Germany as a "problem bear" in the European energy market

Europe has a massive problem: In addition to the European gas prices, the electricity market has now also decoupled from any normality. The futures contracts for base load electricity in 2023 have recently increased almost tenfold. The exorbitant price increase not only for gas, but now also for electricity, is acutely endangering European economic development. “The current chaos on the energy market is of course primarily a consequence of the Russian war of aggression against Ukraine. What is far less well known: Germany plays an inglorious role in the explosion in European energy prices," says Dr. Heinz-Werner Rapp, founder and director of the FERI Cognitive Finance Institute.

The legacy of failed German energy policy

Germany in particular is currently suffering from the severe shortage of gas supplies. This is a direct result of the German energy policy that has failed completely for many years. Both the abrupt phase-out of nuclear power in 2011 and the end of coal-fired power generation were decided without seriously considering the growing German energy demand. As a result, Germany has become more dependent on Russian natural gas than almost any other European country. The early criticism of the Nord Stream 2 gas pipeline from other EU countries clearly shows that Germany has become entangled in an untenable position. “Putin's war against Ukraine has now abruptly burst the German energy illusion. The violent shock waves on the European energy market are therefore strongly driven by Germany,” says Rapp.

Germany causes dangerous "second-round effects"

One of the special features of the European energy market is that the price of electricity is also dependent on the price of natural gas, which has meanwhile risen massively. This is a consequence of the so-called merit order system, in which the most expensive type of energy production - currently gas - also determines the level of electricity prices. “Germany is currently trying to procure natural gas on the open market, regardless of the price. The price of natural gas is therefore continuing to rise, but it is also driving up European electricity prices massively,” explains Rapp. Futures market prices for electricity in 2023 recently showed an increase of around 1,000 percent. Applied to oil, this would correspond to a price jump to $1,000 per barrel in 2023. “The price explosion in the European gas and electricity market is a major threat to Europe's economic development. Unfortunately, the chaos is being strongly driven by Germany, as a result of years of very naïve energy policy,” explains Rapp. Germany must therefore do everything possible to quickly make the European energy market more flexible. Economics Minister Habeck has now recognized the problem and is planning to decouple electricity prices from the gas market. According to the assessment of the FERI Cognitive Finance Institute, if there is no such flexibility, Europe would not only face a cold winter, but also a sharp recession with numerous company bankruptcies.