Which bailout will Germany choose?

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Jul 20, 2022 View in browser   By Ryan Heath Follow Ryan on Twitter Is Germany going to bail out its energy companies, or is Europe going to bail out Germany? That's the 64 million cubic meter question as Germany stares into a Russian gas abyss. Russian President Vladimir Putin said overnight that some gas will flow Thursday when annual repairs to the Nordstream 1 gas pipeline are complete, but he didn't make a long-term commitment. Germany may lack the gas to cope with winter demand or even to fill up its gas storage facilities, which are only 65 percent full . Overall, the EU has already absorbed a roughly 60 percent drop in Russian gas deliveries over the past year. More below. Happening Today KERRY IN BERLIN: Presidential Envoy for Climate John Kerry is in Germany to participate in the Petersberg Climate Dialogue . ASPEN FORUM: You can watch the conversations live online . First up today, at 10:50 a.m. ET is a panel on U.S. strategy in the Indo-Pacific. China's ambassador to the U.S., Qin Gang, will speak with Financial Times' Ed Luce at 3 p.m. ET. ITALY — DRAGHI'S MOMENT OF TRUTH: After having his resignation rejected by Italy's president last week, Italian Prime Minister Mario Draghi told the Italian Senate this morning that his government's coalition partners must unite or head to elections. Senators are debating Draghi's speech and will vote in response at around 1:30 p.m. ET . Hannah Roberts on Draghi's dilemma . A new poll published in La Stampa suggests that fewer than one in three Italians favor an early election, while more than half want the government to continue. More in POLITICO's Poll of Polls U.K. — LIZ TRUSS NOW FAVORITE TO BECOME NEXT PM: Political insiders in London are beginning to assume Liz Truss is the new favorite to become Prime Minister, when the Conservative Party leadership race switches over from being an MP-shortlisting contest to a full party membership vote. Truss has been making up ground on the two leading candidates among MPs, Rishi Sunak and Penny Mordaunt. The factors could stop Truss getting across the finish line: her robotic public performances, and her polarizing standing among the general public. Tactical voting: One widely held view is that Sunak and Truss have some kind of deal going : there's no other way to explain how hardliner Truss gained five times as many votes as moderate Sunak from the elimination of Tom Tugendhat, the contest's other moderate contender. TAIWAN — GETS HIGHER LEVEL TREATMENT: European Parliament Vice President Nicola Beer and former U.S. Defense Secretary Mark Esper are visiting Taiwan this week. Beer, a German MEP from the liberal FDP party is the first vice president-level lawmaker from Brussels to visit Taiwan, where she met President Tsai Ing-wen and other officials. Esper called for an end to U.S. "strategic ambiguity" on Taiwan and was joined by Stefano Stefanini, a former Italian ambassador to NATO. Beijing's new headache: U.S. House Speaker Nancy Pelosi is planning a trip to Taiwan next month, Lara Seligman reports . DOES GERMANY NEED A BAILOUT? AN ENERGY BAILOUT? How the mighty tumble: Germany risks a severe recession if Russia turns off the gas. Here are the IMF estimated impacts on Germany, if the country is forced to cope without Russian gas. That might necessitate other EU governments ferrying gas to Germany, if only to ward off recessions at home, given Germany's influence on the continent's overall economy. Liquidity problems: Little or no liquid gas flowing creates other liquidity problems. The German Parliament is considering whether to amend its bailout laws to allow energy companies to obtain them, Reuters reported . Some in the government prefer this option to letting the companies fail, and consumers paying even more for their energy. One of the biggest importers of Russian gas, Uniper, has applied for a government bailout , and this week had to draw down $2 billion in credit. Uniper CEO Klaus-Dieter Maubach said in early July that the company "cannot endure for long" under current conditions. GERMANY'S STRATEGY FAIL: Because it's easier to think of whole countries in thumbnail sketches rather than in complicated layers, most people don't think of Germany as more than a big export economy that still has strong manufacturing sectors. This year, we learned that Germany had made itself far too reliant on Russian energy. What is less understood is that Germany's entire business model "was based on importing cheap energy , specifically oil and gas from Russia. Anyone who questioned this system was usually ignored," writes Henrik Bohme, DW's senior business editor. That means everyone and everything from poor pensioners to the auto industry risks being victim to Putin's whims. Where does the EU fit in?  Having expressed repeated concerns about Berlin's energy dependence on Moscow, only to be beaten down by their German counterparts, officials in Brussels finally have some sway in the EU's energy strategy debates. The question is: do they have enough? — The EU has been negotiating deals with smaller players to offset the damage of losing Russian gas, including a memorandum of understanding with Azerbaijan to double gas imports from Baku . — The EU has drawn up an "economy of war" strategy, requiring countries to pool economic losses in the event of a full gas shut-off. As usual, that's drawing resistance from the governments and industries that avoided being dependent on Russia — much as Germany resisted bailing out Greece and other flailing economies a decade ago. — In the meantime, the European Commission today launched guidance on voluntary gas saving measures — plus an emergency proposal that would allow Brussels to force binding gas consumption cuts on countries.   INTRODUCING DIGITAL FUTURE DAILY - OUR TECHNOLOGY NEWSLETTER, RE-IMAGINED:  Technology is always evolving, and our new tech-obsessed newsletter is too! Digital Future Daily unlocks the most important stories determining the future of technology, from Washington to Silicon Valley and innovation power centers around the world. Readers get an in-depth look at how the next wave of tech will reshape civic and political life, including activism, fundraising, lobbying and legislating. Go inside the minds of the biggest tech players, policymakers and regulators to learn how their decisions affect our lives. Don't miss out, subscribe today .     GLOBAL RISKS AND TRENDS RUSSIA-IRAN ALLIANCE: Putin's visit to Tehran, with echoes of his February trip to Beijing , is solidifying his efforts to form anti-Western alliances around the world. Iran recently applied to join the Brics trading group of Brazil, Russia, India, China and South Africa, which accounts for around 40 percent of the world's population, and a quarter of the global economy. AUSTRALIA —  WILDLIFE EXTINCTION DISASTER: Australia has suffered catastrophic losses of wildlife and habitat, according to a five-year scorecard released Tuesday by the country's new government. Australia — the only country that is also a continent in its own right — has lost the most mammals of any continent (38 percent of the global total). To make matters more delicate: nearly 80 percent of the remaining mammal species are found nowhere else. Leading scientists are pleading with Canberra to ramp up protections, including because 93 percent of vegetation lost since 2016 was removed without any federal oversight. While the Albanese government has been issuing a torrent of new climate rules and targets, it doesn't appear to have a broader environment plan . New environment minister, Tanya Plibersek, is promising legislation in 2023 . THAILAND — TRAILBLAZING LAWS: The sometimes democracy Thailand is the first country in Asia to decriminalize cannabis and the first in Southeast Asia to move toward legalizing same-sex unions. More here . QUOTABLE — FOOD SECURITY "This year, amidst a global food crisis, the People's Republic of China has contributed just $3 million to the World Food Programme. The U.S. has already contributed $3.9 billion this fiscal year. China and all nations must go above and beyond as we work to prevent famine." — Samantha Power, USAID administrator TECH — META'S ADVERTISING SHARE DECLINING: Advertisers are learning they don't need to depend on Facebook to reach customers. Matthew Bailey , principal analyst at research firm Omdia, told Insider: "We are forecasting that Meta's share of global net online advertising revenue will decline for the first time in 2022." TECH — TRANSATLANTIC TRUST PROBLEM: When asked to what degree E.U. and U.S. adults trust the other party on a range of 14 foreign policy issues, adults in France, Germany, Italy and Spain more often than not trust their U.S. counterparts on eight of them, including defending democracy, free markets and consumer product safety. But they reported the least trust in the United States to store and manage their personal data . REALITY CHECK — ESG NUMBERS DON'T ADD UP: A new report by accounting firm EY is saying what a lot of ESG observers have been thinking: They're yet to achieve impact consistent with what is supposedly $2.7 trillion under ESG-focused management ( per Morningstar Inc ). Instead, there are a lot of confusing and opaque claims and commitments — and it's possible that some of them aren't intended to make real changes but are instead designed to tick a corporate reporting box or demonstrate reduced risk exposure. For months, the financial industry leaders Global Insider has spoken to have said they are desperate for more official guidance and structure. For its part, report authors at EY think there should be more legally binding "taxonomies" of what economic activities are considered sustainable, and there should be more transparency about what goes into ESG ratings. Climate change, for example — widely understood to be one of the existential crises of this and coming generations — makes up an average 15 percent of a company's overall ESG score, per EY. "If we don't get better at explaining to those investors where their money is really going, there's an opportunity for disappointment and accusations of greenwashing," said Steve Varney, EY's global vice chair for sustainability. Help on the way: The International Financial Reporting Standards (IFRS) Foundation, which works to set global accounting standards, has launched the International Sustainability Standards Board (ISSB) with the aim of creating a single global corporate ESG disclosure framework. REALITY CHECK — ORGANIC FARMING DID NOT CAUSE SRI LANKA'S ECONOMIC COLLAPSE: Some on the right and contrarian types are seizing on the country's banning of chemical fertilizers as the proximate culprit that led to President Gotabaya Rajapaksa turning over his palace to protesters last week. While Rajapaksa's abrupt ban on chemical fertilizers did jolt farmers, yields didn't fall so precipitously that it would have dented exports that much, David LaBorde, a senior research fellow at the International Food Policy Research Institute, told my POLITICO Long Game colleagues . Instead, you need to look at: Massive and multiple tax cuts , revenue that was never replaced A shrinking remittance economy (Covid forced a lot of workers home, ending those remittance flows) Covid collapse in tourism income  Taking on too much ill-considered Chinese debt  That doesn't mean banning synthetic fertilizer is smart: access to fertilizer is essential to feed a planet with 9 billion people. And the consequences of banning it in Sri Lanka or elsewhere could mean more land must be used to produce the same amount of food, or worse. A European fertilizer ban could mean more deforestation in Brazil, for example. Distribution matters, too: overuse in rich countries could hurt their environment, also creating a lack of access in Africa that leads to (more) food insecurity.   Invitation – Bold Leadership and Innovation Event Thursday:  America's tech sector is built on the hard work, ingenuity, and innovation of a melting pot of cultures. The American dream is a MerITocracy. At MerITocracy 2022: American Innovation Forum on Thursday the Hill, the Administration, and industry leaders will clear a path forward for tech in education, workforce, global competitiveness, security, and citizen services. Located at the crossroads of tech advances and the future of American democracy, the conference brings together bi-partisan and bi-cameral policy leaders and industry innovators to focus on creative thinking at the nexus of policy and technology. Save your seat here.     GLOBETROTTERS CHILD OF CONCORDE ONE STEP CLOSER: Aviation minnow Boom is partnering with Northrop Grumman to develop a special mission variant of its planned supersonic Overture aircraft for the U.S. government. The aircraft could prove especially valuable for military or emergency purposes: think evacuations and disaster responses. Boom's goal is to have the Overture — with a range of just over 8,000 kilometers — flying in 2026, with commercial deliveries from 2029. KILLING FOR INSTAGRAM HANDLES: 'I want your Instagram account': First came the threatening texts, followed by the SWAT teams. Then someone wound up dead. Incredible reporting by Rob Price . PROGRESS, EUROPE STYLE: This photo shows new Belgian Foreign Minister Hadja Lahbib attending her first EU Foreign Affairs Council meeting, surrounded by her peers. HIRED: James Bennet will be the first American to write about America for The Economist's Lexington column. He was previously editorial page editor of The New York Times ( resigning in 2020 in controversial circumstances ) and editor-in-chief of The Atlantic. BRAIN FOOD ARCHIVE: The Atlantic has published its 165-year archive online. LONG READ: Making War More Difficult to Wage . Emily Weinstein argues in Foreign Affairs that Russia's invasion of Ukraine has "created an opening for Washington and its allies to go even further and adopt a new multilateral export control regime." SUPERPOWER LETTERS: How superpowers traded ideas on co-existence in 1959.  Nikita Khrushchev duels with George Kennan . MOVIE: Mass . Maybe the most powerful movie you've never heard of. I'm still thinking about it four days later. Thanks to editor John Yearwood, Debra Kahn, Jordan Wolman, Lorraine Woellert and producer Kierra Frazier.  SUBSCRIBE to the POLITICO newsletter family: D.C. Playbook | Brussels Playbook | London Playbook | Paris Playbook | EU Confidential | D.C. Influence | EU Influence | London Influence | Digital Bridge | China Direct | Berlin Bulletin | Living Cities   Follow us on Twitter Ryan Heath @PoliticoRyan   Follow us

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