President von der Leyen's joint interview with Les Echos and Handelsblatt

4 Feb 2022 12:42 PM

In a joint interview with Les Echos (Karl de Meyer) and Handelsblatt (Moritz Koch) President of the European Commission Ursula von der Leyen spoke about the situation at the border with Ukraine, and possible sanctions against Russia. Among others, she also touched upon the energy prices, EU Taxonomy, and the Global Gateway.

Ms von der Leyen, gas reserves in Germany are lower than they have ever been at this time of the year. In the rest of Europe, the situation isn't much better. Will Europeans soon be out in the cold?

No, but we are seeing that last summer and autumn the reserves were not fully replenished as usual, in particular by the Russian energy company Gazprom. While the reserves of all other suppliers are now still at around 44%, the level of Gazprom's reserves has already fallen to 16%. That speaks for itself.

Nevertheless, the German Government has emphasised that Gazprom is fulfilling its supply obligations.

Gazprom is fulfilling its contracts – that is true – but only at the bottom end of its commitments. Other gas suppliers have increased their supply significantly in response to soaring demand and record prices, but Gazprom has not. The company, which is owned by the Russian State, has thus cast doubt on its own reliability.

How dramatic is the situation? Is there a risk of supply shortages?

Not necessarily, provided that Gazprom and Russia fulfil their supply commitments. The questions we are asking are: what happens if Russia steps up its aggressive behaviour towards Ukraine? And what would that mean for energy security in Europe?

There are reports that Russia has already brought blood reserves to the border. How great is the risk of war?

The situation is very serious. We hope – and are doing everything we can – to find a diplomatic way out. But, of course, we also have to be prepared for the fact that our efforts may fail. For the EU, it is very clear that any further military escalation on the part of Russia will have major consequences.

‘Major consequences' – that's very vague.

Not at all. The Commission has been tasked with developing economic and financial sanctions, and we have done so in close coordination with the Member States and international partners. We have prepared a robust and comprehensive package of financial and economic sanctions, ranging from restricting access to foreign capital, to export controls on technical goods, in particular. These restrictions are making the Russian economy even more fragile.

The EU and the US are threatening Russia with export controls on high-tech goods: Will a chip embargo mean that there will soon be no iPhones or BMWs in Moscow?

It is clear that these are high-tech components that Russia cannot easily replace, in areas such as artificial intelligence and armaments, quantum computers, lasers and space travel. Russia urgently needs to modernise its economy. It cannot do so without the technologies in which we have undisputed global dominance.

Will the Nord Stream 2 Baltic Sea pipeline also be part of the package of sanctions? Will Nord Stream 2 become operational?

In this acute crisis, it depends on how Russia behaves. The way Gazprom is doing business is strange. At a time when gas prices are going through the roof and there is huge demand, the company is restricting supply to its customers. Russia is exerting military pressure on Ukraine and using gas supplies as a means of putting pressure on us. That is why it is quite clear that Nord Stream 2 cannot be removed from the table as far as sanctions are concerned.

Some of the sanctions are to target oligarchs, i.e. the direct entourage of Russian President Vladimir Putin. Will the EU go so far as to freeze bank accounts and take possession of mansions?

People around Putin and oligarchs could, of course, be hard hit. Firstly, by being placed on the lists of people targeted by the sanctions, but above all by the financial and economic sanctions we are preparing.

But these sanctions also affect the Russian people

The sanctions are very targeted, but of course there is always an indirect impact too. That is why it is very much in the interests of the Russian people that their government look for solutions at the negotiating table and withdraw the troops.

In an emergency would the EU go as far as imposing sanctions on President Putin in person?

It's all in Russia's hands. Let's wait and see how the situation develops.

What do you think is Putin's goal?

You'll have to ask President Putin himself. Ukraine is a sovereign country, a proud nation and, of course, like any other country, it has the right to decide its own future. But we are seeing a build-up of Russian troops around Ukraine unlike anything in the past 70 years, and open threats from the Kremlin.

The Russian leaders justify themselves by pointing to a threat from the West. Don't they have a point? If Ukraine were a stable, prosperous democracy, the Russians would probably also be out on the streets demanding freedom.

That is the deep-seated fear of all autocrats. And that is why they exert pressure on their people and in this case even on a neighbouring country. We democrats can never tolerate such aggression.

Putin knows he has something that we desperately need – natural gas. He will probably think the West is bluffing.

That is why we are working very actively on finding new energy sources. I have just set up a strategic energy partnership with US President Joe Biden, focusing in particular on liquefied natural gas (LNG). We are talking to many different suppliers across the world. A lot of countries are very interested in developing good, long-term cooperation with Europe. And Europe wants and offers reliability.

Which suppliers are involved?

In principle, we are talking to all of them, starting with Norway, a supplier we already have a long, dependable working relationship with. But also with Qatar, Azerbaijan and Egypt. And of course the United States also plays a major role. We will be holding an energy summit with them in Washington on 7 February.

There is clearly a rather hectic element to this crisis diplomacy. Moscow on the other hand has been amassing large currency reserves for years. Should we not admit that Putin is better prepared than we are for the impending economic war?

No, in economic terms Russia is heavily dependent on Europe. Look at the figures: trade with Russia is of minor importance for Europe, accounting for exactly 4.8% of the total volume.

How big is the danger that the Russians retaliate and turn off Europe's gas?

As I said before, I believe that is not in Russia's interest. The Russian economy is very one‑dimensional. Two-thirds of Russia's total revenue comes from gas and oil exports, and two-thirds of those go to Europe. In the talks we are having at the moment we can see how eager other suppliers are to jump in to fill that gap. So it is in the Kremlin's own interest to rebuild the broken trust in its relations with Europe.

Could Europe cope with a Russian energy embargo?

Ever since the annexation of Crimea in violation of international law, we have been doing our homework. In 2014, we had significantly less LNG capacity in Europe. Today, there are more than 20 large terminals. But more important still are our investments in renewable energy. We are now seeing how wind, solar and biomass energy is not only important in the fight against climate change but is also strategically important to the EU as a cheap, domestic source of energy. The cost of renewables has fallen sharply over the past decade. The cost of solar energy has fallen by 75% and offshore wind energy by 66%. They now present a really good business case. And what we are currently experiencing with Russia is naturally accelerating this further.

Renewable energy is clearly important but only LNG will help in the short term. Despite being Europe's largest energy consumer, Germany of all countries has no LNG terminal. Was Germany too naive?

The energy mix varies considerably in all European countries. Personally, I believe it is worthwhile building LNG terminals, including in Germany. It is important to recognise that over the past decade we have consistently improved energy solidarity in Europe, creating a far-reaching network of pipelines, for example. Europe has invested in 115 different pipelines and interconnectors since 2013 alone. We are not quite where we want to be yet. But we have different regional clusters that can provide cross-border supply.

The US President Joe Biden has just hosted the Emir of Qatar at the White House in order to discuss Europe's energy security. Do we need the Americans to do our bidding because we are not capable ourselves?

Far from it. Our cooperation with the Americans is closer than I have ever known it to be. We are in complete agreement – including with our Canadian friends and with the UK – that these are fundamental matters, i.e. whether in the 21st century we will accept borders being shifted by force or a large country challenging the integrity and sovereignty of its smaller neighbour. For this reason, we are coordinating closely on the preparation of sanctions. Europe is playing a key role in this as our economic leverage over Russia is considerable.

Can other European countries and the Americans understand why, in the midst of an energy crisis, Germany is closing its last nuclear power plants?

Member States decide their own energy mix. This is something we are used to. Technology preferences vary and those preferences must be respected.

How do you intend to avoid such a dramatic situation returning to Europe?

It is essential that we do everything we can to de-escalate the current situation and at the same time better prepare ourselves for the future. I am currently working on a series of measures for the Member States addressing issues such as whether we want to build shared strategic gas reserves, following the difficult experience this winter, in particular with Gazprom. Secondly, I can imagine we may also organise joint gas purchasing in Europe.

During the pandemic, joint purchasing didn't prove particularly successful.

With respect, I hold a very different view. Europe supplied vaccines to its own population, as well as to more than 150 countries. Europe has since become a world leader in the production of mRNA vaccines. This cohesion in Europe is an example of how we can come through crises together in good shape.

It is also true that, as part of the liberalisation of the energy market, the EU insisted that long-term contracts be replaced by short-term supplies via the spot market. Was that a mistake?

No, there have been times when short-term supplies have been very useful. There have even been some cases of negative energy prices – that should not be forgotten. The bottom line is that liberalisation has proved to be a success. And the current situation, after all, demonstrates the risks involved in long-term dependence on Russian gas.

The EU is not considered a serious player when it comes to security policy, but it is certainly taken seriously as an anti-cartel authority. Will the Commission be bringing a case against Gazprom?

An investigation is ongoing. The Commission has asked questions of Gazprom, and its replies are currently being analysed. I cannot predict what the outcome will be.

This is perhaps a cynical question, but could it be that the USA will use the energy crisis to promote the interests of its own gas suppliers?

The important thing is the reliability of the supplier, and we have no doubts about the US's reliability. That is why we are working with them on a long-term energy partnership. Our common goal is to rapidly develop renewable energies and combat climate change. To that end, we are investing in innovations and in new, clean technologies. I initiated the methane partnership together with President Biden, to which more than 100 countries have now signed up. It is clear that, while we need natural gas for our transition, our common goal is renewables.

Only, that is still some way off.

But we are making rapid progress. Think about green hydrogen. We are joining forces at European level – Member States, our innovative industry and research institutes – to rapidly scale up production.

Even as the current crisis unfolds, Berlin is flaunting its hydrogen partnership with Kiev and is coming in for strong international criticism in that regard, as Ukraine currently has other things to worry about. As someone who was a minister in the German Government for many years, do you feel partly targeted by that criticism?

I am now President of the European Commission, and my role is to represent the interests of the European Union and to work very closely with the 27 Heads of State or Government and the European Parliament. And Ukraine is certainly an important partner of the EU when it comes to raw materials.

There is currently a great deal of uncertainty in the EU, especially in France. Since the new German Government took office, many French politicians are asking what direction German foreign policy will take.

I am certain that we can rely on Germany. All my discussions confirm that. Germany is a strong partner in this difficult crisis that Russia has caused.

What do you make of the latest comments by former Chancellor Gerhard Schröder accusing not Russia but Ukraine of sabre-rattling?

Gerhard Schröder is paid by Russian energy companies and represents their interests. Here in Europe, everyone is free to express their opinion. That is, by the way, something that the opposition politicians and Kremlin opponents in Russia would want.

Is the Kremlin using corruption strategically to influence democracies and undermine them from within?

The Kremlin is trying in various ways – disinformation, cyberattacks and certainly also paid lobbying – to undermine democracies. Our mission is to make our democracies resilient and uncover any attempts at manipulation.

The Germans are not the only ones in the EU to have a special relationship with Russia. The Hungarian Prime Minister, Viktor Orbán, is in Moscow today and has sat down with Putin. Are you afraid that European unity might crumble?

No. Hungary has backed all sanctions so far. Europe is also more important for Hungary than Russia is.

Should there be more EU support for Ukraine, such as a military training mission like the one in Mali?

Ukraine deserves our support. The Commission is responsible for economic cooperation. Since Crimea was annexed in violation of international law, we have invested 16 billion euro. On top of that, this week the EU provided Ukraine with an emergency package of 1.2 billion euro. We are also working closely together on energy security and include Ukraine in our planning.

Energy prices have risen dramatically, and will climb even further if we increase the price of fossil fuel-based energy. This is a major concern for many people. Do you worry about a protest movement, like the ‘yellow vests' in France?

We should not forget that energy prices are high at present mainly because of high gas prices. Renewables are far cheaper. The current situation will therefore provide further impetus towards renewables. On the road to the common objective of climate neutrality, the most important thing for me is social fairness for those on low incomes and small businesses. That is why we have proposed a social climate fund. The well-paid can easily afford to have new heating installed, but others need help, which the fund will provide.

Do you regard the financing of the fund as secured?

Yes, because our proposal makes sense. We intend to use the billions in proceeds from the new climate certificates for social fairness. This is how we protect the climate and ensure nobody is left behind, as we do in our social market economy.

The EU intends to mobilise private capital for the green transition and use the ‘taxonomy' to guide investors. The Commission's proposal has been heavily criticised. Can you understand why?

We drew up the taxonomy at the request of the European Parliament and the Member States. It offers guidance to private investors. The first part, which is already in force, deals only with renewables. In the second piece of legislation, we had to look at transition energies, from natural gas to baseload nuclear power. We had to strike the right balance, as the energy mix in Europe varies greatly from one Member State to the next. Thanks to the transparency requirement, investors will also know at all times what they are investing in. And there are particularly strict conditions for transition energies.

Namely?

Gas will be used to phase out dirtier coal as quickly as possible and transition to green hydrogen. But for no longer than that. As regards nuclear energy, which has the advantage of being low carbon, we are focusing on the latest technology and pushing for sustainable waste solutions. However, renewables are clearly the future, in the taxonomy too.

Is there a risk that you will create a lasting rift with the new German Federal Government, especially with the new Minister for the Economy, Robert Habeck, from the Greens?

No. We are in very close contact because we know that the big challenge is the energy transition to tackle climate change. Of course, views will differ on specific points from time to time but we agree on the objective, which is to focus all our attention on renewable sources of energy. The problem is that renewables currently account for just 22% of the overall energy mix. And until we have enough renewable energy, we shall need transitional technologies, such as natural gas or nuclear power, under strict conditions.

And what will happen if Parliament rejects your proposal?

Then there will be no taxonomy for private investors for these two forms of energy. 

And what then?

I am not expecting that to happen.

You announced a major infrastructure initiative – Global Gateway – a few months ago. Funding of 300 billion euro is to be made available for that initiative. Given developments over the past few months, will that money be used primarily for energy partnerships?

The Russia crisis and the interruption of supply chains during the pandemic show just how important it is to have reliable partnerships. At the same time, there is a great need for investment across the world, and this is where Global Gateway comes into play. We shall use it to pursue our European priorities of climate action and digitalisation, and we shall do this together with our partners throughout the world. It may take the form of energy partnerships, for example with Africa. Or of raw material partnerships with Ukraine or Canada. Our strategic thinking behind this is that, as democracies, we want to build tomorrow's world with like-minded partners on an equal footing.

And thereby counter the growing influence exercised by China through its Belt and Road Initiative?

Absolutely. Many earlier partners in these Chinese infrastructure projects are finding out what it means to suddenly find yourself deeply in debt over the long term and are realising that their own population derives little benefit from such projects. They then approach Europe seeking a fairer deal. And that is what we are offering through Global Gateway.

Germany has earned a lot from trade with authoritarian states without bothering much about the political consequences. The German economy is dependent not just on Russia, but also on China. Are we now paying the price, not just in Germany but in Europe as a whole?

No. As a matter of principle, it is important for Europe to be open to the world. But we are now checking the supply chains in the various sectors of the economy quite systematically in order to see whether they are robust and resilient. And if we identify any cases of one-sided dependence, we shall take specific action to address the problem. The new law on the production of microchips in Europe – the EU Chips Act – is the best example of that.

Can we expect any tangible results from the EU-Africa summit?

Yes, we are doing our utmost to produce tangible results in the form of projects launched.

And what about results in the areas of energy supply and renewables?

One big topic is hydrogen partnerships with countries on the southern side of the Mediterranean. Europe needs clean energy, and Africa has enormous potential in this area. We intend to invest substantially in this.

The North Stream 2 company has just set up a German subsidiary. Assuming that the immediate crisis calms down, will it be enough to have a letterbox company to meet the EU requirements?

At the moment the Federal Network Agency is doing its work. Only when it has finished will the European Commission examine the situation. And we shall focus primarily on ensuring security of supply, for Europe as a whole.