BERLIN
Russia's war on Ukraine, which has been raging since Feb. 24 last year, has not only been catastrophic for the warring sides, but disastrous for the entire world. Besides the loss of thousands of lives and displacement of millions, it has destabilized energy markets, fueled inflation and increased food insecurity. It has also profoundly changed Germany – Europe's largest economy.
Russia's "special military operation" is having a serious impact on the German economy, and private households are also feeling the squeeze in the form of high rents and energy bills.
While the federal government has initiated relief packages for households and companies, experts say the German economy is on the brink of recession as it contracted in the last quarter of 2022.
The impact was obvious as Germany, in the post-Cold War years, intertwined its economy with Russia's.
But, as unprecedented Western unity made Moscow turn off the gas taps to Europe, Germany moved to replace Russian energy imports, and found new sources, including coal, the "dirty fuel" to power it through the energy crisis.
The war also led Berlin end its pacifism, with huge increases in defense spending and arming Ukraine with advanced weapons such as the Leopard 2 battle tanks.
Ukraine war costs German economy 100 billion euros
According to Marcel Fratzscher, head of the German Institute for Economic Research (DIW), the war in Ukraine cost the German economy about €100 billion ($107 billion), or about 2.5% of its GDP.
Fratzscher pointed out that Germany has been hit particularly hard economically by the crisis because of its dependence on Russian energy, its high share of energy-intensive industry and its dependence on exports and global supply chains.
He said the war will continue to increase the strain on the German economy, warning that the government and businesses should take counter-measures now to reduce further losses in the future.
According to the German Chamber of Industry and Commerce (DIHK), the impact on the economy as a whole translates to a loss of wealth of around €2,000 for every individual in Germany.
The figure comes from the 1.8% loss in growth that was originally forecast for 2022: the growth that failed to materialize corresponds to around €160 billion.
The Cologne Institute for Economic Research (IW), meanwhile, forecasts the war in Ukraine will erase around €2,000 euros of individual wealth in Germany in 2023 as well.
More Ukrainian refugees to enter Germany
German society may also be confronted with a likely rising number of refugees over the coming months as the fighting in Ukraine intensifies.
According to migration expert Gerald Knaus, Germany and the entire EU must prepare for a flight movement that has not existed in Europe since the 1940s.
Around 17.5 million Ukrainians have left their country since the beginning of the war, with more than a million of them ending up in Germany.
Germany breaks culture of pacifism
German leaders reacted to the war in Ukraine with significant increases in defense spending, breaking the culture of pacifism that emerged after World War II and marking a new wave of militarization.
Berlin’s strong efforts over the last year to better equip the military have been described as a dramatic turning point in post-war German history.
After years of anemic defense spending, Chancellor Olaf Scholz proposed a €100 billion special defense fund to rebuild the country's armed forces, known as the Bundeswehr.
Scholz also announced that future German defense spending would be more than 2% to meet the NATO target. Berlin currently spends around €50 billion, or 1.5% of GDP, on defense annually.
Meanwhile, in an about-face, Germany, initially reluctant to provide weapons to Ukraine, is now among the top military aid contributors to Kyiv.
Russia’s misjudgment of Germany, and Germany’s turnaround, has played a significant role in a war many assumed would end in a swift Ukrainian defeat, according to an analysis by Council on Foreign Relations (CFR), a New York-based think tank.
The CFR said that although Chancellor Scholz's Zeitenwende, or "historic turning point," commitments he made during his Feb. 27, 2022 speech in Bundestag, the German parliament, drew criticism for hesitation and slow implementation, Germany has squarely refuted Russian President Vladimir Putin’s expectations.
In fact, it added, Moscow’s war has triggered the greatest transformation in German foreign and security policy since the end of Cold War.
