By Jan Strupczewski

WASHINGTON (Reuters] – The Ukraine war has exposed the weaknesses of the German strategy of trying to alter Russia by trade over the past decades. It also spells end of globalization as we know, said the European Economic Commission Paolo Gentiloni on Thursday.

Gentiloni spoke at the Peterson Institute Washington. He stated that Russia’s invasion of Ukraine would also disrupt global alliances, and further put strain on supply chains.

Gentiloni stated that the notion of “Wandel by Handel”, of changing through trade has been shown its limits. He was referring to Germany’s policies towards Eastern European countries, which began in 1970. Gentiloni stated that we need to reconsider our relationships with autocratic regimes, and strengthen our connections with like-minded partner countries.

Germany has maintained close economic relations to Moscow for many decades, becoming heavily dependent on Russian coal, oil, and gas. Europe is finding it increasingly difficult to stop purchasing Russian energy and, therefore, indirectly funding the Russian invasion of Ukraine.

Gentiloni declared, “This crisis also will spell the end globalisation as it has been known and reshape world alliances.”

“The war and its consequences – including the successive rounds of sanctions that the EU and the US have imposed on Russia – are exacerbating pressures on already strained global supply chains,” he said.

Gentiloni claimed that the invasion also caused the European Union of 27 nations to significantly increase its defense budget, as well as the large investment already made in climate mitigation and economic adaptation to the digital age.

He suggested that this expenditure could be included in the EU fiscal rules currently under review and in new joint borrowing. This may possibly be modelled after the EU’s post pandemic recovery fund, which has 800 billion euro of joint debt.

We are looking at attracting hundreds of billions more investments every year. Although most of these investments must be from the private sector,” he stated. However, they require more support in the form of new fiscal rules at European and European levels to finance them.

Germany and other countries of northern Europe strongly oppose any form of new, joint borrowing.

Gentiloni stated that the price of the Ukraine conflict for Europe will depend on its duration, but economic and material assistance to Ukraine and refugee support, along with continued EU support to cope with high energy prices, disruptions in production, will increase the EU’s overall budget deficit to at least 0.6% this year.