Chancellor Merkel’s Letter Perturbs EU’s Energy Debate

German Chancellor Angela Merkel has reacted negatively to the high-level meeting in Budapest, which improved the prospects for European Union funding of the Nabucco gas transport project (see EDM, January 29, 30). Merkel has taken a contrary position in a confidential letter to EU Commission President Jose Manuel Barroso and Prime Minister Mirek Topolanek of the Czech Republic, the current holder of the EU presidency. The letter’s content has found its way to the press (Financial Times Deutschland, January 29; Le Monde, February 3).

Merkel’s letter urges all 27 EU member countries strongly to support, politically and otherwise, three gas pipeline projects "of great importance": the Gazprom-led Nord Stream and South Stream as well as Nabucco. Furthermore, she takes exception to the EU Commission’s plan to spend €5 billion on energy projects throughout EU territory, with a focus on generating renewable energy and interconnecting gas pipelines for crisis response (solidarity mechanisms). Apparently reluctant to contribute German government funds to such projects, Merkel urges shifting this responsibility to private energy companies.

On a tactical level, Merkel’s first point is a rebuke to Topolanek, who told the Budapest that South Stream and Nord Stream were threats to Nabucco and aimed at reinforcing Europe’s dependence on Russia. Thus, the Chancellor implicitly rejects Nabucco’s main raison d’etre. Merkel’s second point opposes the EU Commission’s policy response to the recent suspension of Russian gas supplies to Europe. Her counterproposal, to leave solidarity projects at the discretion of private companies, may, however, translate into continuing inaction, judging by the experience of recent decades.

Strategically, Merkel’s demarche seems designed to elevate at least the Russo-German project, Nord Stream, to top-priority level in EU policy and elicit EU funding for this pipeline on the Baltic seabed. Thus far, only Nabucco enjoys top-level political attention and the prospect of funding by the EU. This development is of recent date, following long neglect. Russia’s invasion of Georgia and then its suspension of gas deliveries via Ukraine to Europe mobilized the EU into consolidating the South Caucasus transit corridor for non-Russian gas through the Nabucco project. Meanwhile, Russia is unable to finance its part of the Nord Stream and South Stream projects, leaving Germany with the dilemma of covering Russia’s investment in Nord Stream through credits or shelving the project altogether.

To amalgamate Nabucco with Nord Stream and South Stream in terms of EU support, as Merkel proposes, would downgrade Nabucco’s existing priority level, relegating it to a group of three while elevating those Gazprom-led projects at Nabucco’s expense. This could set in motion a zero-sum game for EU funding and political support. The Nabucco project could be compromised in that case. A follow-up commentary in the German press captures the situation in its headline: "Merkel Offends East Europeans" (Financial Times Deutschland, January 30). Those "East Europeans" are, of course, EU member countries from the Baltic to the Black Sea. But the Caspian energy-producing countries would also be left in the lurch in that case.

While Merkel’s intervention for Nord Stream is explicable in the German context, her support in the same breath for Gazprom’s South Stream (on the seabed of the Black Sea, bypassing Turkey) seems difficult to explain. It could either be a political favor to Gazprom (and its Italian partner in that project, ENI); an artifice to balance the partisanship for Nord Stream; or encouragement to bypass Turkey through South Stream, seeing that Ankara is trying to use energy transit as a trump card for EU accession, which worries Merkel’s party and other Germans.

Merkel’s letter reflects the declarative position of the German government and influential business circles in the wake of Russia’s suspension of gas supplies via Ukraine to Europe. The official German position is threefold: 1) Russia and Ukraine have both damaged their credibility as a supplier and transit country, respectively; 2) this situation necessitates accessing other supply sources and developing other transit routes; 3) Germany consequently supports Nord Stream, South Stream, and Nabucco at the same time and expects other EU countries to support Nord Stream in return for German support for Nabucco. "Ultimately the political class has taken refuge in that formula" (Frankfurter Allgemeine Zeitung, January 29).

In practice, however, the government’s policy differs from the declarative position. First, the government supports the efforts of German energy companies to increase gas imports from Russia as fast as possible through Nord Stream, which would push Germany’s gas dependency on Russia even higher, both short-term and long-term (Germany’s current, 40 percent dependency is already the highest in Western Europe). Second, the government’s heavy focus on bypassing the Ukrainian route implies that it holds Ukraine mainly responsible for the recent crisis, despite the evidence that Moscow initiated that crisis as a political-strategic operation. And third, German interests seek EU support specifically for Nord Stream (unsurprisingly), not for Nabucco (which would have been surprising) despite the public posture of supporting both, and South Stream besides.

At that level of dependency, some of Germany’s largest companies sometimes behave as captive customers for Russian gas. German government support for Nord Stream is bipartisan, although the Social-Democrats have led the way. Meanwhile, Merkel’s Christian-Democrat Union is limited in its leeway to promote the nuclear energy alternative to natural gas, being captive in a sense to the anti-nuclear Social-Democrats in the coalition government in an election year.