TheChek News Flow

Berlin activates emergency law as west refuses to comply with Moscow’s demand for roubles

The German government has taken the first formal step towards gas rationing as it braces itself for a potential halt in deliveries from Russia due to a dispute over payments.

Robert Habeck, economics minister, on Wednesday morning activated the “early warning phase” of an existing gas emergency law put in place to deal with acute energy shortages.

The move was triggered by German concern that Russia might cut supplies to the country and its neighbours because they are rebuffing Moscow’s efforts to force payment for gas imports in roubles.

Russian officials said on Tuesday that Moscow would not “supply gas for free” to Europe, a day after G7 countries unanimously rejected President Vladimir Putin’s directive requiring rouble payments.

During the early warning phase — the first of three stages in Germany’s emergency response — a crisis team from the economics ministry, the regulator and the private sector will monitor imports and storage.

If supplies fall short, and less draconian attempts to lower consumption do not work, the government would cut off certain parts of German industry from the grid and give preferential treatment to households.

Habeck, who is also vice-chancellor, told journalists in Berlin that the step was taken in anticipation of the Russian law, which conflicts with the denomination of long-term supply contracts in euros or dollars.

“We won’t accept a [unilateral] breach of contracts”, Habeck reiterated on Wednesday morning.

Habeck stressed that for now the gas supplies from Russia were flowing normally.

However, as Germany is trying to wean itself off Russian gas and now imports more LNG, Russia’s market share of German imports has fallen from an average of 55 per cent in recent years to 40 per cent in the past few weeks.

Last week, Germany unveiled targets to cut its dependence on Russian energy rapidly, vowing to all but wean itself off the country’s gas by mid-2024 and become “virtually independent” of its oil by the end of this year.

Europe’s wholesale gas price rose 8 per cent to €114.45 per megawatt hour in early trading on Wednesday.

Russia’s state-owned gas supplier Gazprom and the country’s central bank are due on Thursday to report to Putin on a mechanism to implement the change of payment currency for gas to roubles.

Some Russian politicians have intimated that the deadline to switch payment currency could come as early as the end of this month, although the Kremlin has not officially stated when the change will take effect.

Berlin’s decision to buy US fighter jets has upset Paris amid fears it will undermine co-operation between nations

Germany’s decision to lift the cap on its military budget offered a beguiling future for Europe’s defence industry as the region’s biggest economy readied itself to write large cheques on everything from jets to tanks.

But less than a month since the invasion of Ukraine prompted Berlin’s historic move to establish a €100bn fund to modernise its armed forces, the initial euphoria risks giving way to the divisions that have long bedevilled European collaboration on defence.

The trigger for the reversal in sentiment was Germany opting earlier this month to replace its ageing Tornado fleet with a batch of F-35 fighter jets, which can carry nuclear weapons and are made by US defence group Lockheed Martin.

Handing Lockheed the order prompted dismay in France, with the industry angered that the choice of an American weapons system sent the wrong signal when the focus should be squarely on bolstering Europe’s own capabilities.

“The French will not like it at all,” one top European defence executive said of the F-35 order. The invasion of Ukraine had “reinforced the need for a strong defence industry as well as armed forces in Europe”, they added.

The sudden need to overhaul Europe’s decades-old military order has revived tensions over the Future Combat Air System, Europe’s flagship defence project launched by Berlin and Paris to great fanfare in 2017.

Best known for its ambition to build a new European fighter jet, FCAS, which Spain joined in 2019, is seen as a central building block for the region’s defence and procurement policy.

Rather than the myriad of fighter jets flown by European air forces today — spanning the Eurofighter, Germany’s Tornado, France’s Rafale and Sweden’s Gripen — FCAS envisages just one that will be the backbone for every country after 2040.

Amid the alarm in Paris over the Lockheed order, Berlin has insisted it is still committed to the programme, which relies on the continent’s biggest aerospace and defence groups: Airbus, France’s Dassault Aviation and Thales, and Spain’s Indra Sistemas.

However, even before Berlin’s move, concerns that the FCAS project might never take off were deepening because of the wrangling between Airbus, which represents Germany in the project, and rival Dassault.

Battles over technology sharing and who would lead critical parts of the programme have beset FCAS since its launch.

Eric Trappier, chief executive of Dassault, warned before the F-35 deal that such an order would add to French irritation over FCAS and that it would “cool our support”.

Earlier this month, the Dassault boss said that development work on FCAS had in effect ground to a halt, with the company taking its engineers off the programme until it was able to agree a way forward with Airbus.

“In 2022, we’ll have to make a decision. We cannot wait with our pen in our hand over a blank page,” a visibly frustrated Trappier told analysts after the group reported results.

Dassault declined to comment further, pointing to Trappier’s recent remarks. Airbus declined to comment.

One of the reasons the F-35 order risks proving problematic for FCAS is because it potentially sets Germany and France on diverging timelines, according to a former European defence industry executive.

While the German need for a new fighter has been pushed closer to 2050 with the F-35 order, the French have their Rafale only until about 2035. “The timeline and point at which France and Germany’s needs meet has been pushed back,” the executive said.

Indeed, Claudia Major of the German Institute for International and Security Affairs, insisted that if FCAS ultimately failed it would not be because of Berlin’s F-35 order, saying that the two are “totally different things”.

“Since the start [FCAS] has been the example of difficult European industrial co-operation, of mistrust and of everyone trying to defend their own industrial interest,” she said. “You launch a major project that has the ability to change industry strategy and then you don’t invest enough in the political ‘flanking’ to support it.”

It has not been devoid of progress. Last spring Germany, France and Spain agreed to develop a flying demonstration aircraft by 2027. Some industrial accords have also been struck, including on separate pillars of the programme spanning space communication and manned and unmanned aircraft.

Nonetheless, divisions remain on the next-generation fighter itself, including over the all-important flight control system, which Dassault said it needed to develop and manage itself.

Francis Tusa, editor of newsletter Defence Analysis, argued that what helped to shift the balance in the relationship between Airbus and Dassault in recent months were significant export orders for the French company’s Rafale, including from the United Arab Emirates.

“Team France no longer needs Germany in the programme. They have orders coming out of their ears,” he said, adding that he expected further orders for the fighter that could take production through to 2036.

If FCAS flounders, it will not be the first time that France, Germany and Spain have failed to turn ambitions over defence into an industrial reality.

France notably went its own way to develop the Rafale fighter, while Germany is part of the Eurofighter consortium with the UK, Italy and Spain. On battle tanks, Germany has the Leopard while France has the Leclerc.

Other programmes are under way that will test nations’ abilities to work together, including the MGCS tanks project (to replace the Leopard and the Leclerc) and Eurodrone, to develop a series of unmanned drones.

As Russian’s invasion forces European capitals to rethink their defence strategies, industry executives say that effective collaboration requires an acceptance not every country can have it all.

“Not every country can have every capability given the limits of defence budgets in Europe,” said one defence executive. “If you truly want to have a capability . . . then there needs to be some form of collaboration on EU programmes and consolidation.”

Alessandro Profumo, president of Europe’s trade body ASD and chief executive of Italy’s Leonardo, struck a hopeful note. The German move to boost its defence spending, he said, was “incredibly important for the EU” and will be a “catalyst for more European defence co-operation”.

The FCAS can still get back on track, industry experts said. One noted that while Dassault might be able to live without FCAS given its Rafale orders, the French air force would still need a more capable fighter by the 2040s. 

“The problem will be, does France want to be left alone? They want to lead but will they lead alone,” said an industry executive. “I think they will compromise to keep a partner”, they added, referring to Germany.

Others highlighted that while Dassault had already flagged it was working on a “plan B” should FCAS unravel, France would lose out on shared research costs and other savings that the project brought.

“It wouldn’t be insurmountable [to lose FCAS] but it would be costly,” said Jean-Louis Thiériot, a member of parliament for France’s conservative Les Républicains party who sits on a defence commission.

Asked shortly before the invasion whether failure to reach an agreement with Dassault was an option, Airbus chief executive Guillaume Faury countered: “Well, that’s not the way we look at it. We think FCAS is front and centre to the strategy of Europe.”

DAX:

MDAX:

SDAX:

World’s largest lenders provided only slightly less financing last year than in 2020, analysis shows

Global banks provided $742bn in financing to coal, oil and gas companies last year, despite the fanfare of climate pledges by lenders that signed up to former Bank of England governor Mark Carney’s industry alliance, according to the latest comprehensive analysis by an activist group.

Fossil fuel financing remained dominated by the same four US banks, led by JPMorgan Chase, and followed by Wells Fargo, Citi and Bank of America, according to the annual report produced by a coalition of campaign groups organised by the Rainforest Action Network.

All four banks are members of the so-called Net-Zero Banking Alliance that is part of Carney’s Glasgow Financial Alliance for Net Zero umbrella group. The group made the claim at the UN climate summit in Glasgow in November that $130tn of private sector assets was committed to achieving net zero greenhouse gas emissions.

Overall, the world’s 60 largest lenders provided only slightly less financing for fossil fuels in 2021 than the $750bn recorded in 2020, the RAN report found. The banks have provided a total of $4.6tn since the Paris Agreement was signed in 2016, peaking in 2019 at $830bn, it said.

The energy crisis that has been exacerbated by Russia’s invasion of Ukraine has driven expectations that the demand for fuel will support coal, oil and gas production in the short term.

Although the total amount provided by the banks in 2021 for fossil fuel expansion fell to $185.5bn from $319.7bn in 2020, that decline “may be cancelled out in the year ahead by pressures in energy markets”, said James Vaccaro, executive director of the Climate Safe Lending Network, a group of banks, NGOs and investors.

“There is very little to feel positive about,” he said. The findings were in “stark contrast” with banks’ climate pledges, and showed that “there are still considerable flows of finance to fossil fuel companies at similar rates to that in previous years”.

JPMorgan was the biggest western financier of the Russian state energy company Gazprom over the past six years, according to the RAN analysis.

In total, JPMorgan funding of fossil fuels companies in 2021 stood at $61.7bn, up about $10bn after falling by a similar amount the previous year. The bank said it was “taking pragmatic steps” to meets its emission reduction targets “while helping the world meet its energy needs securely and affordably”.

Wells Fargo similarly recorded a bounce back by about $20bn to $46.2bn in 2021, after the biggest backer of US fracking put the fall the previous year down to the slump in oil prices.

Citi moved behind Wells Fargo in 2021, providing $41bn of financing, down from $49bn the year before. The bank said its strategy was based on “responsibly driving the transition to a net zero economy and . . . focused on working with our fossil fuel clients to help them decarbonise their businesses”.

Similarly, the Bank of America lowered its fossil fuel financing activities to about $32bn in 2021, from $42bn the year before. The French banks also pared back their activities in 2021, after a surge the previous year.

Although many banks had climate policies in place, they were often worded in such a way as to be ineffective, the RAN report said. For example, exclusions related to project-specific finance, or only limited lending and not underwriting.

Of the 44 banks covered by the report that had committed to net zero emissions goals by 2050, it found 27 did not have a “meaningful no-expansion policy for any part of the fossil fuel industry”.

That enabled fossil fuel financing to continue without breaching policies, the report said. Soon after the launch of the Net-Zero Banking Alliance, founding signatories including Citi, BNP Paribas and Barclays took part in multibillion-dollar financing deals with companies including Saudi Aramco and the Abu Dhabi National Oil Company, the state-owned oil companies, and the US oil major ExxonMobil, the report noted.

Banks’ financing exclusion policies often focus on coal, the most polluting fossil fuel that has become a focal point for policymakers.

Yet only about 4 per cent of the $4.6tn in fossil fuel lending and underwriting recorded since 2016 went towards coal mining companies, and the bulk of coal financing came from Chinese state-backed banks, the report said. Roughly a quarter of the total financing went to utilities, including coal power generators, and about two-thirds went to oil and gas.

The analysis also noted the “alarming” increase in the financing of tar sands oil projects, which jumped 50 per cent between 2020 and 2021 to $23.3bn.

Fewer employers tested applicants for marijuana last year than in 2020 as companies grappled with nationwide labor shortages

The percentage of working Americans testing positive for drugs hit a two-decade high last year, driven by an increase in positive marijuana tests, as businesses might have loosened screening policies amid nationwide labor shortages.

Of the more than six million general workforce urine tests that Quest Diagnostics Inc., one of the country’s largest drug-testing laboratories, screened for marijuana last year, 3.9% came back positive, an increase of more than 8% from 2020, according to Quest’s annual drug-testing index.

That figure is up 50% since 2017. Since then, the number of states that legalized marijuana for recreational use grew to 18 from eight, plus the District of Columbia.

Despite the increase in positivity last year, fewer companies tested their employees for THC, the substance in marijuana primarily responsible for its effects, than in recent years, said Barry Sample, Quest’s senior science consultant.

The shifting legal backdrop and changing cultural attitudes have prompted some employers to stop testing for marijuana while companies in some states are barred from factoring the test results into hiring decisions, according to Dr. Sample. And those trends accelerated last year amid the recent shortage of workers, especially in states where recreational marijuana is legal, Dr. Sample added.

“We’ve been seeing year-over-year declines in those recreational-use states, but by far the largest drop we’ve ever seen was in 2021,” he said about the number of drug tests that screened for THC.

The percentage of specimens tested for THC declined 6.7% nationwide in 2021 from 2020, while that figure fell by 10.3% in states where recreational marijuana is legal, according to Quest’s data.

“We certainly heard from some of our employer customers that they were having difficulty finding qualified workers to pass the drug test,” Dr. Sample said of pre-employment tests for THC, especially in states where use of the drug is legal.

Overall, the proportion of U.S. workers who tested positive for the various drugs Quest screened for in 2021 rose to 4.6%, the highest level since 2001, according to Quest, which analyzed nearly nine million overall urine tests last year on behalf of employers.

That percentage is more than 31% higher than the low of 3.5% a decade ago, in the early days of a resurgent heroin epidemic in the U.S.

In Michigan, where recreational marijuana was legalized in 2018, many employers didn’t loosen their requirements on pre-employment drug tests for a few years, according to Tammy Turner, co-owner of Kapstone Employment Services, a Detroit-based staffing agency.

But during the pandemic and the related labor shortages, Kapstone, which works mostly with manufacturers that supply the Big Three car makers, encouraged regional employers to loosen their THC-screening policies for many positions.

“So many of our clients were adamant, in pre-Covid, that they would not accept anyone that could not pass a drug test, even if it was THC,” Ms. Turner said. “We had to encourage some of them to reassess their policy, and they did, and we were able to fill many of those jobs as a result.”

For certain positions, such as those that involve heavy machinery, Kapstone still screens applicants for THC and other drugs, as required by the federal government, said Kerry Buffington, co-owner of the company.

Ms. Buffington and Ms. Turner said they don’t see any of the companies they work with reverting back to their pre-pandemic hiring standards even if the labor shortage eases.

Marijuana use has become so casual among some young workers that Ms. Turner said some potential workers have shown up to her office smelling like the drug, and one worker who was placed by Kapstone got fired after using a vape pen in the workplace. The firm has had to counsel some workers on what is appropriate at work, Ms. Turner added.

Michelle Bearden, chief risk and operating officer for Houston-based staffing and recruiting firm Link Staffing Services Inc., said she has yet to see a strong reason why Link Staffing should move to loosen pre-employment marijuana screenings before the federal government does. She acknowledged the job market has been tight during the pandemic, but said she doesn’t think nixing THC screenings is a good solution.

“[Marijuana] is still on the federal list of prohibited substances, and that is what our policies are driven by at this point,” she said. “If I see that there is an overwhelming reason or cause for us to change ahead of that, we will.”

In Texas, Link Staffing, which mostly hires for the manufacturing and distribution sectors in the Dallas and Houston areas, has made some concessions to fill open roles amid the labor shortage, including by easing background-check requirements, Ms. Bearden said.

And while it can still be tough to fill open roles, Link Staffing and the employers it works with still view marijuana use as a deal breaker.

“We employ people in safety-sensitive jobs, and I think your employers that operate workplaces with high safety concerns—it may still be part of what they view as a hazard in the workplace, for people to be under the influence of anything,” Ms. Bearden said.