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JPMorgan Chase’s 2023 annual Business Leaders Outlook survey released Thursday found 65% of midsize firms and 61% of small businesses anticipate a 2023 recession, and a majority of leaders of smaller firms said they expect higher prices to stick around.
More than 90% of midsize company leaders said their businesses were experiencing challenges due to inflation, and 45% of small business owners cited rising prices as their top concern, a 20% increase from last year’s survey.
“Inflation has been a challenging headwind impacting businesses of all sizes, across all industries,” said Ginger Chambless, head of research for JPMorgan Chase Commercial Banking. “While we have seen some encouraging signs that inflation has started to moderate and should cool over 2023, businesses may still want to consider adjustments to strategies, pricing or product mixes to help weather the storm in the near term.”
Some 83% of midsize firms told JPMorgan they have passed at least some of their increased costs on to consumers, and 82% said they would continue to do so. Out of the small companies surveyed, 68% said they had raised prices on some or all of their products or services, and 94% said inflation has impacted their expenses.
The data indicated small businesses are more optimistic than their midsize counterparts in their outlook on the national and global economies.The percentage of midsize company leaders who expressed optimism for the global economy plummeted to 8% from 34% a year ago, and their optimism for the U.S. economy dropped to 22% from 50%.
“In today’s interconnected world, midsize businesses are increasingly vulnerable to global economic challenges, including ongoing supply chain issues, increased costs of raw materials, geopolitical events and other uncontrollable factors,” Chambless told FOX Business. “These challenges and their associated impacts are all contributors to a more pessimistic global economic outlook.”
Among small business owners, on the other hand, 49% expressed optimism for the national economy and 45% for the global economy, which were both in line with last year’s numbers.
BWX Technologies stock (NYSE: BWXT XT ), a supplier of nuclear components and fuel, has seen a 9% rise this year, significantly outperforming the broader S&P500 index, down 23%. However, in the longer term, BWXT stock, with -13% returns from levels seen in late 2017, has underperformed the S&P 500 index, up around 37%. Despite the rise this year, BWXT stock has more room for growth, as discussed below.
This 13% fall for BWXT stock since late 2017 can primarily be attributed to 1. a 38% decline in the company’s P/S ratio to 2.2x trailing revenues currently, compared to 3.6x in 2017, partly offset by 2. BWX Technologies’ revenue rising 29% to $2.2 billion over the last twelve months, compared to $1.7 billion in 2017, and 2. an 8% fall in its total shares outstanding to 91.4 million. The increase in revenue and a fall in shares outstanding has meant that BWX Technologies’ revenue per share rose 40% to $23.80 over the last twelve months, vs. $16.99 in 2017.
Of late, defense stocks, including BWXT, have benefited from rising geopolitical tensions, considering the ongoing war between Russia and Ukraine. The ongoing war has also caused crude oil prices to surge to over $90 per barrel, compared to a $68 average in 2021, broadly helping nuclear energy stocks.
BWX reports its revenue under three segments – Nuclear Operations Group, Nuclear Power Group, and Nuclear Services Group. Note that BWX derives around 75% of its revenue from the U.S. government contracts, including designing and manufacturing nuclear components for the U.S. Navy and the Department of Energy.
BWX divested its U.S.-based commercial nuclear services business, weighing on its Nuclear Services Group segment revenues in 2021. However, higher volumes of in-plant inspection, maintenance, and modification services aided the revenues of the Nuclear Power Group.
Not only BWX Technologies’ revenue growth has been robust, but its operating margin has also been stable, even during the pandemic. The operating margins rose from 19.0% in 2017 to 20.9% in 2019 before falling to 19.5% over the last twelve months. Our BWX Technologies Operating Income dashboard has more details.
From a valuation point of view, BWXT stock looks like it has more room for growth. The company is expected to post revenue of $2.3 billion in 2022 (per the consensus estimates). Assuming the current share count of 91.4 million (reported for Q2 2022), we arrive at the expected revenue per share of $24.73 for the full year.
At its current levels, BWXT stock is trading at 2.1x forward expected revenues, compared to the last three-year average of 2.7x. Given the Russia-Ukraine conflict and an anticipated rise in defense spending, an upward revision in trading multiple for BWXT makes sense. Moreover, BWXT is trading at a lower multiple when compared to its historical average, implying that the stock is likely to see higher levels going forward.
While BWXT stock looks like it can gain more, it is helpful to see how BWX Technologies’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis has created many pricing discontinuities, which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for TeleTech vs. Amerco.
Investors with an interest in Electronics – Miscellaneous Components stocks have likely encountered both Kyocera (KYOCY) and BWX Technologies (BWXT). But which of these two companies is the best option for those looking for undervalued stocks? Let’s take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Kyocera has a Zacks Rank of #1 (Strong Buy), while BWX Technologies has a Zacks Rank of #3 (Hold) right now. Investors should feel comfortable knowing that KYOCY likely has seen a stronger improvement to its earnings outlook than BWXT has recently. But this is just one factor that value investors are interested in.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their current share price levels. The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
KYOCY currently has a forward P/E ratio of 14.66, while BWXT has a forward P/E of 16.14. We also note that KYOCY has a PEG ratio of 1.67. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company’s expected earnings growth rate. BWXT currently has a PEG ratio of 2.47.
Another notable valuation metric for KYOCY is its P/B ratio of 0.75. The P/B is a method of comparing a stock’s market value to its book value, which is defined as total assets minus total liabilities. By comparison, BWXT has a P/B of 6.71.
Based on these metrics and many more, KYOCY holds a Value grade of B, while BWXT has a Value grade of C. KYOCY has seen stronger estimate revision activity and sports more attractive valuation metrics than BWXT, so it seems like value investors will conclude that KYOCY is the superior option right now.
In providing the fuel and rails for the modern economy, the potential for payments to impact on sustainability cannot be underestimated. As rapid, global digitization continues to transform all aspects of our lives, payments are pivotal: almost every digital activity relies on a payment system.
As a result, there is a responsibility incumbent on payment providers in funding and increasing awareness to sustainability.
Amongst both businesses and consumers, there is also a greater awareness of the role of sustainable finance, which is playing an increasingly critical part in influencing investment decisions. ESG (Environmental, Social and Governance) initiatives undertaken by payments can play a huge role in influencing these decisions.
Why is a sustainable payments industry important?
Firstly, necessity. The pandemic has significantly changed the structure of the economy, causing a decline of physical cash and digitizing businesses – all contributing to the reduction of reliance on carbon emitting processes.
The second reason is consumers. Regardless of industry, consumers are increasingly choosing businesses that share their environmental goals.
Consumers are also influencing investor pressure. Businesses are now looking to invest in environmentally friendly ways: two out of three French and German retail investors say they will invest in sustainable ways even if there is cost involved2. This is also visible in the green bond market, in 2022 green bond issuance has increased 49% year-on-year, with the market set to hit $1 trillion globally in 20213.
The third reason is regulatory. Increase in regulations, especially within Europe, is driving transparency in this space, with change being brought about thanks to the Paris agreement, COP 26 and other targeted regulations.
Challenges in the sustainable payments industry
Different standards, definitions and regulations can cause confusion and allow ‘greenwashing’. Incoming regulations will force industry standards and transparency, but rising focus on greenwashing is driving financial institutions to take a more cautious to ESG-linked products and solutions.
World events can have a ‘butterfly effect’, increasing cost of living. This can result in challenges such as an impact on consumer demand, and the likelihood of consumers choosing green options when faced with financial insecurity.
If not managed carefully, sustainable financing could cause unforeseen negative effects on society, such as job losses as a result of cutting finance to fossil fuel industries. Other unintended consequences for green initiatives should also be considered, for example by-products of electric cars including toxic and non-recyclable batteries.
How is J.P. Morgan making payments environmentally sustainable?
The payments scope is wide – stretching across every conceivable industry. As a common denominator between these industries, we have undertaken a program of workshops and client meetings to recognize and support ESG needs, which vary considerably between industries. Environmental efforts are concentrated for technology, media and telecoms as well as consumer and retail, diversified industries and natural resources. However, healthcare, utilities and public sector, alongside FinancialInstitutions, are targeting their focus on social and governance concerns.
Our approach to ESG management includes having robust governance systems, risk management and controls at a firmwide level. Equally important for us in J.P. Morgan is the social aspect – investing in our employees and cultivating a diverse and inclusive work environment, and working to strengthen the communities in which we live and work. At J.P. Morgan, we are advancing sustainable solutions for our clients and within our operations in several ways:
Minimizing the environmental impacts of our physical operations
Working with organizations to advance sustainable development
Financing positive ‘green’ solutions. We are aiming to finance and facilitate more than $2.5 trillion over 10 years to advance climate action and sustainable development, including $1 trillion for green initiatives.
Last year, J.P. Morgan released the 2030 emission reduction targets for the Oil & Gas, Electric Power, and Auto Manufacturing financing portfolios4. In addition, we have expanded our financing restrictions on activities such as oil and gas development in the Arctic.
Specific to payments, we are developing financial solutions that drive action on climate change and generate other positive environmental impacts. In sustainable Supply Chain Finance in particular, our compelling alliance with Taulia and Ecovadis provides a sustainable SCF program that assesses sustainability of suppliers and offers tired pricing based on rating.
Based on our conversations with multi-national corporates in Europe, it is clear that sustainability sits at the heart of their corporate strategy for the future.
Every company has become a climate company in its own right, as we all work towards a common goal of limiting the impact of climate change. At J.P. Morgan, we would like to reiterate our commitment to supporting our clients, communities and colleagues by working towards a new frontier of sustainable payments where we not only invest in our platforms but in our planet.
On Sunday 1 February 1970, senior politicians and gas executives from Germany and the Soviet Union gathered at the upmarket Hotel Kaiserhof in Essen. They were there to celebrate the signing of a contract for the first major Russia-Germany gas pipeline, which was to run from Siberia to the West German border at Marktredwitz in Bavaria. The contract was the result of nine months of intense bargaining over the price of the gas, the cost of 1.2m tonnes of German pipes to be sold to Russia, and the credit terms offered to Moscow by a consortium of 17 German banks.
Aware of the risk of Russia defaulting, the German banks’ chief financial negotiator, Friedrich Wilhelm Christians, took the precaution of asking for a loan from the federal government, explaining: “I don’t do any somersaults without a net, especially not on a trapeze.”
The relationship would benefit both sides: Germany would supply the machines and high-quality industrial goods; Russia would provide the raw material to fuel German industry. High-pressure pipelines and their supporting infrastructure hold the potential to bind countries together, since they require trust, cooperation and mutual dependence. But this was not just a commercial deal, as the presence at the hotel of the German economic minister Karl Schiller showed.
For the advocates of Ostpolitik – the new “eastern policy” of rapprochement towards the Soviet Union and its allies including East Germany, launched the previous year under chancellor Willy Brandt – this was a moment of supreme political consequence. Schiller, an economist by training, was to describe it as part of an effort at “political and human normalisation with our Eastern neighbours”.
The sentiment was laudable, but for some observers it was a potentially dangerous move. Before the signing, Nato had discreetly written to the German economics ministry to inquire about the security implications. Norbert Plesser, head of the gas department at the ministry, had assured Nato that there was no cause for alarm: Germany would never rely on Russia for even 10% of its gas supplies.
Half a century later, in 2020, Russia would supply more than half of Germany’s natural gas and about a third of all the oil that Germans burned to heat homes, power factories and fuel vehicles. Roughly half of Germany’s coal imports, which are essential to its steel manufacturing, came from Russia.
An arrangement that began as a peacetime opening to a former foe has turned into an instrument of aggression. Germany is now funding Russia’s war. In the first two months after the start of Russia’s assault on Ukraine, Germany is estimated to have paid nearly €8.3bn for Russian energy – money used by Moscow to prop up the rouble and buy the artillery shells firing at Ukrainian positions in Donetsk.
In that time, EU countries are estimated to have paid a total of €39bn for Russian energy, more than double the sum they have given to help Ukraine defend itself. The irony is painful. “For thirty years, Germans lectured Ukrainians about fascism,” the historian Timothy Snyder wrote recently. “When fascism actually arrived, Germans funded it, and Ukrainians died fighting it.”
When Putin invaded Ukraine in February, Germany faced a particular problem. Its rejection of nuclear power and its transition away from coal meant that Germany had very few alternatives to Russian gas. Berlin has been forced to accept that it was a cataclysmic error to have made itself so dependent on Russian energy – whatever the motives behind it. The foreign minister, Annalena Baerbock, says Germany failed to listen to the warnings from countries that had once suffered under Russia’s occupation, such as Poland and the Baltic states. For Norbert Röttgen, a former environment minister and member of Angela Merkel’s Christian Democrat Union (CDU), the German government bowed to industry forces pressing for cheap gas “all too easily”, while “completely ignoring the geopolitical risks”.
In February this year, German Green economic affairs and climate action minister Robert Habeck said that gas storage facilities owned by Gazprom in Germany had been “systematically emptied” over the winter, to drive up prices and exert political pressure. It was a staggering admission of Russia’s power to disrupt energy supplies.“I was wrong,” the former German finance minister, Wolfgang Schäuble, says, simply. “We were all wrong.”
In recent weeks even Frank-Walter Steinmeier, the German president, a totemic figure of the Social Democrats and greatest German advocate of the trade “bridge” between east and west, has recanted. He admits he misread Russia’s intentions as he pursued the construction of a new undersea gas pipeline. “My adherence to Nord Stream 2 was clearly a mistake,” he told German media in April. “We held on to bridges that Russia no longer believed in, and that our partners warned us about.”
This is an extraordinary admission for a man who acted as chief of staff to Gerhard Schröder, the Social Democratic chancellor from 1998 to 2005 and thereafter a lavishly rewarded, and much reviled, lobbyist for Vladimir Putin. Steinmeier was also foreign minister under Chancellor Merkel, and a great evangelist for Wandel durch Handel, the concept that trade and dialogue can bring about social and political change.
How did Germany end up making such a blunder? Some argue that Merkel should have seen that Putin was taking Russia in an authoritarian direction when he announced his return to the presidency in 2011. After Russia’s invasion of Ukraine in 2014, Germany made no move to stop importing Russian gas, and although Merkel threatened to introduce crippling trade sanctions, German industry convinced her to hold back. But some blame a more persistent misjudgment stretching back 50 years, based on a fallacy that authoritarian countries can be transformed through trade.
The Social Democrats have now set up a review into whether the policy of Ostpolitik – first laid out in a landmark speech in July 1963 by Egon Bahr, then the closest adviser to West Berlin’s mayor and chancellor-to-be, Willy Brandt – became deformed over time, especially after securing its great achievement, the fall of the Berlin Wall.
What is extraordinary, retracing the history through memoirs and contemporary records, is how frequently and determinedly Germany was warned, by everyone from Henry Kissinger onwards, that it was making a pact it might live to regret. Kissinger wrote to Richard Nixon on 9 April 1970: “Few people, either inside Germany or abroad, see Brandt as selling out to the East; what worries people is whether he can control what he has started.” Over 50 years, Germany fought numerous battles with a series of US presidents over its growing dependence on Russian energy. In the process, Germany’s foreign office developed a view of American anti-communism as naive, and a belief that only Germany truly understood the Soviet Union.
From the late 1960s, the Federal Republic of Germany tried to open its own direct line of communication with the Soviet leadership, even though its interest in reunification created tensions with the US. When it faced criticism from the US, Germany was wont to cite its unique status. “I cannot imagine there is anyone more interested in being allowed to continue working for detente and balance in Europe than the German people who are forced to live in two states,” Hans-Dietrich Genscher, then the foreign minister, told the German Bundestag in January 1980, to great applause.
But after the fall of the Berlin Wall in 1989, why was Germany still so reluctant to listen to others? A sense of guilt for the atrocities committed against the Soviet Union during the second world war may have played a role. Pride, too, that – through Ostpolitik – it had mended its relations with Moscow. Germany, in a sense, became a double prisoner of its past – bound both to the horrors it had committed, and to its belief that its response to those horrors was correct.
The conflicts between Germany and the US in the 70s and 80s, involving two very different presidents, Jimmy Carter and Ronald Reagan, were some of the most rancorous transatlantic battles since the second world war. “The disputes were all part of West Germany showing independence in foreign policy during the cold war, and that became uncomfortable for some American leaders,” the historian Mary Elise Sarotte said to me.
Carter and the German chancellor Helmut Schmidt had little respect for each other. Carter found Schmidt moody, while the chancellor, in his autobiography, dismissed Carter as an idealistic preacher, who knew nothing of Europe and was “just not big enough for the game”. The two leaders did not just grate personally, they disagreed on issues of substance – including how to protect human rights in Russia. In 1979 Schmidt and Carter came together to jointly adopt the so-called dual track decision, by which Nato would upgrade its nuclear weapons based in Europe, while actively seeking an arms control agreement with Russia. But in other ways their approach was very different.
Schmidt never lacked self-confidence, but like many Germans of that era he carried a deep sense of shame arising from painful war memories. He also believed that the stability of the eastern bloc was in the interest of West Germany, given Russia’s nuclear capability. In his autobiography he wrote that he had wanted to develop trading relations with Russia, in order to foster “a greater Soviet dependence upon European supplies”, in turn leading to “more European influence” on Moscow’s policies. And following the 1973 oil crisis, Schmidt became convinced that the Soviet Union represented a more reliable supplier of energy for Germany than the Gulf states.
Carter, by contrast, saw withholding trade as the better way to influence the Soviets. In July 1978, responding to Moscow’s imprisonment of two Soviet dissidents, Aleksandr Ginzburg and Anatoly Shcharansky, Carter restricted US exports of technology for the exploration and development of the Soviet oil and natural-gas industries.
Yet, collectively, European business went in the opposite direction. Even after the Soviet invasion of Afghanistan in 1979, a large German business delegation went ahead with a visit to Moscow. The Soviets (Soyuzgazexport) and western Europeans (chiefly Ruhrgas and Gaz de France) completed negotiations on a new giant gas project, a 4,500km dedicated pipeline from the giant Urengoy field in West Siberia in late 1980. This deal was projected to increase Germany’s dependence on Russian gas from 15% to 30%. When German ministers reviewed the security implications, they concluded there was no danger of Russia misusing its potential stranglehold. Their reasoning was simple. “Long-term disruption would be against the self-interest of the Soviet Union,” the ministry decided.
In a phone call with Carter on 5 March, Schmidt explained his support for the pipeline by telling the US president, “Those engaging in trade with each other do not shoot at one another.” It was a restatement of Norman Angell’s famous pre-first world war theory that the new interdependence of economies made war unprofitable and thus irrational. According to a note in his diary, Carter responded: “It is not beneficial for the Europeans to expect us to provide the stick and for them to compete with one another about providing the biggest carrot.”
In 1980, Schmidt wrote: “To speak of the Federal Republic’s economic dependence on Moscow to a degree large enough to affect foreign policy indicates ignorance or malice.” Given Germany’s plight now, those words look hopelessly misjudged.
Schmidt faced a more challenging opponent in Carter’s successor, the traditional anti-communist Ronald Reagan. In Reagan’s eyes, German trade with Russia was in direct conflict with western security. Reagan’s view was informed by a CIA assessment submitted in July 1981, which noted a clear trend: from 1970 to 1980, Soviet gas exports to western Europe had risen from 1 billion cubic metres (bcm) a year to 26.5bcm annually.
The CIA warned Reagan that the Urengoy gas project would not only accelerate Soviet economic growth, but provide the Soviets with $8bn in hard currency, facilitating a further military buildup. Far from giving Germany sway over Soviet thinking, “it would provide the Soviets one additional pressure point they could use as part of a broader diplomatic offensive to persuade the West Europeans to accept their viewpoint on East-West issues”.
In arguments that echo today’s debates, the US ambassador to the UN, Jeane Kirkpatrick, complained: “We consistently find in our talks the allies are already significantly dependent: France for 15% [of its] gas, Germany for 30%.” Schmidt assured the Americans that Germany “can go six months in the event of a Soviet cut-off”. The forecast now is that, in such an eventuality, Germany would have to go straight to a form of energy rationing.
Despite various US efforts to persuade Europe to adopt a voluntary ban, including offering alternative sources of energy, in 1981 Ruhrgas AG and Soyusgazexport went ahead and signed a contract for annual imports of 10.5bcm of Soviet gas over a 25-year period. Unemployment in Europe was close to 9% at the time, and European industry needed to boost its energy supplies. At the same time, the US argument about security was dismissed as a veiled way of promoting the US oil industry.
When Moscow backed the imposition of martial law in Poland on 13 December 1981, Reagan thought such a shocking event might persuade Germany to put the pipeline on hold. In a private note to Margaret Thatcher, sent on 19 December 1981, he urged her to back tough sanctions against the Soviets, stating that “this may well be a watershed in the history of mankind. A challenge to tyranny from within.” Unusually for her, Thatcher vacillated, advising Reagan that the Germans “cannot and will not give up the gas pipeline project”.
The US responded to the Soviet intervention by banning US companies from helping with the pipeline. In the summer of 1982 Reagan tried to force European firms to stop working on the pipeline by imposing secondary sanctions on them. Such sanctions are now a commonplace in the US foreign policy armoury, particularly over Iran, but then, they were seen as an incursion into European sovereignty. Thatcher bridled, telling the Commons “it is wrong” for “one very powerful nation [to] prevent existing contracts being fulfilled”.
By November, Reagan had abandoned the attempt to impose sanctions. In a trial of strength in which Europe sided with Germany, the world’s superpower had lost. The new pipeline started pumping on 1 January 1984.
The German advocates of change through trade had won. The US position on Russia was further weakened when the Berlin Wall fell in 1989. The peaceful collapse of communism was trumpeted as a vindication for those that had championed dialogue, and engagement through trade. In a speech to the Brandt Foundation in March 2008, Steinmeier gave full vent to this view: “What Ostpolitik in fact achieved – as is now recognised also by those who criticised it at the time,” he said, “was to make peace in Europe, despite the difficulties, a degree more secure. For the democracy movements in eastern Europe it created new possibilities, new scope for action. It was a key factor, too, in finally ending the confrontation between the two blocs.”
Olaf Scholz, Germany’s current chancellor, remains an adherent of this view, arguing last year that it contributed to the fall of the Soviet Union and laid the basis for democracy and EU membership for much of eastern Europe. The SPD co-leader, Lars Klingbeil, has also insisted that Ostpolitik “was the basis for reunification and the end of the cold war. As a result, there has been a consensus in the federal republic for decades that conflicts can be defused through dialogue. We won’t let that be bad-mouthed.”
Yet a number of historians and writers believe that this rosy picture of Ostpolitik is misleading. “The idea that Willy Brandt’s policy of detente towards Moscow led in a straight line to the fall of the iron curtain and German unity is at least an over-simplification,” says the historian Jan Behrends. German journalist Thomas Urban, author of a new book critiquing Ostpolitik, believes its role in the fall of the wall and German reunification has been exaggerated:
“It was military buildup by Reagan and the flooding of the market with cheap oil that led to the collapse of the Soviet Union,” he told me. The Russian government budget had grown so dependent on energy for its revenue, he said, that when the price of oil plummeted in the mid-1980s, Russia’s lifeline to external capital dried up. “Gorbachev could no longer fund the overseas wars and the Soviet Republics,” he said. “But this argument was entirely missing in the German debate, especially on the left.”
Urban argued that Ostpolitik’s theory of change suffered from two basic misconceptions: the belief that political change in eastern Europe could only come from engaging with the elite in power, rather than from civilian movements, and second, that “security must be the key to everything”. By the turn of the century, the advocates of change through trade were in their pomp. Chancellor Schröder, with growing confidence, promoted the idea of a strategic partnership with Russia. He invited the new Russian president, Vladimir Putin, to address the Bundestag in 2001, where he won over his audience by giving the speech in fluent German and declaring “the cold war is over”.
Schröder, at the time of Putin’s address, saw a perfect confluence of interests between Europe, Germany and Russia: peace, stability, multilateralism and economic growth. Putin, Schröder was convinced, “wants to transform Russia into a democracy”.
In this favourable political climate, pro-Russian German lobbyists such as Klaus Mangold, chairman of the powerful German Committee on Eastern European Economic Relations, pursued the construction of yet another gas pipeline, this time taking gas from Vyborg under the Baltic Sea to Germany – the first Nord Stream. The scheme was especially controversial since it would bypass Poland, Belarus and Ukraine, reducing those countries’ incomes, weakening their bargaining power and depriving them of badly needed transit fees. The €7.4bn pipeline construction costs were to be borne by the private German companies BASF and E.ON, and the majority Russian state-owned Gazprom.
This time, protests against the pipeline did not just come from the US, but from the states that had recently emerged from Soviet rule, such as Poland and Lithuania. Radosław Sikorski, then Poland’s defence minister, notoriously compared the plan to the 1939 Molotov-Ribbentrop non-aggression pact between Nazi Germany and the Soviet Union, which paved the way for the invasion of Poland.
Yet on 8 September 2005, 10 days before the election in which Schröder’s Social Democrats lost to Angela Merkel’s conservatives, the Nord Stream 1 contract was signed in Berlin by representatives of Gazprom, E.ON and BASF. Putin stood alongside Schröder at the signing ceremony.
Schröder has since been singled out for his role in creating Germany’s dependence on Russian energy, and getting very rich in the process. But the distinguished former German diplomat Wolfgang Ischinger recently argued that Schröder should not take the blame for giving the go-ahead to Nord Stream 20 years ago: most German politicians, he told the New York Times in April, did not question whether they were getting into an unhealthy dependence on Russian energy. In the article, Schröder made the same case: “It never occurred to anyone that this could become a problem. It was just a way of procuring gas for Germans, for Germany’s heavy industry, and also for the chemical industry, with fewer problems and disruptions.”
Thereafter it seemed, whatever the setbacks in German-Russian relations, nothing could shift the faith in trade – not Russia’s “peace enforcement operation” in Georgia in August 2008, not the Russian disruption of the gas pipelines in a dispute with Ukraine in January 2009, nor the news that Putin was planning to return to the presidency in 2012, replacing Dmitry Medvedev, in whom Frank-Walter Steinmeier had placed his faith. In 2011, the year Nord Stream finally opened, German total trade exports to Russia rose 34% to €27bn.
Then came the Russian invasion of Ukraine in February 2014. Initially, Russia’s incursion seemed to mark a turning point. Merkel’s condemnation was clear: the annexation of Crimea was contrary to international law. Sanctions were duly imposed, and German exports to Russia fell.
Following the 2014 invasion, serious German media such as Frankfurter Allgemeine Zeitung published lengthy articles looking at the options for how Germany could wean itself off its dangerous dependency on Russian energy. Many of the proposals, such as new liquid gas terminals to allow Germany to import gas from other countries such as Qatar and the US, are the same ones under discussion now, which shows how little actual diversification was achieved. When I spoke to a Qatari energy official last month, he recounted how they spent five years trying to break into the German energy market, only to find their route blocked at every turn.
Some German sanctions on Russia continued for many years, but the advocates of change through trade gradually re-established their ground. It seemed nothing Russia could do would shake their confidence. On 4 September 2015, at the Vladivostok economic forum, with Putin in attendance, an agreement was signed for the construction of the Nord Stream 2 gas pipeline on the Baltic seabed, which would vastly increase Germany’s reliance on Russian natural gas. Gazprom would also take over Germany’s gas storage business, thereby handing control of German energy reserves to a foreign power.
Various theories – some grubby, some metaphysical – have been proposed to explain Germany’s dogged refusal to see the dangers in its dependency on Russia. One argument places the blame on SPD politicians and civil servants who were allowed to move seamlessly between public office and Putin’s employment, and worked hard to manipulate the EU and German regulatory environment to suit Gazprom.
Then there is the question of the German-Russian industrial lobby, as symbolised by the German-Russian Forum, which was closely linked with, and partly funded by, German companies active in Russia. (The Forum was suspended after the invasion of Ukraine.) Its board of trustees consisted mainly of business people, often with economic interests in Russia. Its chairman, Matthias Platzeck, the former SPD minister president of Brandenburg, seemed genuinely shocked by Putin’s invasion: “I was wrong because until recently I thought what happened was unthinkable.”
The historian Sarotte said there is no clear evidence that business had exerted greater influence in politics in Germany than in other countries. Nevertheless, over the years, Russia showed an ability to suborn, and in some cases corrupt, the German political class. The Polish foreign minister, Zbigniew Rau, on a visit to Berlin in late May, called German Ostpolitik a “fiasco”. German rhetoric around the political value of interdependence, he said, crudely boiled down to gaining a competitive advantage through cheap energy.
Thomas Urban, examining the psychological roots of Ostpolitik, pinpoints two emotions in Germany’s relationship with Russia: nostalgia and guilt. He described to me “the memory of Bismarck, who saw the alliance with Russia as an anchor of stability in Europe. But then there was also the feeling of guilt because of the German attack on the Soviet Union in 1941, with millions of dead. It meant it was difficult to criticise the Red Army or the Soviet repression since to do so means you do not recognise the greatest crimes in history. It makes Germany blind to the black side of the Soviet Union. It also permits Putin’s propaganda by talking only of the Russian war dead, and not those that were killed in Ukraine and Belarus.”
Much of Germany’s belief in trade with Russia was born of wishful thinking. It led Steinmeier as foreign minister, for instance, to look constantly for signs of reform, ignoring foreign office advice that he needed a plan B in case Germany’s faith in Russia turned out to be ill-founded. In 2016, Steinmeier gave a deeply sincere, almost elegiac speech at Yekaterinburg University asking whether Germany and Russia were still capable of listening to one another. He admitted the annexation of Crimea had been a low point, but hoped dialogue was still possible, urging both sides not to turn their backs on one another.
It was the speech of a man who sensed the tide was going out, and who feared his belief in dialogue no longer matched the spirit of harsher times: “In political discussions, we sometimes hear opinions expressed by people who are not interested in the slightest in understanding others; people who have already made up their minds about the other side; people who don’t even bother reading because they think they already know the answer.” What he described as the “supposed antagonism” between the west and Russia, he feared was becoming entrenched and ideologically driven, running counter to the pursuit of diplomacy and peace.
Now, as Germany’s president and head of state, Steinmeier has been told by Ukrainian officials that his record as the promoter of Russian interests in Germany means he is not welcome in Kyiv at this time. It seems a shame. There would be no need for him to fall to his knees – as Willy Brandt did in Warsaw in 1970, apologising for his nation’s wartime crimes – but he could give a sober reflection on what precisely went wrong with Germany’s eastern policy for so long. For, one way or another, a reckoning is still needed.
The stock market jumped on Friday, with the Dow surging over 800 points—its best day since late 2020—amid reports that Russia is open to negotiating with Ukraine, even as Russian troops close in on the capital city of Kyiv and Ukraine has not yet agreed to meet for talks.
Stocks rebounded strongly on Friday: The Dow Jones Industrial Average was up 2.5%, over 800 points, while the S&P 500 jumped 2.2% and the tech-heavy Nasdaq Composite 1.7%.
Despite remaining on track for weekly losses, all three major indexes rose for a second day in a row, with markets getting a major boost from reports that Russian President Vladimir Putin may be open to talks with Ukrainian leadership.
A Kremlin official said Friday that Moscow is willing to send a delegation to Belarusian capital Minsk for negotiations with Ukraine, Forbes Ukrainereported, a day after Western leaders unveiled a new set of widespread sanctions against Russia.
The move comes after Ukrainian President Volodymyr Zelenskyy reportedly offered for his country to have a nonaligned status with NATO—a key demand of Putin’s in the weeks leading up to invasion that Western countries repeatedly rejected.
The latest developments, which boosted U.S. stocks higher as investors hope for a quick resolution to the conflict, come even as Russian troops continued to advance on Kyiv, with reports that the bombing of Ukraine’s capital city intensified on Friday morning.
Oil prices moderated somewhat on Friday, declining slightly after a recent surge driven by the Russia-Ukraine conflict briefly pushed prices above $100 per barrel, the highest level since 2014.
All 11 sectors of the S&P 500 moved higher on Friday, with financials, materials and consumer staples leading the benchmark index’s gains.
The market is staging a “very strong rally” with big outperformance in value and cyclical stocks, as “investors welcome headlines about possible Russia-Ukraine negotiations in Minsk (along with reports that Moscow’s assault on the country isn’t going nearly as well as Putin hoped),” according to Vital Knowledge founder Adam Crisafulli.
Though stocks are still on pace for a losing week, all three major indexes rebounded on Thursday, reversing steep declines even after Russia officially invaded Ukraine. While stocks opened sharply lower—with the Nasdaq briefly falling into a bear market (more than 20% below its record high last November), markets staged a stunning rebound as investors bought the dip.
“Russia invading Ukraine has added to an already tense year, with investors selling first and asking questions later,” says Ryan Detrick, chief market strategist for LPL Financial. “But it is important to know that past major geopolitical events were usually short-term market issues, especially if the economy was on solid footing.”
RBC analysts predicted that US stocks will rally 17% by the end of 2022 as they shake off the Russia-Ukraine “growth scare.”
In crypto, FTX CEO Sam Bankman-Fried announced that the crypto exchange gave $25 to every Ukrainian user. “Do what you gotta do,” he tweeted as part of the announcement.
Oil prices fell as Western sanctions on Russia so far have avoided its energy industry. West Texas Intermediate crude dropped by more than 1% to $91.82 a barrel. Brent crude, the international benchmark, slipped 0.8% to $98.28 a barrel.