cosy up to Putin and replace both nuclear power and coal with Russian gas and oil has proven to be even more catastrophic.
2. The supply of gas in particular is not a simple switch on/off proposition. Prior to the Ukraine war Russia accounted for up to 55% of Germany’s imported natural gas supply and 25% of its oil imports. Germany’s own Bundesbank reckons an immediate shut down of Russian gas would cost Germany €180 billion or circa 5% of GDP.
3. Germany is already cutting Russian oil imports but is saying the embedded nature of natural gas in German industry makes things more complicated. Note, however, that German GDP was forecast to grow by 3.6% in 2022. Clearly, a 5% GDP hit would put GDP growth on a negative trajectory but nowhere near the near 10% contraction in 2020 pandemic times. There are also reports that German gas reserves could last until September/October. Would Russia?

It all sounds quite painful, but not catastrophic. Forgive me for sounding like Angela Merkel all of a sudden but surely Germany needs to take the pain now rather than storing up much bigger destruction further down the tracks. Literally. It is now becoming the consensus view that Putin will only actually be stopped when he is on NATO territory. That is a horrific thought but it is a view shared by many in NATO intelligence circles and among every European neighbour of Russia. Already, Russia is making demands for a connecting corridor with Transniestra (and its troops there) which is internationally recognised as part of Moldova. Sadly, it is looking like we are facing an attritional period of proxy conflict with Putin’s Russia unless new thinking and action materialises soon. One could argue there is a sustainability issue for the continent of Europe if a wider war ensues. So, where is German leadership? Where is the $80 trillion of global capital seemingly committed to planetary sustainability and ESG? Does global conflict not count as a planetary survival issue? As Ukrainian GDP collapses by 45% and the poorest on the planet go hungry with food price inflation running at 35%, all European countries and their US allies should be telling Olaf Scholz that a GDP hit of $180 billion is a price worth paying to keep Germany’s sustainability and ESG integrity. I choose the word ‘integrity’ deliberately as I am watching a few other German developments closely. To say we should be concerned is quite the understatement but will let you make your own minds up on the following: There has been plenty of headlines about Germany making historic decisions to supply Ukraine with finance and weapons but the reality is rather more murky. February 2022 – German defence industry sends Scholz list of heavy weapons available to send to Ukraine. But, Scholz doesn’t share this list with Ukraine. Then he says there are no weapons left. March 2022 – German defence industry denies the Scholz excuse and leaks original list to press. Scholz then says weapons are needed by NATO and NATO must approve. Then NATO officials and German military deny this.   April 2022 – Scholz under pressure announces €2 billion for Ukraine military. German MPs then discover the value is really €1 billion which won’t be available for another 2-3 months. Sholz then says €1 billion can be made available now but then removes all the equipment Ukraine actually needs from the list. There is so much more to this developing story but there is a strong whiff of obstruction and intrigue as to Scholz’s erratic behaviour. However, some readers will recall my account of the amazing Wirecard fraud a few years ago and the strange behaviour and inaction of German financial authorities at the time. The CFO of Wirecard, Jan Marsalek, was apparently a Russian intelligence asset and is now reported to be in hiding in Moscow. These were incredible events matched by incredible inaction for years but maybe we should not be so shocked. The finance minister during the Wirecard implosion was a certain….. Olaf Scholz. Irrespective of motivation or political intrigue, the urgency of the Ukraine crisis needs no further debate. It is pointless to be launching ESG/sustainability funds, benchmarks, EU directives and corporate frameworks if we can’t get the basic principles and actions right. Putin is a threat to the world and Germany is the lead contributor of funding (estimated €1 billion per day) for the Kremlin mass murder machine. That’s the ugly reality. More importantly, the threat and destruction of Putin's retro-colonialism is expected to grow. If ESG capital really wants to help the world the following should happen soonest…

1. Message the Bundesbank and Berlin government that a boycott of German sovereign debt auctions by international investors will begin on sustainability/ESG grounds.
2. Message German banks and insurers that financial relationships with purchasers of Russian gas will lead to sanction(ie US dollar restrictions)
3. Message the German economy, its citizens and Europe that short-term pain will avoid long-term European destruction.

Those messages ideally should be sent from Athens and Dublin as previous lecture recipients but one suspects Washington will be the ultimate messenger. The world, not just Scholz, must see ESG at work. And don’t rule out regime change in Berlin before London, or even Moscow.