Germany is afraid of bankruptcy
01, National Bankruptcy
Last week, as the New Year of 2023 approached, German Deputy Speaker Kubicki warned in an interview that due to the ongoing impact of the energy crisis, Germany might become a bankrupt country. It should be said that his warning is not an exaggeration. This year, Germany, as the economic locomotive of Europe, has fallen into great trouble, primarily due to the energy crisis. The energy crisis has continuously driven up inflation and led to many German companies reducing production, suspending operations, or even relocating to other countries. Kubicki also pointed out that to cope with this crisis, an additional payment of 110 billion euros is inevitable, which has caused a huge financial burden for the government. However, it now appears that the significant drop in international energy prices has allowed Germany and other European countries to breathe a sigh of relief.
02, Decline in Energy Prices
In the first two trading days of 2023, Brent crude oil prices experienced a significant decline. After a 4% drop on the first trading day, they fell by another 4.87% on the second trading day, dropping from a high of $87 per barrel to a low of $77.7 per barrel.For Europe, what may hold greater significance is the sustained decline in natural gas prices over this period. Coincidentally, this point is a huge blow to the United States' strategic layout.
Over the past year, European natural gas prices have fluctuated dramatically.
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At the beginning of the year, before the Russia-Ukraine conflict, the natural gas price in Europe was 89 euros, and the recent price has returned to 85 euros, back to the level before the conflict.
After the conflict in Europe, the benchmark price of European natural gas soared. Even in August, the natural gas price in Europe rose sharply to about 350 euros.
At that time, international crude oil prices had already fallen significantly, and natural gas prices were only higher in Europe, with the lowest prices in the United States, even just 1/10 of Europe's.
This also created a huge profit margin for American traders, and for American financial capitalists, this was precisely the best way to transfer inflation to the Eurozone.
However, now the natural gas price has dropped by far more than 300% compared to its highest point this year.
Under these circumstances, the United States can no longer earn huge interest rate differentials, and it can be expected that inflation in Europe will quickly fall in the future.
Clearly, this is not the outcome the United States is happy to see.
03, Two Major FactorsNatural gas prices have plummeted suddenly, with the main factor being the extreme and sudden decrease in demand for industrial gas consumption in the European region.
Since the crisis, natural gas has become a key factor affecting the production costs of related enterprises. From an economic perspective, many companies have chosen to relocate to areas with a higher cost-performance ratio for natural gas, such as the United States.
Over the past year, the business environment for the German chemical industry has gradually deteriorated. As natural gas is the main source of energy consumption in the chemical industry and is very important in product manufacturing, many chemical products are inseparable from natural gas. This has led to some companies that cannot relocate their operations to start reducing production or even halting production.
Now that winter is approaching, the previously much-discussed issue of how Europe will get through the winter with natural gas has been answered by Europe's climate, which has brought the long-awaited answer: Europe is facing a warm winter. This means that the demand for natural gas by residents will not be as great as expected.
Under the influence of various factors, the current natural gas prices in Europe no longer pose a threat to the European economy.
However, for the United States, it appears to be a failure. When energy prices in Europe were very high, the United States introduced the CHIPS Act and the Inflation Reduction Act, hoping to attract more cutting-edge manufacturing to the United States with high bonuses. But it is clear that the expected results have not yet been achieved.
The United States has always used similar methods to reap benefits from other countries in the world, but it is now obvious that this time, the reaping may only end in failure.
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