• European Markets

German economy dodges recession despite shrinking 0.3% in 2023

By Maria Martinez
January 15, 20248:34 AM PSTUpdated 7 days ago




BERLIN, Jan 15 (Reuters) - The German economy contracted in 2023, due to persistent inflation, high energy prices and weak foreign demand, but it avoided a recession at the end of the year.
Gross domestic product (GDP) shrank by 0.3% over the full-year 2023, the Federal Statistics Office said on Monday.
"Overall economic development faltered in Germany in 2023 in an environment that continues to be marked by multiple crises", said Ruth Brand, president of the statistics office, on Monday in Berlin.

https://cloudfront-us-east-2.images.arcpublishing.com/reuters/GCSTSFR2LVM6NLQLRRDHY5A7HM.jpgEuropean Union flags fly outside the European Commission headquarters in Brussels, Belgium, March 1, 2023.REUTERS/Johanna Geron/File Photo Acquire Licensing Rights, opens new tab

• Summary

• EU officials deem seizing Russian assets legally risky
• Moscow has vowed to retaliate by seizing Western assets
• EU officials worry any confiscation could hurt euro assets

BRUSSELS, Jan 23 (Reuters) - The European Union is unlikely to confiscate Russian central bank assets frozen in Europe, despite G7 plans to discuss the legality of such a move at a meeting in February, senior EU officials said.
The EU, United States, Japan and Canada froze some $300 billion of Russian central bank assetsin 2022 when Russia invaded Ukraine. Some $200 billion of that is held in Europe, mainly in the Belgian clearing house Euroclear.

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IMPACT ON EURO

European officials are concerned not only with the legality of such an unprecedented confiscation of sovereign assets, but also with the potential consequences for the euro currency; investors might pull out of euro assets out of concern their money might one day be seized too.
In addition, Moscow has pledged it would retaliate by confiscating Western assets in Russia, which some reports put at $288 billion.
Belgian Finance Minister Vincent van Peteghem, whose country holds the rotating presidency of the EU until July, is very reticent on the possibility of confiscating the Russian assets.
"We need to be very prudent with that proposition. I think that it's important that what can come on the table should be legally sound and we should avoid any impact on financial stability," he told reporters on Tuesday.
Belgium's Euroclear has "substantial" amounts of assets in Russia, officials said, which could be seized by Moscow in what could pose a financial stability risk to the clearing house, with major repercussions.
"The EU cannot bail out Euroclear," another senior official said. "Euroclear manages trillions and its bankruptcy would be far more than the budget of the EU. We have to balance risk and profit," the official said.

To prepare for the worst, European countries need to “spend, spend, spend,” according to Gesine Weber, a research fellow at the German Marshall Fund.

It’s not that European countries haven’t been under pressure to boost military spending. As far back as 2006, NATO defense ministers agreed on a target of spending 2 percent of GDP on defense.


And yet, despite Russia’s attacks in Ukraine and years of cajolingfrom Washington, as of last year, only 11 of the alliance’s 31 members met that goal— eight of them frontline states bordering Russia or Ukraine.

Pouring more cash into defense, however, is not an easy sell for politicians, especially in Western Europe where war still seems far away. Military spending means less for social welfare and the green transition. EU states are also already heavily indebted because of the Covid crisis, and growth prospects are grim.


“In Europe, we have a defense industrial capacity largely designed for peacetime,” Jonson, the Swedish defense minister, told a seminar in Stockholm earlier this month.

According to General Brieger, the EU Military Committee chairman, Europe “urgent[ly] needs” more strategic transportation, space-based capabilities for early warning and ground capabilities such as anti-tank, anti-air and anti-drones equipment.


Germany, which says it will reach the 2 percent spending target this year thanks to a special one-off €100 billion military fund, revamped its military strategy in November for the first time since 2011, aiming to make the Bundeswehr “war-ready.”

“Today, nobody can seriously doubt what we in Germany have been avoiding for a long time, namely that we need a powerful Bundeswehr,” said Chancellor Olaf Scholz.

“It’s important to give the right framing to convince public opinion,” Weber said. In Germany, she explained, the debate is presented as a trade-off between building a new school or buying tanks: “That’s not the right thing to say. Rather, it’s about safeguarding and securing our way of life.”

But the pipeline of new equipment is still relatively empty, especially as a lot is being sent to Ukraine and deliveries of new gear can take months or years. And there’s the bigger question about the timing of any potential Russian invasion, and whether Europe would be ready in time.

“It’s important to underline progress has been made, but if you compare what has been done so far with what probably needs to be done, we are still talking about peanuts,” said Missiroli, the former NATO assistant secretary-general.

• NATO has vastly underestimated Russia's capabilities, a top general said.
  
• Russia can make millions of shells a year and recruit hundreds of thousands of troops, he said.
  
• "They can produce even more — many times more — ammunition," Martin Herem told Bloomberg.

NATO has significantly underestimated Russia's capacity to replenish its armed forces with personnel and ammunition, a senior general said.

Martin Herem, the commander of the Estonian Defense Forces, told Bloomberg that new intelligence on Russia's capabilities had sparked a reassessment in the military alliance, as well as a flurry of warnings to prepare for a protracted conflict.

Contrary to earlier predictions, Russia can now produce several million artillery shells a year and recruit hundreds of thousands of soldiers, he said.

"A lot of people thought they couldn't go beyond that — today, the facts tell us otherwise," Herem told Bloomberg.

He added: "They can produce even more — many times more — ammunition."

In July, Adm. Tony Radakin, the formal head of the UK's armed forces, said that Russia could "at best" produce 1 million shells a year, per the Financial Times.

The UK Ministry of Defense estimated in December that Russia could need up to 10 years to replenish its army.

But that narrative has shifted over the past few months, with military commanders, analysts, and NATO officials warning of Russia's increasing capacities.

In September, an unnamed Western official warned of Russia's ability to make 2 million artillery shells a year, per Reuters.

And Christopher Cavoli, the commander of US European Command, said in April that despite significant losses in Ukraine, Russia's ground forces were bigger than when it invaded Ukraine