Germany’s Ukraine tank decision has major economic implications

January 26, 2023, 10:56 AM UTC
German Chancellor Olaf Scholz walks past a Leopard 2 main battle tank of the Bundeswehr while visiting the Bundeswehr army training center in Ostenholz on October 17, 2022 near Hodenhagen, Germany.
German Chancellor Olaf Scholz walks past a Leopard 2 main battle tank of the Bundeswehr while visiting the Bundeswehr army training center in Ostenholz on October 17, 2022 near Hodenhagen, Germany.
David Hecker—Getty Images

Good morning, Peter Vanham here in Geneva, filling in for Alan.

It’s hard not to start this newsletter with the news of Germany approving the delivery of Leopard 2 tanks to Ukraine. Much has already been said about the symbolism and battleground implications of this decision, and CEO Daily won’t be adding to that discussion.

But from an economic perspective, it is hard to understate Germany’s tank decision, either. The approval to send Leopards puts a final dagger in the heart of Germany’s decades-old policy of avoiding war in Europe through trade and cooperation, and is perhaps the surest sign yet that there is no (quick) turning back to a truly integrated European economy—at least not one that includes Russia.

It can be easily overlooked, but Germany’s obsession with trade to maintain peace was one of the crucial building blocks of Western European integration and prosperity after the Second World War. In Eastern Europe, too, Germany bet on the same playbook after the fall of the Iron Curtain. It was a centerpiece of German reunion, and allowed the rapid rise of living standards in many former Soviet states.

So it should be no surprise that many in Germany believed the same doctrine would work in Russia—and, for a long time, it did. Post 1991, German-Russian trade rose rapidly, and so did foreign direct investment. German companies started doing more business in Russia than those of any other EU country. Even a year ago you would have been hard-pressed to find any German business leader or politician disavowing the entanglement.

But then the awakening followed, and it was rude. After the Russian invasion of Ukraine, German companies from Adidas to Zeppelin Foundation rushed to get out of Russia, or at least froze their operations. The German-Russian Chamber of Commerce turned its site into a sanctions info board. And Germany’s political leadership realized their strategy had failed.

Suddenly, previous German chancellors, from the conservative Angela Merkel to the social-democratic Gerhard Schroeder, looked respectively ill-advised and crooked. Merkel defended German dependency on Russian oil and gas throughout her tenure. Schroeder went even further, becoming chairman of the Russian-led Nord Stream gas consortium and the Russian energy giant Rosneft. 

German Chancellor Olaf Scholz must have had all this—and more—on his mind as he made the decision to send the Leopard tanks. Beyond the risk of military escalation, the decision means the admission of the political and economic bankruptcy of the ‘peace through trade’ doctrine his predecessors pursued to keep the peace with Russia and allow Germany and all of Europe to prosper.

When the dust settles, Scholz will need to come up with a new doctrine to pursue these goals. As Europe’s largest economy, Germany has a special responsibility, in this regard. So do German companies. They will need to figure out if and how they’ll ever return to Russia, if indeed they ever left.

More news below.

Peter Vanham 


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This edition of CEO Daily was edited by David Meyer. 

This is the web version of CEO Daily, a newsletter of must-read insights from Fortune CEO Alan Murray. Sign up to get it delivered free to your inbox.

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