The Morning Dispatch: Germany Drags Feet On Ukraine

Happy Tuesday! You can finally relax: The James Webb Space Telescope successfully reached its final orbit yesterday at the second Sun-Earth Lagrange point (L2). Way to go, JWST team! 

Quick Hits: Today’s Top Stories

• Pentagon spokesperson John Kirby told reporters yesterday that Defense Secretary Lloyd Austin had placed about 8,500 U.S. military personnel on “a heightened preparedness to deploy” to Eastern Europe in case NATO activates its response force. 

• The Washington Post reports that, in another effort to stave off a Russian reinvasion of Ukraine, the Biden administration is threatening Moscow with rarely used export controls that would cripple Russian industry by inhibiting the country’s ability to import semiconductors—manufactured around the globe—that rely on American software or tools in any way.

• U.S. Central Command announced yesterday that American forces at Al Dhafra Air Base in the United Arab Emirates—with the help of Emirati armed forces—intercepted two incoming ballistic missiles early Monday morning. A Houthi military spokesman claimed responsibility for the attack, adding the Iran-backed militia will continue launching missiles “as long as attacks on the Yemeni people continue.”

• Taiwan’s Ministry of National Defense said that 39 Chinese aircraft—including 34 fighter jets, four electronic warfare aircraft, and one bomber—flew into Taiwan’s Air Defense Identification Zone on Sunday, the largest such incursion since October.

• Momentum for updating the Electoral Count Act of 1887 continues to grow, with 16 senators—including nine Republicans and 7 Democrats—meeting on Monday to chart a path forward on bipartisan legislation that could earn at least 60 votes.

• New York City Mayor Eric Adams announced yesterday he plans to combat rising gun violence in the city by launching new NYPD Neighborhood Safety Teams, putting more police officers on patrol, and increasing coordination between NYPD and New York State Police, among other initiatives.

Whose Side is Germany On, Anyway?

In a Monday morning press conference, NATO Secretary General Jens Stoltenberg announced that several members of the military alliance were stepping up their efforts to deter a Russian reinvasion of Ukraine. Denmark will send a frigate to the Baltic Sea and fighter jets to Lithuania. Spain is dispatching ships to the Black and Mediterranean Seas. The Netherlands is committing aircraft to Bulgaria, and France is prepared to send troops to Romania. President Joe Biden said last week the United States has already shipped $600 million worth of arms to Kyiv, and the United Kingdom has airlifted thousands of short-range antitank missiles to Ukraine in recent days, plus 30 “elite British troops” to train Ukrainians to use them.

Germany—the third-largest NATO member by population—has been notably absent from this unified show of force. Citing the country’s long-standing, “very clear stance on weapons exports,” Olaf Scholz—the country’s new chancellor—told reporters late last week Germany would likely abstain from supporting Ukraine militarily. A few hours later, The Wall Street Journal reported Berlin had blocked Estonia from doing so as well, because the Cold War-era howitzers the small NATO ally had planned to supply Kyiv originated in East Germany. The British planes carrying antitank missiles to Ukraine last week took a long detour through Denmark to avoid German airspace. (Initial reports indicated Germany had denied the planes’ request to take a more direct route, but both German and UK officials later clarified the UK didn’t bother to ask permission in the first place.)

Berlin’s reluctance to export weapons—or be even tangentially associated with exporting weapons—is just one sliver of Germany’s broader caginess toward the Russia-Ukraine conflict. Scholz is saying many of the right things—“Borders must not be moved by force,” a Russian invasion of Ukraine will “have a high cost”—but he has proven unwilling to publicly commit to hardline sanctions on Russia’s prized (but not-yet-operational) Nord Stream 2 pipeline in the event of an incursion.

“It is clear that there will be a high cost and that all this will have to be discussed if there is a military intervention against Ukraine,” Scholz said last Tuesday when pressed on the nearly-finished natural gas pipeline, which connects Russia and Germany while bypassing Ukraine. A few weeks earlier, he described Nord Stream 2 as a “private-sector project” and sought to de-link its regulatory approval from the Ukraine situation—a position Germany’s defense minister echoed earlier this month. Foreign Minister Annalena Baerbock has opposed the pipeline in the past, but dodged a question on it in a joint press conference with Secretary of State Antony Blinken last week. Yesterday, she said the “hardest stick” may not always yield the best results.

Why all the equivocation? Two main reasons: Germany’s increasing reliance on Russian energy, and the long and fraught history between the two countries.

“Germany is in the process now of becoming Russia’s main partner in the gas business,” said Peter Dickinson, the Ukraine-based editor of the Atlantic Council’s UkraineAlert. “This pipeline will make Germany the hub for Russian gas in Europe. It brings a lot of very obvious advantages to the German economy.”

The Biden administration officially opposes the pipeline—which, once operational, would increase Europe’s dependence on the Russian energy sector and more or less cut Ukraine, through which Russian gas currently flows, out of the picture—but decided to waive sanctions on the project last summer because they “risked undermining a critical alliance with Germany.” Leaders of other European countries—France, the United Kingdom, Poland, Estonia, Latvia, and more—have expressed disdain for the gas project, as have lawmakers for the European Union. But other than an energy regulator putting a temporary hold on the pipeline’s certification, Berlin has forged on.

“Germany is taking a very, very selfish economic path here against the interests of the European Union,” Dickinson said. 

German leaders would argue it’s a necessary one, as Germany has been dealing with energy shortages and price spikes for months that—thanks to its own policies—are only going to get worse. According to the German Association of Energy and Water Industries, renewable energy accounted for about 41 percent of Germany’s 2021 power production, while coal accounted for 28 percent and nuclear accounted for 12 percent. The remaining 15 percent or so came from natural gas.

But earlier this month—despite its energy crisis—Germany went through with plans first hatched in 2002 and shut down three of its six remaining nuclear plants. The final three reactors are slated to be decommissioned at the end of this year, despite atomic energy being among the safest and cleanest alternatives to fossil fuels. Why?

“I wouldn’t call it ideological, but … well, okay, maybe it is ideological,” Jessica Lovering, founder of the Good Energy Collective, told The Dispatch with a laugh. “It’s not, ‘Well, we’re opposed to nuclear because of specific risks.’ It’s more, ‘It doesn’t fit in our category of clean energy.’ … The goal is not reducing emissions or reducing air pollution, it’s to build out renewables.” While the use of nuclear energy will be phased out in Germany later this year, parliament gave the country until 2038 to do away with coal.  

Berlin aims for 80 percent of its power mix to come from renewable sources by 2030, but Lovering expects Germany to increase consumption of fossil fuels in the short-term to make up for the loss of nuclear energy. “Germany is already building out renewables as fast as they can—and it’s a very impressive buildout—but they’re starting to come up against constraints,” she said. “So I think in the short term, like in the next five years, [demand] is definitely going to be met with increased fossil fuel generation.” Russia—already the largest gas exporter to Germany—will be more than happy to step up its supply.

But Nikos Tsafos—an expert on the geopolitics of energy at Center for Strategic and International Studies—thinks it’s a “bit too reductionist” to attribute Germany’s behavior entirely to its reliance on Russia’s gas production. “There’s an idea in German foreign policy that goes back 50 years, that engagement with Russia is the best way to deal with the Russian threat,” he told The Dispatch. “Russia is there, and you have to deal with them, and cutting off ties and not having business relations is just not really an option.”

Dickinson described something similar, but attributed the phenomenon to residual German guilt from World War II. “The German invasion of the Soviet Union was one of the bloodiest episodes in world history,” he said, referencing a 1994 Russian study that estimated about 26.6 million Soviets died in the conflict—including millions upon millions of civilians. “This sense of war guilt towards Russia and … the responsibility Germany has for maintaining a good relationship with Russia, is very strong, and very real, and felt by a lot of Germans.”

But Ukraine was a Soviet republic at that time, of course, and Yale University historian Timothy Snyder has argued that Soviet Ukraine World War II deaths actually outnumbered Soviet Russia ones. “You can go into parts of Ukraine where you won’t see a single [pre-war] building because everything was destroyed, whole towns were destroyed,” Dickinson said. “So Ukrainians look at this German war guilt—and Germans speak openly about their historical responsibility—and Ukrainians are just bemused by this. They say, ‘Where’s your historical responsibility to us? Don’t we count?’”

Biden did his best to project a united front on Monday, telling reporters there was “total unanimity” on his Monday call with European and NATO leaders. But his off-the-cuff remarks last Wednesday—widely considered a gaffe—were almost assuredly more accurate: “There are differences in NATO as to what countries are willing to do depending on what happens—the degree to which they’re able to go.”

There’s plenty the United States can do unilaterally to make Russian President Vladimir Putin’s life more difficult—the aforementioned semiconductor export controls, for example—but the Biden administration would much prefer a unified approach.

“It’s important that [the United States and Europe] are seen to act together collectively because they don’t want this to be America against Russia,” Dickinson said. “Because then a clear moral issue just becomes a competition between two powers.”

Investors Start to Take the Fed Literally

The up-and-down win probability graph from Sunday’s Chiefs v. Bills game was certifiably insane, but yesterday’s stock market volatility may have given it a run for its money. The Dow Jones Industrial Average tumbled more than 1,000 points on Monday before a late afternoon rally resulted in it closing up 0.29 percent on the day. The S&P 500 and tech-heavy Nasdaq gave investors similar scares before ultimately recovering.

Even prior to yesterday’s frenzied swings, it’s been an uneven few weeks for the markets. The Dow has shed nearly 6 percent of its value since the calendar turned, the S&P 500 is down almost 8 percent, and the Nasdaq has plunged a whopping 12 percent. All three indices have fallen for three straight weeks, and last week finished as the worst one for the latter two since the March 2020 sell-off. The most speculative assets—cryptocurrencies—have been hit even harder.  

If you timed the Nasdaq perfectly—buying at its lowest point 22 months ago and selling in mid-November—you would be up nearly 110 percent. But don’t expect a similar trajectory following this dip: Much of that growth was fueled by easy monetary policy throughout the pandemic, and much of this month’s contraction has to do with central bankers tightening things up.

Later today, the Federal Open Markets Committee (FOMC) will kick off its first meeting since it signaled a dramatic shift in mid-December toward addressing rising inflation. The situation has only gotten more out of hand since. The Bureau of Labor Statistics announced earlier this month consumer price index inflation had hit a 40-year high, and in the European Union, prices were rising at the fastest pace on record. Maintaining that he “respects the Fed’s independence,” President Biden sent a very clear signal to the central bank last Wednesday that it was time to make sure that “elevated prices don’t become entrenched.”

Pivoting to a more hawkish monetary policy was always going to put a damper on the stock market’s rally—as Axios’ Neil Irwin wrote yesterday, getting rid of froth in the market is an important part of taming inflation. But the pace of this month’s downturn likely has to do with a growing belief among investors that the Fed is poised to act even more aggressively than it indicated last month, when Chairman Jerome Powell—whom the Senate is expected to confirm for a second term in the coming weeks—announced the Fed’s plans to accelerate its tapering of monthly asset purchases to wrap up in March, and FOMC members penciled in three 0.25 percent interest rate hikes in 2022.

But in his confirmation hearing a few weeks ago, Powell told members of the Senate Banking Committee the Fed will “raise interest rates more over time” if inflation continues to persist at high levels. St. Louis’ Federal Reserve Bank President James Bullard argued in favor of raising rates at least four times this year, and Lael Brainard, Biden’s nominee to serve as the Fed’s vice chair, told the committee days later that getting inflation back down to the central bank’s 2 percent goal is “our most important task.” Some traders are pricing in a March rate hike larger than the typical 0.25 percent, while a few outliers see yet another acceleration to the taper.

Is it an overreaction? Possibly.

“The market is historically terrible at pricing in what the Fed’s going to do,” Brendan Walsh, principal at Markets Policy Partners, told The Dispatch. “They always overestimate massively.” Although much of this month’s volatility could be explained by investors shifting from tech-heavy growth stocks to value stocks—like banks—that will benefit from higher interest rates, he added, “now the market’s just kind of freaking out and everything’s going down.”

Other investors see this month’s selloff as a necessary course correction. “Over the past two years—since March of 2020—the biggest drawdown we saw was less than 5 percent,” said Luke Lloyd, an investment analyst at Strategic Wealth Partners. “We’re trading some short-term pain for some long-term gain, and I’d rather have it that way than continue to make the bubble bigger and have ridiculous amounts of inflation.”

The S&P 500 increased in value by nearly 63 percent from January 1, 2019 through January 1, 2022. As Manhattan Institute economist Brian Riedl notes, that’s not normal. “The average S&P return over the last century has been about 8 percent per year,” he told The Dispatch. “If we have a year of three or four or five percent—or even less—it’s not the end of the world. Even a modest stock market correction is not a big deal, and in fact, it reflects perhaps some investors being a little spoiled over the past couple of years.”

Worth Your Time

• The state political party censure is having a moment! After a year which saw Sens. Ben Sasse, Lisa Murkowski, Pat Toomey, Richard Burr, and Bill Cassidy censured by their local GOPs for voting to convict former President Donald Trump in last February’s impeachment trial, the Arizona Democratic Party got in on the action this weekend, formally condemning Sen. Kyrsten Sinema for not voting to abolish the legislative filibuster. “These ongoing ideological purges are a major reason Washington remains so dysfunctional,” Henry Olsen argues in his latest column. “Both parties want to make significant policy changes, but neither can do so without enduring majority support from independent voters. These voters have been sending a clear message for more than two decades that they want to back a party that is principled but not purely ideological. Sinema’s censure shows Democrats still don’t get it. Meanwhile, Trump’s ongoing personal jihads against Republican foes show the GOP doesn’t get it either. The first party that does—the one that has room for both Kyrsten Sinema and their most devoted partisans—will reap the rewards.”

• For most of their time in office, former Presidents Donald Trump and Barack Obama boasted remarkably consistent approval ratings. President Joe Biden’s approval, meanwhile, has proven malleable in the face of events. That’s a good thing, Jonathan Bernstein argues in Bloomberg. “If it was really true, as some suggest, that Obama’s and Trump’s unchanging approval ratings were caused by partisan polarization, then there really would be no reason for presidents (or other politicians) to try to make voters happy,” he writes. “They could ignore everyone but their strongest supporters, or even just govern for their own benefit, without risk. Biden’s slump could well show that voters still hold the president accountable—and that future presidents may still have an incentive to pursue good policies.”

• For American Purpose, Francis Fukuyama explains why liberal democracies around the world should care about Ukraine’s sovereignty. “It is reasonable to ask whether it is worthwhile investing time and effort in protecting such a flawed democracy [as Ukraine’s],” he writes. “I personally have no reservations whatsoever about this. My view has been shaped by the young Ukrainians I have met and worked with over the past few years. There is a younger generation coming up that does not want to be part of the old corrupt system, that believes in European values, and that wants nothing more than for Ukraine to become part of Europe. These Ukrainians are extremely well educated and highly motivated. They are the ones who have led the Maidan Revolution and who are at the forefront of the effort to make Ukraine part of Europe. Their generation will gradually come to power, and will hopefully exercise power more democratically than their predecessors.”

Presented Without Comment

Also Presented Without Comment

Toeing the Company Line

• On Monday’s episode of Advisory Opinions, David and Sarah look at two college admissions cases heading to the Supreme Court, discuss Sarah Palin’s upcoming defamation trial against The New York Times, and more.

• On the site today, Charlotte and Harvest dig into the ongoing logistical snarl of finding homes for resettled Afghans, many of whom remain cooped up on military bases. Plus, Walter Olson picks apart some bad reporting on race-based allocation of COVID therapies and John Gustavsson critiques the notion, recently endorsed by Germany’s new government, of a federal Europe.

Let Us Know

Do you think Germany would be justified in bucking the United States and much of Europe on sanctions against Russia? Do you think they will?

Reporting by Declan Garvey (@declanpgarvey), Andrew Egger (@EggerDC), Charlotte Lawson (@lawsonreports), Audrey Fahlberg (@AudreyFahlberg), Ryan Brown (@RyanP_Brown), Harvest Prude (@HarvestPrude), and Steve Hayes (@stephenfhayes).