Interview with German Economy Minister Robert Habeck "Russia Knows Crossing Red Lines Would Immediately Trigger Painful Sanctions"
DER SPIEGEL: Mr. Habeck, what is your idea of a happy life?
Habeck: One that is largely self-determined. That includes consideration for others, just as you yourself want to be treated considerately. But being your own master brings happiness.
DER SPIEGEL: What material requirements are important for happiness?
Habeck: I don’t think a happy life is possible if you are consumed by existential worries. Fear of financial ruin destroys happiness.
DER SPIEGEL: What role does money play for you?
Habeck: It is a condition for the ability to live a life free of worry. But it isn’t an end in itself for me.
DER SPIEGEL: Every year at the end of January, the Economics Ministry, of which you are the head, presents its Annual Economic Report. Thus far, the gross domestic product has been the most important number in that report when it comes to determining how well the country is doing. You, though, would like to break with tradition. Why?
Habeck: I wouldn’t say break. I want to make it more comprehensive. We will continue to present growth numbers from various economic sectors. But these benchmarks do not sufficiently capture the state of a nation’s economy on their own. That is why we want to introduce criteria such as education, distribution equality and environmental damage. By doing so, we want to show that societal prosperity needs GDP, but that it also goes beyond that.
DER SPIEGEL: Salaries rise as a result of economic growth, the state has higher revenues and things like education, social equality and technological innovation benefit as well. Does this fundamental truth of market economies no longer apply?
Habeck: Of course it does. Those connections remain important. Right now, in these pandemic years, we can see how people and society are suffering due to economic disruption. People are losing their jobs while the state is taking on new debt – even as it needs tax revenues for teachers, hospitals and infrastructure.
DER SPIEGEL: Some go so far as to say that we don’t need economic growth anymore at all.
Habeck: I think such a sweeping view is wrong. Growth is also an expression of change. Innovations are developed, people have ideas and implement them. That leads to growth. Without growth and boosts in productivity, a society becomes poorer. The dream of having your own potato field and a self-sufficient life like in the year 1800 is a romantic nightmare. Back then, nutrition was poor, people suffered from gout and most died young. We do, though, have to answer the question as to where we create value and at what cost. Our goal must be that of separating prosperity from the exploitation of resources and from economic activities that damage the climate.
DER SPIEGEL: The economy works according to well-established rules and figures. Won’t your new approach isolate Germany among the world’s largest economies?
Habeck: I think the opposite is the case. When a large economy takes the lead and examines prosperity in a more nuanced way than before, it is a strong incentive for others to do the same. We want to prove that an effective use of resources is good for the economy. In competition with other countries, that will then become extremely attractive.
DER SPIEGEL: The practice thus far has been for the state to largely stay out of the economy. What is the new approach?
Habeck: Creativity, market activity and competition produce the best solutions. It has never been a tradition for the Economics Ministry to impose state control over everything, but neither has it let things proceed completely free of regulation. When the state is doing its job, it establishes the framework for economic growth in its role as representative of the people. Wages, for example, are negotiated between employers and labor unions. But the fact that they do so is regulated by law.
DER SPIEGEL: Is the state going to play a greater role?
Habeck: Again, we need courage, audacity and the freedom to make the best out of it. To get the maximum benefit, we want to readjust the relationship between the state and companies in accordance with the ecological challenges we are facing so that, with the correct incentives, we can completely exploit entrepreneurial potential and trigger the next technological revolution.
DER SPIEGEL: In the Annual Economic Report, you write that the transformation doesn’t necessarily lead to an expansion of prosperity. If prosperity is no longer the incentive, what will motivate people to go to work?
Habeck: The point is not that of no longer having material prosperity – otherwise progress would be reversed. It’s about no longer defining it as the sole purpose.
DER SPIEGEL: Does that mean no luxuries anymore?
Habeck: No. I love my bicycle and enjoy riding it. I enjoy watching films via streaming services. I enjoy the freedom in the supermarket to grab whatever I’m in the mood for. That is part of self-determination, and many people don’t have such freedoms. The goal has to be that of establishing the conditions necessary so that everybody can take advantage of their freedom, and we can do that by fighting poverty. Material prosperity is surely desirable for many and is also a driving force for progress, investment and thus also for prosperity. For the economy and society, though, there are also other aims that go beyond the desires for private luxury and sometimes even stand in the way. We are now going to start measuring these aims as well.
DER SPIEGEL: Which sectors aside from the automobile industry should the state support in the future?
Habeck: There can be no conclusive list. Currently, there are three important projects of common European interest. The production of semiconductors suffered from extreme bottlenecks in the coronavirus pandemic, a situation that affected all technological areas, including the automotive industry. Battery production, because it is the foundation for the electrification of a huge number of things. And hydrogen. Keeping this industry here in Europe or allowing it to develop justifies special state support because it is also connected to Europe’s security interests.
DER SPIEGEL: What industries must we bid farewell to, aside from the coal power generation?
Habeck: That will primarily be determined by the market. The conspiracy theorists are reporting a rising demand for green aluminum. But the political framework will also lead to industrial change and to a situation in which certain products will no longer be necessary. Electric cars will no longer need exhaust pipes and fuel injectors. Such changes are always difficult for the people who work in the companies that produce them, and for entire regions. But taken together, the transformation will not lead to less employment, less work or less productivity. New sectors and economic sectors will arise.
DER SPIEGEL: The transition from internal combustion to electric won’t initially be good for the automotive supply industry.
The article you are reading originally appeared in German in issue 4/2022 (January 22nd, 2022) of DER SPIEGEL.
Habeck: That is true. On the other hand, though, once we make steel green, we’ll build induction ovens. We need electrolyzers, new power plants, power lines. Mechanical engineering at its best. Demand is already extremely high. As part of the joint European hydrogen project, we are making more than 8 billion euros available for 62 projects in Germany.
DER SPIEGEL: The shipyards, by contrast, are mired in crisis.
Habeck: That is true of the current situation, but here, too, we have to look at future prospects. I cannot, nor do I want to issue orders or prohibitions. But shipping is also part of the transformation. Ships will become more environmentally friendly, and will be fueled either by liquified natural gas or hydrogen. And once we bring hydrogen to Europe, we will need hydrogen tankers. The ships belonging to the Coast Guard and Waterways Police will also have to become climate neutral.
DER SPIEGEL: Sustainably produced products like green steel are expensive. How do you intend to protect companies from cheaper imports?
Habeck: We will use what are called contracts for differences, in addition to other tools. Companies will receive the difference to the CO2 market price directly from the state.
DER SPIEGEL: Will it be necessary to introduce duties for non-sustainable products?
Habeck: When we set standards in Europe aimed at protecting our climate, then we will have to protect ourselves from CO2-intensive imports. That is why France has put a Carbon Border Adjustment Mechanism at the very top of its priority list for its presidency of the Council of the European Union. We support that project.
DER SPIEGEL: Wouldn’t that mark the beginning of a global trade war?
Habeck: We have to take great care that the rules are compatible with the World Trade Organization. But the aim is to ensure that companies implementing the Paris climate agreements and facing higher costs resulting from the transition to climate neutral production are not disadvantaged in global competition. They need protection on that point.
DER SPIEGEL: The Italian-American economist Mariana Mazzucato has argued in favor of changing capitalism such that the economy pursues a mission that the state identifies. Do you find such an idea attractive?
Habeck: Absolutely. I met her two years ago in Davos and went on to read her books. She is one of the economists who has had a strong influence on me. Her idea, which she calls the Mission Economy, is that of defining a goal, but not mandating a route to achieving that goal. That results in all kinds of innovations. The example she uses is U.S. space travel. The goal was that of sending people into space and putting a person on the moon. Nobody ever said: We need Velcro, the electric drill or barcodes. They all came about because they were needed as a means to an end. We can learn from that.
DER SPIEGEL: Your ministry’s Annual Economic Report is critical of the population’s participation in economic advance. How do you intend to increase equality?
Habeck: In the short term with an increase to the minimum wage and welfare reform. One number in our data disappointed me the most: More people are attaining higher levels of education, to be sure, but 10 percent drop out of school without a diploma. They do not play a role in societal advancement, and we must urgently address that. On top of that is the question of equity between urban and rural areas: There is a significant differential when it comes to accessing public institutions. The equality of living conditions must be the goal.
DER SPIEGEL: Does the state have to help when it comes to wage equality?
Habeck: Autonomy in wage bargaining is an important principle. But the coverage of collective bargaining agreements is shrinking because fewer people are organized in labor unions. That is another reason why there is now a minimum wage.
DER SPIEGEL: Do lawmakers have to step in?
Habeck: Yes, but carefully.
DER SPIEGEL: There are more pressing problems. Many electricity suppliers are going bankrupt and their customers are forced to pay horrific prices to the primary providers. What do you have to say to these people?
Habeck: Like the gas market, the electricity market was completely liberalized. Apparently, not all power suppliers were able to deliver on the promises they made to their customers. A discount mentality developed of a kind that can only work if everything functions perfectly. As soon as there are uncertainties in the market, everything collapses. It is similar to the situation banks found themselves in ahead of the Lehman Brothers scandal. That is why we are working on the question of transparency, but also when it comes to the need to adjust wages in the law governing electricity and gas supply. Second, cutting electricity to households is already no longer as easy as it has been, which means that people have more time to pay their bills. Third, the expansion of renewable energies is the solution. What we are currently experiencing is a world starving for fossil fuel-based energy. In the long term, though, renewables are the cheaper alternative. They make us more independent from the erstwhile markets.
Workers in Russia laying pipe for the Nord Stream 2 pipeline (Archive image from June, 2019)Foto: ANTON VAGANOV / REUTERS
DER SPIEGEL: This vision doesn’t much help those who are having trouble paying their bills right now.
Habeck: In the short term, the coalition will be providing assistance by increasing the amount of money for heating costs provided to those in need. We will be equitably dividing the increased heating costs related to CO2 between landlords and tenants. And we will be providing significant and immediate relief to electricity consumers by no longer financing allocations related to the Renewable Energy Sources Act (EEG) through the price of electricity to the degree possible. In the mid-term, though, we should also introduce the "Energiegeld" (Eds note: A dividend generated from the carbon tax on the sale of fossil fuels). And, we are taking a close look at the energy market to determine the causes for the rising prices. Still, we have to be clear: Fossil energies will become more expensive. We have to cushion that increase through policy. The transfer to cheaper and more sustainable energy must be successful.
DER SPIEGEL: The price on the energy markets is strongly influenced by the Ukraine conflict. Was it not a bit odd when German Chancellor Olaf Scholz initially spoke of the Nord Stream 2 natural gas pipeline between Russia and Germany as a "purely private economic venture"?
Habeck: Olaf Scholz is fully aware of the importance of natural gas transit through Ukraine and of the tense situation in the region and has made that clear. And that everything is up for discussion if a further military incursion into Ukraine takes place.
DER SPIEGEL: As minister for the economy, you also carry responsibility for Nord Stream 2. Is it not important to send a loud and clear message to Moscow that this project will be cancelled if Russia marches into Ukraine?
Habeck: We must not rule anything out from the very beginning. And it has already been agreed to in the German-American communiqué from July 2021 that Germany and its European partners will take appropriate joint action if Russia seeks to use energy as a weapon or takes further aggressive action against Ukraine.
DER SPIEGEL: Is that communiqué still valid?
Habeck: That is a joint declaration between Germany and the U.S., yes.
DER SPIEGEL: How serious is the situation?
Habeck: It is concerning. I was there in May. The soldiers are already in the trenches and snipers are firing. At any time, an excuse could be found for a military escalation. That is why I am thinking about how we can contribute to de-escalation. We should also be considering new economic sectors that could help both sides find their way out of this confrontation.
DER SPIEGEL: That would be a break with your party’s line, which calls for taking a tough line with Moscow.
Habeck: On the contrary. Russia knows that crossing red lines would immediately trigger painful sanctions that have already been prepared. And it is clear that Russia is heating and stoking this conflict. But it isn’t enough to simply leave it at that. The efforts of Foreign Minister Annalena Baerbock to get diplomatic efforts back on track is absolutely vital. And as economy minister, I am trying to do what I can to contribute.
DER SPIEGEL: During your trip to Ukraine, you caused a bit of a commotion by proposing that Ukraine be supplied with defensive weapons. What is your position on that question today?
Habeck: This issue is being discussed by NATO and among NATO member states and is frequently being approached from a position beneficial to Ukraine.
DER SPIEGEL: Will Germany be delivering weapons to Ukraine via NATO?
Habeck: As I said, there is a suitable format for these questions within NATO and in this situation, I think it makes sense to stick to that format.
DER SPIEGEL: If NATO decides to deliver weapons, will Germany participate?
Habeck: An agreement will be made within NATO and further steps will be discussed there.
DER SPIEGEL: Would you be in favor of suspending Russia from the SWIFT international bank transfer system in the event of an invasion?
Habeck: That is the ultimate economic sanction, but I’m not going to speculate here.
DER SPIEGEL: Are you in favor of implementing that sanction if the situation calls for it?
Habeck: It makes no sense to simply go down the list of abstract sanctions. Again, the goal is de-escalation.
DER SPIEGEL: What kind of cooperation can you imagine with the parties to this conflict?
Habeck: Ukraine has significant capacities when it comes to the production of renewable energies. When signing the German-Ukrainian natural gas treaty, the German government also added a "Green Fund," as part of which Germany made 150 million euros available. We need to talk with Ukraine about how they intend to create a business environment that is attractive to investors.
DER SPIEGEL: What about Russia?
Habeck: Russia, of course, has potential when it comes to hydrogen and wind energy. But that is linked to conditions. It must be clear to the Russian regime: Russia has a lot to lose if it goes to war, and it can win if it pulls back its troops and de-escalates.
DER SPIEGEL: Those who are opposed to blocking Nord Stream 2 argue that we Germans are already dependent on natural gas from Russia, no matter what pipelines are used to deliver it. Are they right?
Habeck: Nord Stream 2 was always a geopolitical project in the sense that it would mean that Ukraine is no longer needed as a transit country. Linked to that is the concern that geopolitical interest in Ukraine would then wane, even though the country has clearly oriented itself toward Europe and people died for freedom during the Maidan protests.
DER SPIEGEL: Would Germany have to pay compensation to Russia if Nord Stream 2 isn’t approved?
Habeck: The Federal Network Agency has suspended certification proceedings. When it restarts, a decision will have to be made as to whether the conditions for certification have been met in accordance with German and European rules. And if that isn’t the case, no compensation must be paid.
DER SPIEGEL: But again, Germany’s significant energy dependency on Russia is a fact.
Habeck: Indeed, which is why I see it as my duty to expand supply diversity and reduce dependency on a single country. Renewable energies also make a contribution to that by reducing the demand for natural gas. In addition, we are in the process of pushing forward the production and import of green hydrogen. Energy policy doesn’t just have an ecological dimension, but also a geopolitical one.
Economy Minister Habeck: "Nord Stream 2 was always a geopolitical project."Foto: Julia Steinigeweg
DER SPIEGEL: Isn’t it vital to ensure that our gas reserves are full in case war does break out?
Habeck: The existing supply mechanisms were used during this winter. Several so-called special auctions were placed via the appropriate market positions and additional quantities secured. The possibilities available to the state are extremely limited. That is unsatisfactory and it certainly won’t remain that way. Winter showed us that we are far more vulnerable to speculation, price fluctuations and geopolitical tensions when our inventory is low. That is why we must improve our ability to prepare for next winter, so that the gas reservoirs are full. I see that as a political challenge.
DER SPIEGEL: Are you planning on establishing a legal framework to do so?
Habeck: We are currently working on it.
DER SPIEGEL: Where should the gas come from if not from Russia?
Habeck: Germany currently gets 55 percent of its natural gas from Russia. But the EU has established liquified natural gas (LNG) terminals in the Netherlands, Poland and Italy, and they are only at 30 percent capacity. If that was increased to 100 percent, it would be possible from a capacity perspective to account for a majority of imports through LNG. But that doesn’t include the question of price. At the moment, the entire world wants liquified natural gas, making it expensive. The gas pipelines, by contrast, lead directly to us in Europe. That is why it has always been so cheap for us.
DER SPIEGEL: Would the state pay for the price difference for liquid gas?
Habeck: We will take a close look at what the gas market of the future might look like.
DER SPIEGEL: Mr. Habeck, we thank you for this interview.