LettersUkraine war: Germany should focus on its economy, not an arms race
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The conflict in Ukraine has affected the German economy and increased the already strong inflationary pressure. The inflation rate in Germany stood at 7.9 per cent in May, its highest level in nearly 50 years.
Escalating energy costs brought on by the Ukraine war have caused a swell in consumer prices within the euro zone and dampened growth in the German economy. European Central Bank president Christine Lagarde warned that a lasting Ukraine conflict would increase the cost of living, destroying hopes of a post-Covid recovery.
An arms race has emerged in some parts of the world, triggered by the war. Germany has announced an additional US$110 billion in defence spending, to be used over several years, and in March the Italian parliament backed a vote to increase the country’s defence spending to 2 per cent of its GDP.
German Chancellor Olaf Scholz should move away from an arms race, strengthen the German economy and control inflation. The proposal to impose a tariff on Russian oil imports, alongside a phased oil embargo, is an economically less costly way to starve Moscow of oil revenue while securing European oil supply. This will reduce the impact of a supply chain disruption that would trigger higher inflation.
Second, Scholz ought to tread a fine line diplomatically in dealing with the US and Russia. He should balance two opposing demands: US-led Nato expansion and Russian resistance. Nato’s expansion into Eastern Europe angered Russian President Vladimir Putin and triggered the military operation in Ukraine.