February 12, 2024 - 10:00am

The cat is out of the bag. After months of denial, it is now conventional wisdom that Germany — and Europe more generally — faces deindustrialisation due to the end of cheap Russian piped gas. “Germany’s Days as an Industrial Superpower Are Coming to an End,” reads a headline on Bloomberg.

In Germany everyone is pointing fingers. The nation’s climate agenda is “more dogmatic than any other country I know,” Siegfried Russwurm, head of Germany’s main industry association, told the Financial Times. This talking point has started circulating widely in America and has spread to Europe via Right-wing commentators on social media. But it is a distraction — the Americans are becoming increasingly savvy at using culture-war issues to cover up negligence towards their European allies.

Really, the US told Germany and the rest of Europe that they would be able to substitute cheap Russian gas for American liquefied natural gas (LNG). While LNG would start out selling at a 40% premium to Russian piped gas, the Europeans were assured that costs would come down as investment in the sector increased.

This was always a fantasy. But to add insult to injury, in late January President Joe Biden paused new LNG export projects to appease green activists within the Democratic Party. If the Germans thought that foreign policy and support for core allies is more important to American politicians than frivolous party politics, they are now learning a hard lesson about how Washington operates.

If he is elected, Donald Trump will doubtless reverse this order. But by the time he does, the projects will already have fallen a year behind. Regardless, there is no chance that even enormous amounts of investment can render LNG more competitive than piped gas. LNG must undergo an expensive process of being compressed into a liquefied state and then transported on ships, and will always be substantially more expensive than simply pumping gas through a pipeline.

From London to Berlin, Western governments do not have a serious economic growth plan. Media outlets have started to admit this grim reality because there is no longer any point in denying it. 

Privately, Americans shrug their shoulders and hint that this means they will no longer face competition from Europe. But watching the economy of your most dependable ally — not to mention a key trade partner — implode is not cynical Machiavellian statecraft: it is folly. American leaders talk about creating a new economic bloc which only includes “democratic” nations, only to dismiss the destruction of the European economy. It is obvious to everyone except the truest of the true believers: America has no strategy either.

The crisis in Germany is leading to a radical shakeup in electoral politics. The Right-wing Alternative für Deutschland has been extremely critical of the decision to stop buying cheap Russian gas and is currently second in the polls with around 20% of the vote. The newly launched Bündnis Sahra Wagenknecht, which is critical of the decision from a Left-wing perspective, is already polling at around 8%.

America’s negligence of its core ally will likely lead to electoral tremors across the continent in the coming years. There is every chance that Europe will drift away from American influence and start to build pragmatic relationships with other countries. The big question is where this leaves Britain, which has much closer ties with the United States than the rest of the continent. It is a question that British leaders will have to ask themselves seriously moving forward.

Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics