Economic Slowdown: Why is Germany fearing a crisis like 'Lehmann Brothers'?

Olaf Scholz German Chancellor on Economic Slowdown
Olaf Scholz German Chancellor on Economic Slowdown
Khushbu Kumari

The EU at its meeting on June 17 decided to make sanctions on Russia more strict. Germany's economic crisis has worsened after the supply of gas from the Nord Stream-1 pipeline was cut. The Market Purchasing Managers' Index, released there on June 23, revealed that there has been a sharp decline in factory production.

The energy crisis in Europe seems to be taking a very serious form due to Russia's retaliation. Russia has cut the supply of natural gas from the Nord Stream-1 pipeline by 40 percent. After his move, the German government warned of a crisis like 'Lehmann Brothers' in Europe's energy market. Lehman Brothers was an investment bank of America. With the bankruptcy of this bank in September 2008, the economic recession started in America, which spread all over the world.

On June 22, Russia announced to cut gas supply from Nord Stream-1. Earlier, European Union (EU) member country Lithuania had announced a ban on supplies going to Kaliningrad, a Russian settlement located in the Baltic Sea. According to Lithuania, it has taken this step under the new decision regarding sanctions against Russia. The Lithuanian government said it had stopped supplies of coal, metals, electronics, construction materials and other items. He said that the supply of food items and medicines has not been stopped. But Russia has claimed that even Lithuania is not allowing food and medicines to reach Kaliningrad.

Reduced gas supply from Nord Stream-1 pipeline

The EU at its meeting on June 17 decided to make sanctions on Russia more strict. Germany's economic crisis has worsened after the supply of gas from the Nord Stream-1 pipeline was cut. The Market Purchasing Managers' Index released there on June 23 showed that there has been a sharp decline in factory production. On the other hand, the price of natural gas in the Netherlands has reached the highest level since February. There has also been a huge increase in electricity duty in Germany's futures trading market.

Germany's Energy Minister Robert Habeck said on Thursday that if natural gas supplies do not return to normal, Germany will be in serious trouble next winter. He compared the potential situation to the crisis created by the bankruptcy of Lehman Brothers. Habeck has warned that the supply of gas will not be possible according to the demand. It will have a very bad effect on the factories of Germany.

The people of Germany will be killed in winter

According to a report by the website Asia Times, companies supplying gas and oil to Europe enter into long-term agreements with factories and domestic consumers. Accordingly, they have to supply energy at a predetermined rate for a fixed period. Market experts say that if energy companies have to buy expensive gas and supply them at a predetermined rate, then they will face bankruptcy. Robert Habeck has pointed to this apprehension.

The German newspaper Die Welt has predicted based on its calculations that the cost of heating German homes this winter will be 2,640 euros higher than in 2020. The newspaper said that most Germans do not have the capacity to pay such an expensive price. In Germany, 4.4% of households are kept in the disadvantaged category. While a third of the households have savings to pay for only a few weeks of consumption.

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