High Gas and Oil Prices Draining Billions of Euros from Germany

“Together, this gives us a real income loss over those three years of almost EUR 110 billion, or 3.0 percent of annual economic output. The only time this figure was higher was during the second oil crisis of 1979–81, when the loss in economic output was 4 percent. We calculate that the first oil crisis of 1973–74 caused a loss of 1.5 percent,” Wollmershäuser says. Overall it wasn’t until 1986, when oil prices collapsed and the value of the Deutschmark climbed noticeably against the dollar, that the German economy made up for the losses in purchasing power experienced between 1979 and 1981. “We can expect the current drop in real income to persist over the next few years. First, losing Russia as a supplier means that energy prices will likely remain high for the long term. Second, Germany won’t free itself from its dependency on energy imports overnight,” Wollmershäuser says.

Determining real income losses to other countries is an important factor in any discussion on distribution. These losses represent that portion of Germany’s economic output that must be surrendered to other countries to pay for imports and thus cannot be distributed domestically. “This is why wage negotiations must take into account that the high prices paid for German goods and services aren’t the result of a boom that has caused company profits to swell. Rather, these high prices mainly reflect the high costs that must be paid for imported energy and intermediate products. So the income available for distribution among employees and business owners must be corrected to accommodate losses in real income,” Wollmershäuser says. “Government support measures cannot alter the level of real income losses. All they can really do is influence what portion of the losses is borne by what population groups. And if these measures are paid for by borrowing or by cutting investments, they can even prolong losses and pass them on to future generations.”