The before times that led to now
Hello from Sydney and New York. It's the week of spring bacchanal festivals of Purim, Holi, and St Patrick's day. We hope you got some feasting and good craic. This week’s Dispatch is about Germany, LNG “bargaining chips” and South Africa.
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- Kate, Tim
Germany’s fiscal taps are ON (probably)
Germany’s soon-to-be-governing SDP-CDU coalition reached agreement with the Greens over military spending exemptions to the debt brake rule (Schuldenbremse) on Friday. The package includes €100 billion for the climate along with the €500 billion for infrastructure.
Economist Philippa Sigl-Glöckner, founder of Dezernat Zukunft thinktank, was mostly positive about the agreement, but highlighted the debt restrictions remaining in Germany’s constitution:
`On the GER debt package as agreed upon today:
1) The package is good news w.r.t. to burning budget issues. The budget gap left over from the traffic light coalition is closed, investment needs for climate, infrastructure and defence are met.
2) there is hardly any money for the pre-negotiation agreement btw Conservatives and Social Democrats. No financing for tax cuts and all that.
3) The binding constraint going forward won‘t be the German rules, but the EUR ones.
And that is where the big question comes in: /2
When will we finally admit that 👇 fiscal framework incl exemptions, special funds, weird thresholds artificial additionality requirements is not helpful to anyone and just replace it “GER follows the Stability and Growth Pact“? Would be one line in the constitution. Job done.
The European Union’s new fiscal framework which Sigl-Glöckner is referring to, is higher (of course) and importantly, it allows more discretion than the German debt brake, even if that creates other challenges.
Something we’ve been asking ourselves the last week or so about increased defense spending in an era of climate change: does it bring energy security directly into security security? Or is it more zero sum thinking? The Greens won the 100bn as an additional pot of funding, but they also won concessions on the definition of defense “extending the additional defence spending to cover support for Ukraine, civil protection, information technology and intelligence agencies”. We think defense could and should be defined more broadly still — especially for Europe, which can’t separate energy security from other forms of security, and thus could be including energy transition more explicitly as part of defense.
LNG hopium?
A few weeks ago we pointed out that LNG is looking like one of the preferred bargaining chips of the US administration. Companies and governments are trying to placate Trump by buying more American LNG (or Molecules of Freedom TM). With global oil demand flatlining and OPEC+ abandoning production cuts, Trump has talked up opening up the regulations “holding back” drilling, fracking and exporting more US methane gas as one way that he’ll support the fossil fuel sector.
In mid-February, this theory of buying tariff reprieves through LNG purchases looked entirely reasonable. At that point, there were still expectations for a somewhat conventional economic and strategic coherence to emerge from the US administration’s actions.
After Trump’s election, Ursula von der Leyen spoke on the phone to him about buying more shipments. “We still get a lot of LNG from Russia, and why not replace it with American LNG?”
In the past fortnight two stories advancing this narrative, were published in the New York Times and Bloomberg.
However, since the Munich Security Conference, the Zelenskyy press conference, and ever more chaotic announcements, delays and revisions of tariffs confirmed the hostile stance towards the west.
As we wrote previously, the European Union has been keeping its options open with regard to importing Russian LNG, too – declining to apply a ban in its most recent round of sanctions. And European LNG traders have indicated they’re not interested in signing longer term contracts for LNG.
There’s also excited media talk of India committing to US LNG import contracts. There’s some logic: India currently plans to import more LNG and may be shifting towards more contracted purchases rather than spot purchases. But US LNG has higher transport costs than Europe and the Gulf countries, which are the origin for most Indian contracts. Plus, it’s unclear if long-term contracts are a good prospect right now, with forecast oversupply in the next few years likely to make it cheaper to just buy at the “spot” market price.
A more credible possibility is Japan, whose companies have created an empire of LNG trading and, together with the government financing support, have created demand in various developing countries. Japanese companies already have US LNG contracts and even equity investments in projects there; there’ve been official talks about the Alaska project since the US election. But at what price are they willing to further the commitment to US LNG?
Questions of price and demand can always be waved away by a determined government wanting to appease the world’s biggest military and economic power. But the capriciousness of the US administration creates a bigger risk to all of this LNG bargaining. The on-off-on declarations of tariffs, sanctions and exemptions erode incentives to pursue appeasement. If there’s no credible assurance that the threat will be withdrawn, why go to all the effort?
South Africa squeezed
The treatment of South Africa by the new US administration is quite horrifying. The USAID destruction going to kill countless people; and the “visas for Afrikaaners” are a repugnantly racist throwback — part of a singling out of the country.
That extends to pressuring South Africa over its strategic non-alignment, which is practised by many of its fellow middle income countries. South Africa has strong links to both China and the US, and it’s been understandably averse to stating a strong preference for one or another. But it’s being more aggressively squeezed by the US. Via the China Global South Podcast, the person thought to be Trump’s pick for ambassador to South Africa, Joel Pollak, suggested to the SA Jewish Report that there was no middle ground: “If you want to join China, join China. We will be against you, in that sense…“
‘Je Suis Khalil’
A Palestinian activist who’s a graduate student at Columbia University and a US green card holder was arrested last weekend, temporarily “disappeared” and may be deported despite being a permanent resident. If the rule of law can’t prevail in the Mahmouhd Khalil case, the FT’s Ed Luce writes:
It would put every US citizen — not just permanent residents — at risk. To take one example: Trump said that attacks on Tesla showrooms qualify as domestic terrorism. But you can fill in any number of blanks. Trump depicts his adversaries as the enemy within. Isn’t criticising America’s president anti-national?
My guess is that Khalil’s case will make it to the Supreme Court. There, one of three scenarios could happen: The court rejects Trump’s attempts to bring back the Hanoverian bill of attainder and Trump reluctantly complies. The court folds and essentially declares Trump to be king. The court upholds the law, which gives due process to citizens and permanent residents alike, but Trump ignores the ruling. Both 2 and 3 would end the rule of law in America, though 3 would be a more dramatic way of doing it. 1 would be great, though do not bet on it.
But do read Tooze’s latest Chartbook on the first 57 days of Trump. It’s very good and appropriately depressing.
“What unifies the more ideological side of the Trump coalition are not so much specific policy ideas, but the promise of a rupture of the status quo, a break into freedom.”
We maintain that this is also what animates the popular politics of Trump and all the far right: promising a break with the past, while the “centre left” is defending the status quo. As Chris Shaw said to Tim last year:
At present, in the vision being broadly promoted, it’s the same hard work, the same exploitation, but with a heat pump instead of a gas boiler. What do people fight and die for? They don’t fight and die for a fluorescent-lit strip mall.
That’s it for this week. Please forward, and subscribe if this was forwarded to you.