The War in Ukraine Has Exposed Germany’s Strategic Quagmire

Jörg Kronauer
Loren Balhorn

The war in Ukraine has renewed talk of Germany’s role in leading Europe — but also increased its economic and even foreign policy reliance on Washington. As bloc tensions rise, talk of an independent European superpower sounds like empty boasting.

Federal Minister for Foreign Affairs Annalena Baerbock speaking at a press conference in Berlin, February 7, 2023. (Jörg Carstensen / Getty Images)

Germany’s so-called “National Security Strategy,” which Foreign Minister Annalena Baerbock officially announced in March 2022, was originally supposed to be presented right before the Munich Security Conference that convened last weekend. Its goal? To hammer out a unified framework for German foreign and security policy across all government ministries — also ensuring that German state institutions speak with one voice abroad.

From the viewpoint of the Foreign Office, it would have been extremely advantageous to present the document in the run-up to the security conference, where Baerbock was guaranteed maximum international attention. But it was not to be. Reportedly, the strategy was delayed by coordination difficulties — and likely also the fact that German foreign policy finds itself in an extremely difficult situation.

In strategic terms, the war in Ukraine has significantly restricted Germany’s foreign policy options. For decades, Berlin pursued a kind of dual strategy vis-à-vis Moscow. On the one hand, the German government engaged in economic cooperation with Russia and thus ensured, among other things, that cheap Russian natural gas was always available to German industry. On the other hand, it sought to systematically pressure Russia and minimize its influence in Eastern and Southeastern Europe, not least with the help of NATO’s eastward expansion and, from 2014 onward, by strengthening NATO’s presence in Eastern Europe.

The war in Ukraine has now taken cheap Russian natural gas off the table for the foreseeable future, and forced the government to look for replacements. At the same time, the war entails enormous costs, immense political effort, and real dangers for the German state. To meet these challenges, Berlin is relying on international alliances more than ever.

Growing US Dominance

Above all, a year of war has greatly increased Germany’s dependence on the United States, beginning with natural gas imports. German gas imports from Russia fell from 55 to 22 percent of total imports last year, compensated by an increase in imports of liquefied natural gas (LNG) brought into the country (much of it US-sourced) via the Netherlands and Belgium. When the new LNG terminal in Wilhelmshaven began operations in early January, it was with US fracked gas. The same was true of the new terminal in Lubmin that went online in early February.

According to a study published last September by the Institute of Energy Economics at the University of Cologne, the share of US fracked gas in total EU imports could rise to almost 40 percent. That would make the EU almost as dependent on the United States in the future as it once was on Russia — and on much worse terms, since LNG is more expensive than pipeline gas. It is unclear to what extent Germany’s natural gas–intensive industries, which previously relied on cheap Russian gas, will remain competitive on the world market following the switch to US liquefied gas.

Military dependence on the United States is also increasing. This applies first of all to Germany’s de facto participation in the Ukraine war through arms deliveries and the training of Ukrainian troops. While the United States is shaping Kiev’s war strategy together with Ukrainian officers and supplying target data for Ukrainian attacks, US secretary of defense Lloyd Austin heads the so-called Ukraine Contact Group, which has been coordinating arms deliveries to Ukraine since its first meeting on April 26, 2022, at Ramstein Air Base. Though Germany participates in this group and does indeed exert influence, it ultimately has to defer to the United States when it comes to, for example, decisions on war strategy or types of weapons delivered to Ukraine, which basically shape the war.

The situation is similar in NATO, which is currently massively expanding its influence. For lack of an alternative — there is no real EU army — NATO’s European members depend on the transatlantic military alliance for their military buildup against Russia. And there, the United States sets the political tone.

But Germany’s own rearmament also bolsters the position of the United States. For example, a considerable portion of the €100 billion in special funds earmarked for outfitting the German Army with new weaponry is going to US arms manufacturers rather than European firms. Why? The simple reason is that American weapons do not have to first be developed at great expense, as is the case with the planned Franco-German fighter jet FCAS (Future Combat Air System). Like the high-tech F-35 fighter jet, American systems have often long since been tested and are produced in series. The German government is using the special fund to finance thirty-five F-35s at a cost of more than $8 billion, sixty Chinook helicopters for at least $6 billion, as well as P-8A Poseidon maritime reconnaissance aircraft and all kinds of other armaments “Made in USA.”

But weapons purchases are by no means the only area where this is the case. The United States is in the process of increasing its overall importance as Germany’s top economic partner. Nowhere have German companies invested as much as in the United States: up to 2020, the sum exceeded $450 billion. The United States is also Germany’s number-one destination for exports, totaling $167 billion in 2022. Since then, both investments and exports across the Atlantic have increased at an even faster rate.

One reason is that many German companies have seen massive declines in their Russian business due to sanctions. Those who could looked for replacements; the United States was an obvious choice, not least because there are no sanctions against doing business with Americans — unlike, for example, with China. In addition, the United States offers several multibillion-dollar investment programs, the best known of which is the Inflation Reduction Act (IRA), set to provide almost $370 billion for energy transition technologies over the next ten years. The economic upswing it has triggered in the United States may well lead to the occasional extra order for German exporters.

There are some caveats, however. As a rule, contracts financed directly from the IRA can only be awarded to companies that produce in the United States. What to do if you want to get in on the American energy transition boom but don’t have a factory there? That’s right: you build one.

One example making headlines is Swedish company Northvolt, which had planned to build a battery factory in the northern German town of Heide, but then began to consider putting the project on hold and investing in the United States as long as those coveted IRA funds were still available. The German government is currently doing everything it can to stop Northvolt and save the battery factory in Heide, though whether it will succeed is another matter.

Northvolt is just one example among many. IRA subsidies would be quite attractive for many German companies — especially those whose factories require natural gas. After all, gas is much cheaper in the United States than in Germany, especially now that Germany has to buy pricey American liquefied gas. For months, economists have been warning that Germany my face a wave of deindustrialization caused by high energy prices and US attempts to poach companies from Germany. Even if things do not turn out quite so badly in the end, not only the political, but also the economic pull is now clearly in the direction of the United States.

An Alliance Divided

Traditionally, German foreign policy has relied on the EU to prevent precisely such a development and build up a counterweight to the US instead. Whether Brussels will succeed in slowing down or even stopping US economic traction with its own hundred-billion-euro investment programs is an open question. In any case, the EU is doing its best, most recently with its Green Deal Industrial Plan announced by European Commission president Ursula von der Leyen, set to provide hundreds of billions to promote energy transition technologies.

But compared to the United States, the EU has repeatedly struggled with internal divisions between its member states. These can also be seen in its attempts to prevent industry from migrating to the United States. One of the instruments Brussels uses to this end is permission to lure companies with investments in hitherto inadmissible amounts. This has led to friction between EU member states, however, as it gives rich countries capable of making large investments like Germany and France an advantage over poorer EU countries with insufficient state finances. The plan threatens to further increase inequality within the EU to the benefit of Germany and the detriment of less prosperous states.

Furthermore, traditional internal tensions are holding back the EU right when Brussels would actually need all of its strength to assert itself against the United States. Practically hardwired into the EU’s foundation is the competition between Germany and France, the two strongest countries in the Union whose interests are often at odds with one another. The most recent example is Berlin’s refusal to recognize hydrogen produced with the help of nuclear energy as “green,” while Paris, which traditionally relies heavily on nuclear energy, insists.

But there are plenty of other disagreements. Most recently, the French government began to systematically reinforce its position by concluding special treaties modeled on the Treaty of Aachen that Berlin and Paris signed to bolster their relations in 2019. First, France concluded the Quirinal Treaty with Italy in November 2021, then the Barcelona Treaty with Spain in January 2023. Both are intended to tie the two treaty states more closely together, and could create a kind of Southern bloc in the EU as a counterweight to German dominance. Berlin returned the favor by siding with Spain in the dispute over nuclear-generated hydrogen to drive a wedge between Madrid and Paris.

Either way, these sorts of rivalries do not strengthen the EU’s diplomatic clout.

The war in Ukraine is also deepening existing fault lines within the EU, the most important example being Poland. Already closely aligned with the United States in foreign policy for years, it has been far ahead of other European states in its support for Ukraine from the start, calling for shipments of fighter jets at a time when others were still struggling with sending artillery, and is arming itself more massively than any other state in Europe.

Poland plans to increase its military budget to 4 percent of GDP this year — in the long term, the figure is expected to rise to 5 percent. Warsaw wants to have three hundred thousand soldiers in its army by 2035. By comparison, the German armed forces today number around 189,000 soldiers. Some are already speculating about Poland becoming the strongest military power in the EU and thus extending its influence considerably — to the benefit of its close ally, the United States, at the expense of German dominance.

Growing Competition from China

A similar trend can be observed in the Baltic states and indeed — since the recent presidential election — the Czech Republic. These four countries have not only taken a particularly tough line in the Ukraine war, but also stand out for repeated actions against China, completely in line with Washington’s increasingly aggressive stance toward Beijing.

A “Taiwan Liaison Office,” the name of which alone represents an affront to the One China principle, opened in Lithuania in November 2021. While almost universally recognized within the international community, the One China principle is increasingly called into question by the United States. Immediately after his election, the new Czech president Petr Pavel, a former chairman of the NATO Military Committee, spoke on the phone at length with Taiwan’s president, Tsai Ing-wen — this, too, can be interpreted as a deliberate violation of the One China principle and a deliberate provocation vis-à-vis Beijing.

These developments pose a real problem for Berlin. After all, China is of great and ever-growing importance for Germany. After decades of uninterrupted rise, the People’s Republic represents a rival not only for the United States, but also for Germany. Measured in purchasing power parity, China is already the world’s strongest economic power. It stands to replace the United States at the top of the world economy in absolute dollar terms by 2030 or 2035, according to the latest forecasts.

China’s breakthrough is not only quantitative but also of a qualitative nature, as seen in its development of a leading high-tech industry. The country now boasts defensive military capabilities on a scale that makes the US military doubt whether it could still win a war between the two powers, and it continues to expand its influence in Southeast Asia, Africa, and Latin America. Should current trends continue, the already ailing West will not be able to maintain its global dominance for much longer. That reality is driving the United States to further harden the fronts with the People’s Republic.

In principle, Berlin shares an interest in containing Beijing, for if the power of the West diminishes, so does Germany’s along with it. At the same time, the German economy is very closely intertwined with China. The People’s Republic is by far Germany’s most important supplier, selling the country goods worth more than $200 billion last year. By comparison, the United States ranks third, supplying Germany with goods worth around $96 billion.

China may not be of critical importance to all industries in Germany, but it is to several individual sectors that form the bedrock of the German economy as a whole. The German automotive industry, for example, would collapse without the Chinese market: Volkswagen, Mercedes, and BMW sell between 30 and 40 percent of their vehicles there, and are increasingly moving electric vehicle research and development to China, now regarded as the leading global market for such cars. German chemical companies regularly insist that in the medium term, half the world chemical market will be concentrated in China and that staying out of that country would amount to driving themselves out of business.

Nevertheless, to at least slow China’s rise, the United States is waging a full-blown economic war and imposing more and more sanctions on the country. These also threaten German business in China. The consequences can be seen in the current example of ASML, a Dutch manufacturer of machines for chip production that has found itself allowed to deliver less and less to the People’s Republic as a result of American pressure. The company has already lost billions in business, while 15 percent of its total sales are still in limbo.

The nightmare scenario for German industry would be a so-called “decoupling,” meaning a complete disconnection of China from the rest of the world similar to what the West is currently trying to impose on Russia. Being cut off from China in the same way as they are now cut off from Russia would threaten many German companies with financial ruin.