YouSaid · the spoken record

Matt Klein

lines on the record: 45
first: 2022-03-07
most recent: 2022-03-07
sittings or episodes: 1
sources: podcast

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“Crazy for thinking that this would not have happened because of those links. But at the same time, I think it is once you do something like what he did and you see the response, I think that it's not surprising that there's been this sort of very strong pushback and willingness to take these kind of losses.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“Relationships preventing any kind of thing in the past. I mean, that's what happened in 2014, right? Like they did something that everyone said was illegal and horrible and then nothing really happened. I mean, things happened, but it wasn't significant the way we're seeing now. I think, quite frankly, if it hadn't been for the fact that the Ukrainians fought back and are still fighting back, I think there's a decent chance that Europe probably would have rolled over because what would have been the point, right? From their perspective, the fact that it's now actually still a live question, I think is a lot of what's motivating this and people's willingness to bear that economic pain because it is real. And I think obviously if you're looking at the rest of the world globally not to point fingers at new countries, but you can imagine other countries that might be thinking potentially about invading some of their neighbors at some point in the future and wondering about how those economic linkages either protect them or not from Western responses. But I mean, you know, seeing this is, I think Putin was not.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“EU, Japan, something like $150 billion of exposure to Russian borrowers, that's probably going to mostly go to zero. I mean, the good news for them is that a lot of that exposure is through local subsidiaries. And so in practice, what that means is that it's Russian depositors and Russian bank bondholders and other Russian banks that are going to take a lot of that hit, although not all, but a bunch of it. The exporters are going to get hit pretty soon. I mean, Russia imported about 370 billion dollars worth of goods and services from the rest of the world in 2021. The majority of that is from countries that are sanctioning Russia. So that's going to be a hit. Again, we're talking about a very large economy. So, you know, in the aggregate, it's not going to be a huge hit, but it's going to feel going to be notable. And of course, it's going to have multiplier effects as those businesses, customers react to lost sales. So there is a hit to be taken. I mean, I think Russia was counting on this. These kinds of...”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“There's a lot of trade and financial links between Europe and Russia. And I mean, it makes sense. Russia is a large country. It's Europe's neighbor. That's sort of what you'd expect to happen. That is probably a lot of that's going to go to zero. There's going to be an economic hit. And I think one thing, one of the reasons I initially had been was not sure, I wouldn't say skeptical, I was not sure that Europe would be willing to kind of put in place the kind of sanctions that we've ended up seeing is because there is a corollary here, which said there's going to be a real hit to European businesses, both businesses that export to Russia and to banks that have relations with Russian businesses. And so we're talking in like the hundreds of billions of dollars in terms of potential losses here. I mean, that's definitely manageable for an economy that's the size of Europe. And, you know, again, to use lenders phrase, it's an investment in freedom. So it's a worthwhile to bear that cost. But it is significant. I mean, you have something like in total global banks, which is global banks in practice basically means US.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“And it'll get done eventually, but it's really striking how they sort of miss the focus on the sort of financial savings and not on the fact that there's some things that are worth doing that should have been done. At some point, you're going to do it anyway because you need to do it. But if you have a chance of doing it when things are cheap, that's the best time to do it. And they miss that window.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“Prices were low when there was a lot of labor slack, when real interest rates were negative. And they didn't take it. I mean, real interest rates are still negative. But other than that, I mean, they completely miss this opportunity. I mean, I remember, I mentioned this in one of my research notes. It's really striking that the last time Russia attacked Ukraine in a really big way, early 2014, basically eight years ago. And eight years is a long time to make an adjustment. it just didn't happen at all. And I remember writing at that time back when I was at Bloomberg actually writing a piece saying, look, like Russia is doing this, but like long term, they're not in a great strategic position because Europe always has the option to diversify away from Russian gas. And then Russia has no leverage. Ironically, they didn't do that. But I mean, it's not like no one was talking about this back then. They just missed their window. And now they're trying to do it. And, you know, as you said, now they're doing it at the worst possible time because they're being squeezed.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“And they talked about this all day, you fix the roof and the sun is shining. But so then you have the space to expand your debt to GDP ratio when things go bad. There's an obvious problem here, which is that you can't fix the roof if you're not spending money. What they literally did was not fix the roof when the sun was shining. And then now that it's raining and they've saved a lot of cash, it's getting wet. I mean, I don't ever draw this analogy too much. I mean, they basically had an opportunity to do all these things when natural resources”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“thrifty yeah i mean it's funny because the europeans have this phrase which is so annoying they talk about you fix the roof when the sun is shining and it's a good phrase if you think about it in the right perspective but the way they always used it was oh you know your economy is not actively contracting because we're not in the depths of a global financial crisis you should be doing budget austerity and paying down your debt is how that was interpreted in your so that's what it”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“Going to be kind of a fast thing, and of course, there's the fact that if Russia were to be doing this with China, it's at a period where unlike before, Russia is a pariah state. And as you said, they're not having access to all the Western oil and gas services companies that actually know how to do this stuff. Because all these things were built, I mean, like Nord Stream and stuff, that was a joint venture with European companies. That's where a lot of, I mean, they have technical know-how in Russia, but a lot of it was done with, you know, European help. And so I'm sure China has the capacity as well because they have their own domestic ass industry and Russia has the gas industry for a long time. But I mean, to the extent that they would want help from anyone and that Russia has become pariah state that would make it even comparatively more difficult for them.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, no, it would. I mean, but that sort of goes the other way, which is you need to build all the pipelines going the other direction. And so they could do that. They do have one pipeline. They call it the power of Siberia. And it runs into China. And they do export pipeline gas to China, but the volumes are pretty small. So again, if we're looking at like 2019, which I think is sort of the most reasonable comp, you had like 75% of Russian gas going to the EU in 2019 and was not. And so China is a pretty small. I mean, most of China gas. I mean, China actually has a lot of gas domestically and they get a lot of LNG. So they've definitely been trying to get more from Russia, but it will take a long time to put those pipelines together. I mean, basically, I don't know the exact time frame of how long it takes to build these things, but I would not be surprised if the time it takes for Russia to build pipelines to China to substitute to fully divert all the gas that used to go to Europe probably would, I would not be, it's probably comparable timescale, like building out the capacity for Europe to get LNG from the rest of the world. So I don't know.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“Europe and Asia with gas in theory. But it's very expensive to do that. I mean, all the transportation costs is why the differentials are so huge. So even if the US producers are responding the way you think they would to market signals, where like if the price of gas, whatever is, I don't know, like six times or more, whatever in Europe than it is in the US, and they are responding to that, but there are sort of hard physical limits. And you could, you know, until the liquefaction capacity builds up a lot until the import terminals on the other side build up a lot, you know, that price differential is going to exist. And that's why Russian gas always had appeal. Europe has pipelines to gas from North Africa as well. And that's, and from the North Sea and stuff. So they do get other pipeline gas, but a lot of it comes from Russia. And so, I mean, it's going to be more expensive regardless, right? But LNG is always going to be more expensive than Russian gas. But on the other hand, if Russia's cutting off the gas, or if you don't want to be dependent on Russian gas, then that's a price worth paying. I mean, as Linder would say, it's investment freedom. And so it's worth doing.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I mean, not to be sort of obvious, but one is the liquid and one is the gas. And like liquids, it's pretty easy. You can put them in barrels, you can put them on ships. And like gases, you know, it's much harder to do that. And that's why the invention of liquefaction, which is where you turn the gas, you cool it and condense it into a liquid, and then you can transport it on ships was such a revolutionary technology because it meant that you could move the gas all over the world. But until that happened and even still expensive to do that, pipelines was the way you did it. I mean, natural gas in the US prices of natural gas in the US have been so much lower than in Europe and Asia for a long time because we have a lot of gas in the US and we have pipeline infrastructure that can transport it, but it's very difficult to send it over to places that don't have the pipelines. Sending it across an ocean is very expensive. So there is a lot of liquefaction capacity in the US. There's a tremendous amount of liquefaction capacity that's currently been approved but has not yet been built. If it does, the US would be able to more than supply”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“Those all depend on gas coming from Russia. And then some of that gets rooted to Germany. But if it all went to Germany directly, then those countries would all get hosed. And so that was the big concern they had before any of this. So those countries are still just as dependent. We're now in a situation where at the moment you're actually having gas being rooted from those countries to Ukraine. A lot of the pipelines run through Ukraine. It had been the case that the Ukrainian government made a decent amount of earned a decent amount of hard currency. So basically getting a transit fee from gas sent from Russia through those pipelines. I'm guessing that's not happening right now. And so you're having gas being sent the other way so that Ukraine can keep the power on. But yeah, I mean, the situation with gas and Russian energy securities is significant problem for all of Europe, really. You have to go either as far west as places like France and Spain or north to like Sweden and Norway.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“Nord Stream 2, which was the planned pipeline. It's basically finished, but that would have dramatically increased Russia's ability to send gas directly to Germany under the Baltic Sea. The reason why that was so controversial before all of this was because it would have meant that Russia could have sent gas to Germany directly and bypass all the countries that are in Central and Eastern Europe that previously were able to get gas and be confident they could get a supply of gas because it's not as if there are a lot of pipelines that Germany could use if they wanted to supply Poland, Czech Republic, Slovakia, Austria, the Baltic states, Hungary, Romania.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“Question. I mean, because it's not like Germany is uniquely dependent on Russian gas. In fact, if anything, many other countries are even more dependent on gas from Russia. Basically, all the countries to Germany's east and sort of southeast because there isn't really a lot of other sources you can get. I mean, you can get gas from Qatar, you get gas from Norway, the North Sea. There's some LNG coming in from the US, although the US is sort of maxed out and we sell a lot to Asia. You could have rerouting of LNG. I mean, there's a world where Australian and American LNG is rerouted from Asia to Europe. But then, you know, that creates new problems for other people. So there isn't an immediate obvious substitute, and that does theoretically give the Russians a lot of library. As I said, for all we know, they've already been cutting off. We just don't have the hard data from the past week, week and a half. So that's a sort of interesting question there. But it does potentially create, I mean, one of the reasons why before any of this happened.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“Those are all great questions. I mean, it is an interesting question why would Russia keep pumping gas if they're getting money that they can't use? You can understand why they would keep doing it if they could use the money. And there's an argument for actually setting up sanctions in a way that they are forced to keep pumping the gas, but not really able to do a lot else with it, which arguably is what was set up. But it does create this tension. So, I mean, one theory I've heard, I have no idea if this is right, is that the Europeans actually do want Russia to cut off the gas, but they want Russia to be the ones take the blame. which I mean I have no idea if that's right. I mean, I certainly would be a reasonable way of interpreting how things are playing out. But then there's a question of how you deal with that. I mean, as I said, I mean, the good news is that winter is basically over. So you don't need it for heat the way you would have before. You could imagine a situation where you're rationing electricity for industrial consumers and then, you know, sort of hope that things get resolved one way or another before next winter. That is definitely a trick.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“Gas pipelines or supporting business interests of selling manufactured goods to Russia. So they've always been the most relatively hawkish and talking about a foreign policy of values. And in fact, the foreign minister is from the Green Party right now. So I think there's definitely going to be flexibility there. So if the choice that they face is turning on nuclear plants versus actively sending money to Russia in the middle of a situation where Russia is violently invading one of its neighbors, I would imagine they'd be more flexible on that front. I think that we're seeing that. I mean, and also as you mentioned, like in the short term, solar and wind are great, but they're intermittent. And so you need something that's stable and it's either going to be coal or gas. And, you know, of those three, I mean, nuclear is clearly going to be preferable.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, so yes, I mean, I think one thing that's interesting here is that, first of all, they've said that they think they are going to not turn them all off at the end of the year, and that is something that could not have been done without the consent of the Greens. The Greens have been known for being anti-nuclear for a very long time. However, they also, this is actually arguably even more important part of their identity, at least in recent years, have been very hawkish on Russia and very much against fossil fuel dependence. And in practice, what we've seen is that turning off nuclear has not meant that Germany has gotten greener. In fact, their emissions, carbon emissions record has been among the worst in any rich country precisely because they turned off the nuclear plants and substituted with coal. So I think that, you know, the Greens can read this just as well as anyone else. I think they know this. Again, the Greens have been consistently the most hawkish on Russia in part because, unlike basically every other party, they don't have any kind of weird Russia baggage in terms of either ideological links or the oil.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“is a lot different than you know what they had been thinking and that it needs a response which incidentally is consistent with the history of many other countries where you know national security risks lead to radical changes in you know domestic investment”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“You add that with the fact that Schultz committed to spending at least 2% of GDP on defense, which is Germany's obligation under NATO, but for many years they've been spending like 1% of GDP on defense. Because again, if you're feeling budget constrained, you're someone like Agola Merkel cutting defense budget is a very easy way, relatively speaking, to meet your targets. That would seeming like a problem. Of course, the problem is that the Bundeswehr is lost so much capability. You hear all these stories of how they couldn't do anything. And like there was some German, I think Army intelligence guy was stuck in Ukraine. He had to get a civilian transport out or something. I mean, they didn't really have a lot of capabilities. And now they realize they need to do something dramatic. They didn't have, I think, you know, you were mentioning this. They didn't have any LNG import terminals. Europe as a whole does have a lot of LNG import capacity. Germany has none. So they are working on fixing this stuff. And so I think it is encouraging that they realize that the situation that, as they understood it, you know,”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“And the head of the FDP basically laughed at him and said, This is an investment in our freedom. Why are you worrying about the debt levels here? We need this for our security. This is an enormous number, by the way. I mean, I don't, you know, how it gets spread out over time is a little ambiguous, but.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“Was positive. So there was already kind of a positive setup here, and people saying we need more investment. There was a recognition in Germany that need to change groups in Germany were saying there need to be more public investment. As I said, you have enough like major road and bridge closures. You have people mocking Germany's train systems for being terrible compared to places like Spain. That eventually does have an impact. I mean, it took 20 years, but people did pay attention. And so, you know, even leading up to this, there was already that momentum. And I was optimistic about that. Then we see this happens. The German response has been dramatic, absolutely dramatic. I mean, aside from the fact that OSPolitik has thrown out the window, which was, you know, the Social Democrats' creation, you have a situation where the FDP, which again, known for really strict budget discipline is saying we are going to spend another 100 billion euros on defense. And when they were criticized by the opposition Christian Democrats in the Bundestag, Christian Linder, who's the finance minister.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“Enterprise that does its own with its own budget as long as it doesn't take money from the state because it's losing money, it can issue as much debt as it wants to fund investments. And that's within Germany's rules. It's incidentally not within the European rules. That could potentially be a problem. But with Germany's rules, it's fine. And the FDP repeatedly said or implied they would be okay with that. And so you had a situation where the Greens very actively saying we need to invest more and we need to get rid of the debt break to invest more. The FDP says we don't need to get rid of the debt break, but we're willing to sort of look the other way. And then the SDP, which for SPD for the Social Democrats for a long time having been sort of on the same side as the Christian Democrats, they had come into their own over the previous few years. They'd been calling for more investment. And in fact, Schultz, who's the current chancellor, he was the finance minister in the previous government from 2018 through 2021. And while that was, he was in charge there, actually investment did go up. It was the first time that investment did appreciate.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“And being cut out of power, and that created an opening for the Social Democrats to come in without cooperating with Christian Democrats, they had come in with the Greens. It was originally sort of a question of would they ally with the Greens alone, would they ally with the Greens and maybe the left and some sort of reconciliation that didn't end up happening because they didn't win enough seats or what ended up happening was ally with the Free Democrats, which there was a lot of speculation there about this being negative because the Free Democrats had long positioned themselves as being the most austere and the most committed to low taxes and budget restraint and the debt break. But one thing that had been showed up in the campaign, and I'm pleased to say that I foreshadowed this last summer before the elections in September, was that they do see these things, but they also left themselves very open to the fact that you could get around these debt break rules with some financial chicanery. They didn't seem to mind. It was basically the way that Germany's debt rules work is that if you have a sort of segregated government.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“Merkel, who becomes Chancellor at this point in time, basically neuters the opposition for what felt like a generation because she's like, oh yeah, this was great. This is not the Social Democrats did was brilliant. And we want to continue their legacy and safeguard what all the good stuff they did for Germany, which basically means that the Social Democrats have a really hard time competing. And in fact, what ends up happening for many years is that they just keep allying as junior partners with the Christian Democrats. And so you have the two biggest parties at the center left and center right allied doing this. And so even though there is, and there always was, opposition within Germany, both politically and among sort of people who knew what they were talking about, it was never enough to really break through that deadlock. And it took a very long time for there to be movement there. The thing that changed was that in 2021, you finally had an election where, and this is partly due to the pandemic, partly due to sort of the good fortune of the fact that the Christian Democrats chose a singularly unpopular and incompetent chancellor candidate, but they ended up.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“Squeezing investment to make room for other spending within the constraint of Europe's budget rules. And then in 2005, what happens is that you have a very weird situation where the left-wing parties as a whole end up winning a majority of the seats in the Bundestag. But they, the reason that happens is because you have a split of the left where basically people on the left side of the Social Democrats ally with people who had been sort of like ex-communists in East Germany and were protesting these policy changes by the government at the time. So in theory, there was sort of like a majority left coalition, but in practice that would never have happened because there was an opposition to existing policies. And so then you have the first of many grand coalitions where the conservative Christian Democrats ally with the Social Democrats and then end up pursuing the exact same policies. And in fact, the way Merkel, Uncle.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“Actually, very optimistic about this. I mean, I was optimistic before this recent crisis for the reasons that you're laying out. These cultural, I mean, I'm not saying cultural doesn't matter, but I think it's very easy to sort of over attribute economic outcomes to cultural differences. There are a lot of examples of places where people are very confident the culture does one thing and then later they do the exact opposite and they say it's the same culture and it's like that can't be the case so I think there was a recognition even among I think the reason it was so challenging is because you had such political stability in Germany for so long stability and also stagnation so basically in the early 2000s partly because of these constraints that they didn't really have much of a choice you had the center left parties being the ones that actually really pushing austerity in early 2000s in terms of things like cutting unemployment benefits and basically”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“2018. So you basically had a long situation of the public capital stock shrinking in real terms. And unsurprisingly, that's going to create problems. I mean, I don't think they anticipated this specific problem, but that's going to create problems of all sorts of things. You had bridges collapsing and roads being shut, you know, in the 2010s because they were just unusable and they hadn't been maintained. This is obviously much more extreme, but it's a symptom of the same problem.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“That was very extreme, basically saying that you can't have a cyclically adjusted budget deficit for the government as a whole of more than like half percent of GDP. And the problem, of course, with this, among other things, is that it's very sensitive to how you define what the cycle is. And if you set it up, especially when they did after a very long period of growth being very, very slow and arguably significantly below where Germany should have been, then you sort of locked yourself in permanent stagnation. And that really limits your options. So even though the government did try to invest more, it didn't really get anywhere. I mean, one thing that's really striking, and this is, you mentioned this in the book I mentioned it more recently as well, is that if you look at investment spending in Germany after subtracting depreciation, which is an important thing to be considering, what's like the new investment, net depreciation and maintenance, it was negative for basically some like 2002 until”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“In some ways, like the United States, it's very much of a federal system, and a lot of spending is done by the German states or by local, even sub-local sub-state local governments. And those were also subject to sort of a national constraint. And so they really are being pressured because they can't, you know, their ability to borrow is very limited. So they're going to cut investment spending much harder. That sort of the setup going in really for the past 20 years. And the German government certainly did also cut welfare spending over this period as well to try to meet its budget commitments. They later then became convinced that this was such a good idea that they actually put in what's called the debt break or the Schultenbremsa.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“That number as it happens, if you go back in the history, it was basically something that some French relative young French bureaucrat made up in the 1980s and thought it was three was a nice round number. I think it reminded him of the Trinity or something. There's no economic significance to this, but it was a constraint. And so Germany and France, which are both having a rough period downturns in the early 2000s, slow recoveries, pushed get the limit of that, but it wasn't really, they didn't really exceed it very much and it didn't really help that much. They were still relatively constrained in their budgets. And the way these things generally work is that if you have a limit on how much you can spend on your budget, it's easier to cut the investment side than anything else because what the alternative is you're going to lay off a lot of school teachers and cut unemployment benefits to a lot of people. That compared to, well, we're going to delay fixing this road or building that bridge or whatever, it's much easier to cut the investment spending. This is particularly true in a place like Germany.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“Can find, I don't remember exactly what the date was. It's in the book where some journalist asked the ECB about the request they'd been getting from Schroeder and from his finance minister, Oscar LaFontaine. And the head of the ECB goes, well, I hear, but I do not listen. And, you know, okay, so they have another like severe downturn. And they sort of push for some modest exemptions to the budget cap. So basically the EU treaty that they'd signed in Maastricht in the Netherlands back in 1992 was that you can't have a budget deficit more than 3% of GDP.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“Which is kind of remarkable. Yeah, so that was the context there. So Schroeder comes into power with this coalition government. And one of the things they want to do is increase spending. They want to have lower interest rates. And especially after the downturn of the early 2000s, which hits Germany pretty hard, it's a global downturn, the tech bust that's not unique to the United States. And they can't. Ironically, we think now of the Germans being the major blocks on looser monetary policy in the ECB, the Germans being the major constraint on nobility for governments to borrow and spend in response to downturns because we have the recollection of how things were in say 2010, 2011, 2012. But if you go to like 2000, 2001, or even 1998, it was the opposite, actually. The Germans were pressuring the ECB for looser policy because relative to their domestic needs, ECB was way too tight. And the BCB just basically said no. There's a press conference.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“Of you know, despite the euphoria of reunification that was done under the German Conservative Party, the Christian Democrats, in the beginning of the 1990s and the late 1980s, that the Social Democrats and the Greens come into power for the first time as a coalition in 1998. And incidentally, the person who led that coalition, Gerhard Schroeder, then later went on to become a very prominent person in Gazprom and leading the Nord Stream 2 project. I think he's still beyond it.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“Of East German businesses could be transformed. You get this huge boom from privatization and better management. That didn't happen. You just had the government that ended up taking a huge loss. They finally wrote it down in 1995. And then they basically spent a long period of time afterwards. There's a really nasty recession. All these people in East Germany losing their jobs. You have the high interest rates in the early 90s. Then you have essentially the budget restraint cutbacks as the German government felt they'd just spent too much and they just signed a treaty with their European neighbors that they themselves have pushed for balanced budgets as part of preparation for the creation of the common currency. All that led to a huge squeeze. And you can look at things like construction activity, other measures of business investment. You have this massive decline in the 1990s and a very long period of stagnation. It was really painful. And in fact, was the reason why the German left had its best elections ever in 1998 after years.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“The context here is that when the Berlin Wall fell in 1989 and West Germany prepared, the Federal Republic of Germany prepared to absorb the states of East Germany into a new and large federal republic. There was a surge of spending both by the government and by businesses to make that transition happen. And you basically have the last great boom in the German economy for, I guess, point over 30 years. The Bundesbank, which is Germany's central bank at the time, responds by really aggressively raising interest rates because they're worried about inflation. Then you have pretty dramatic reversal by the federal government in terms of spending cuts after a couple years later, compounded by the fact that it turns out that a lot of the optimism that people had about ability to transform East Germany into a part of Germany that would be as productive as West Germany, that optimism was not validated for, well, ever and not for a very long time. There was a hope that a lot of...”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“Those data are no longer available, but I mean, the price signal suggests that maybe they've squeezed it even further. As Tracy saying, I think it was reasonable for Putin to conclude that this did give them the Russians a fair amount of leverage and that they were in fact trying to use that.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“by which route. And the last data we have is the weekend before they invaded Ukraine. But what you can see is that in 2021, basically starting around sort of the end of August of 2021, the gas flows started falling dramatically. And basically, if you look at the beginning of 2022, so it had been going down kind of steadily. And by the time you get to the beginning of 2022, so like from January 1st through February 22nd, I was right before the invasion. We're talking about 36% lower deliveries to EU customers compared to the January through August 2021 average. So it's a really dramatic drop. And basically there are a whole bunch of different pipelines. A bunch go through Ukraine. There's one that goes directly to Germany. And then there's one that goes through Belarus and Poland to Germany. And with the exception, the only one that really had maintained its flow was the one that goes straight to Germany. The other ones were getting really squeezed. I don't know what has been happening in the past week and a half.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“Were significantly higher by the time you get to 2019 than you were even in 2013, which is the exact opposite of what you'd think would have happened if European policymakers were concerned about reliance on Russia. And it now puts them in a situation where it's kind of challenging, which is you could theoretically cut your gas consumption by a significant amount, 20% or whatever, but is that actually something you can do on a dime, maybe? I mean, I guess the good news is that winter is mostly over, so they don't need it for heat. But, you know, that does create a lot of leverage. I mean, as you mentioned, Tracy, the pricing of natural gas is so high because the supply was already being constrained. I mean, I think one thing that hasn't been appreciated enough, I was surprised to see it myself, is that, you know, until they stopped making their website publicly accessible, Gazprom, which is the Russian company that produces and transports the gas, they publish daily data on how much gas they shipped to European Union customers.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“Argument was engagement is going to be better. We want to integrate Russia into the Western economy that's going to moderate their behavior. And if you look just at the 1980s, maybe that was a good argument because Russia, in fact, did, you know, the Soviet Union rather did, in fact, become more moderate over the course of the 1980s. And that did become a constructive relationship. Nevertheless, though, as time progressed, the question is why do they keep sticking with this? You mentioned that the first Russian invasion of Ukraine in 2014, the annexation of Crimea, might have led to a shift in behavior. It did not, a project that Russia and German businesses had been working on for quite some time called Nord Stream 2, another pipeline basically to increase Russian gas fills of Germany, had been in progress before that and continued to accelerate after this total German imports through the first Nord Stream pipeline, which goes under the Baltic Sea, went up. And so actually overall energy imports of gas.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“The connection between Russia and Germany on gas goes back quite a long time. Basically, you can really sort of argue that it goes back to the 1960s before even Russia had gas when the German government under Willy Brandt decided that they wanted, they called Alstolpolitik. And the idea that Germany would sort of be a bridge between the rest of the West and the Eastern Bloc and have sort of a friendly relations and just their own distinct history and culture. And they would be try to be more friendly to the USSR and the rest of Warsaw Pact countries. And so one of the ways that that manifests is once Russia started developing gas fields and wanted to export it, that Germany was pretty eager in building pipelines. And this goes back to the early 1980s. They start building the pipelines. In fact, this was something that the Reagan administration criticized the German government for at the time because they thought it would be increasing Europe's dependence on the Soviets and potentially become a security risk.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“and reliable locally sourced energy is shut off. And I think they basically, they're either about to, I think they had been currently scheduled, had been scheduled to turn off the last of the nuclear plants at the end of this year. I think now that's starting to change. But that was basically something that had been going on over the past 10 years, turning off nuclear power. Another thing that they've done, which I think we can relate sort of more to their macro policy mix, is that they didn't invest enough in coming up with replacements. So while there has been a real commitment since, I think about 2010 towards greening the energy mix, they call it the energy transition. They have invested a lot in wind and solar power, particularly wind power, hasn't been enough to offset the loss of nuclear. And so one of the things that actually had been bridging the difference was that they increased their coal consumption quite a bit, which is ironic given their desire to be more environmentally friendly. The other thing they did, of course, is that they imported even more Russian gas. So the story.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“Germany is quite dependent on Russia. So for the European Union as a whole, if we look at basically the period right before the pandemic, the pandemic kind of distorts things a little bit, about 19% of all energy came from Russian imports. So that's a lot of that includes natural gas, that includes coal, that includes oil. Natural gas is the most significant one for these purposes because it's not easy to substitute it. If Russia doesn't sell oil to Europe, someone else is going to buy that oil. Europe can therefore buy oil from whoever previously was not buying Russian oil. So it's more fungible. Gas, on the other hand, is mostly transported by fixed pipelines. And so therefore, you really, you know, you can substitute to a degree, but it's much more challenging to do that. Germany sort of compounded this problem on a couple of ways, some of which one is that they made the decision after the Fukushima nuclear disaster in Japan to start decommissioning all of their own nuclear power plants. And so a quite substantial source of clean.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“Business leaders and other elite actors in society ended up leading to systematic problems for the world as a whole. And that ended up leading to problems both for people in Europe and people outside of Europe. And even if that wasn't something we think of in the trade war context, as you were saying, like the Trump and China stuff was very obvious what this was. And it was nevertheless leading to tremendous amounts of tension within Europe. And you can see that throughout the Euro crisis in terms of the conflicts. And you have people like the Dutch finance minister blaming lazy Southern Europeans for things. And then you have Southern Europeans talking about fascists in the north. And that was all really, I think, a reflection of the fact that you had really bad economic outcomes driven by bad economic policy.”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source
“The basic argument of the book is that for a very long time, maybe 20, 25 years or so, the world economy as a whole has been suffering from the systematic shortage of consumer demand. And that's ended up creating a lot of tensions as businesses are trying to capture this finite demand and as consumers over in different parts of the world try to compensate for the lack of income that is a result of this. And so one of the major drivers of this shortfall of consumer demand was Germany and then later Germany extended to the rest of Europe as a whole macro policy in terms of both business investment being weak and in terms of government policy essentially overtaxing underspending and squeezing demand for goods and services and then that ended up redounding in all sorts of different ways in terms of higher debt levels and financial crises and stuff and the argument of the book being that policies in Germany not just government policies but really the policies of”
2022-03-07 · Odd Lots · Matt Klein on How Germany Wound up So Dependent on Russian Gas · IDENTIFIED FROM THE TRANSCRIPT · source