Deutschland’s Dilemma

• 19-Sep-22
• admin

German Economics Minister Robert Habeck was quoted in the press last week to say that it’s okay for German industry to shut down for a while when it is short of energy to fuel it.

 

How long is “a while”? And how about those which cannot survive the stoppage of business and the loss of revenues? Or retrenched workers?

 

I would have thought that the German government is trying very hard to find a solution to the energy crunch so that industry can continue to operate. Isn’t that the job of a German

economics minister? Apparently not.

 

We know that Habeck is from the Green Party, so perhaps in his mind, the temporary closure of industry driven by fossil fuels is a lofty goal to be achieved for the betterment of the

country. The stalling of the country until green energy sources become widely available seems to be intended to break German dependence on fossil fuels from Russia, and perhaps, we should just drop the words “from Russia”. There seems to be little concern from the second highest ranking leader in the German government that economic collapse is about to occur.

I suppose this is something like religion. A hermit in the desert or for that matter, a monk living on mountain-tops, would not need to worry about the material things in life. I don’t know anything about Habeck’s religious affiliations, but his policy statements as the person responsible for economic performance in the largest EU economy seem to indicate a frame of mind that losing the crass comforts of 21st century life is perfectly fine.

It is not the first time that Habeck has shown that he is not too concerned about the “temporary” collapse of industry, while waiting for renewables to revive what will be a

devastated economy without fossil fuels. (I assume that it is the absence of concern rather than the existence of ignorance, which spells an even worse situation for Germany and the EU). Germany is deliberately turning medieval, back to the age of monastic minimalism.

Habeck was also the guy to recommend to his people not to take baths in winter and just wipe down two or three parts of the body when they need to. I wonder if the German people agree with his vision for an ascetic lifestyle.

Even if the green transformation is broadly accepted in the country, it cannot get there in a single step. The current energy crisis will not offer a pleasant transition. Germany is a rich and successful economy. They might have forgotten what hardship feels like. Habeck, as one of the key leaders of the green revolution and that faction in German politics that is well prepared to give up growth for the sake of the planet, has stated his case for preferring the collapse of industry rather than negotiate for fossil fuels with Russia.

He does not want to look weak begging for gas, preferring for the German economy to become weak.

Germany will eventually get over its self-imposed economic crisis, but I wonder if Habeck, his colleague, Annalena Baerbock, the foreign minister, as well as their leader, Olaf Scholz, will become the unholy trinity that will bring economic transformation via a path of industrial degradation without losing their mandate to rule. I would not be surprised if they are all “regime-changed” away in a few months, given the attitude which Habeck cynically expressed last week.

This actually brings into focus the state of popular government in all of Europe. The world has seen how in the past two weeks, a sense of discontent, to put it mildly, on how their governments are trading off economic comforts to support noble principles in politics has emerged as a voice to be reckoned with. There have been massive protests against that choice in Berlin, Prague, Paris, Brussels etc (I can’t remember them all…), essentially to get EU governments to reassess the situation about Ukraine. And they are pushing for a resolution of the conflict before they really begin to miss their baths, their heating and perhaps even their toilet paper (said to be in short supply because those plants don’t have enough energy to make them).

But at the governmental level, they are uncompromising – always thinking of ways on how best to hurt Russia so that they will pull their troops out of Ukraine. These plans are not withering away after six difficult months. The economic sanctions are getting more vicious and widespread, and of course, so will the corresponding blowbacks be. 

Well, if Habeck has his way, Germans will be green and ascetic enough to survive its gasless winters, after German industry has collapsed back to the stone age, with Europeans facing unprecedented industrial unemployment and living as hunter-gatherers once again. Perhaps the upside of that is they saved Ukraine. 

In that regard, the Ukrainians are actually giving hope that the effort to fight Russia might have some traction.

Not in Kherson, though, the southern city on the Black Sea which was the site of a much heralded counter-offensive. That started about two weeks ago, when the Ukrainian army launched an attack at three points on the front with 30,000 troops and 15,000 in reserve. After just a couple of days of fighting, the Russians got the better of them, and blunted the offensive where it started out from. No territorial gains were made for the significant loss of manpower. It was an unmitigated disaster.

But over in the Kharkiv region after the Kherson offensive failed, the Ukrainians were able to launch a smaller offensive with 9,000 troops to take the town of Balakliya and then Izyum. Zellensky announced his army succeeded to take 2,000 sq km back from the Russians (other sources said 700 sq km).

To put things in perspective, the territory now held by the Russians and their allies, the militias of the Donetz and Luhansk republics, is about 20 percent of a country with 600,000 sq km, or about 120,000 sq km. The territory said to be taken back is therefore minuscule. Also, the battle between 9,000 Ukrainians and their Russian foes is a smallish engagement in a war that has seen nearly a half million combatants on both sides (200,000 from Russia and 260,000 from Ukraine).

But in the propaganda war, the west has the upper hand. The victories at Balakliya and Izyum present good optics. They have not had it this good since the Ukrainians claimed the relief of Kyiv on the battlefield and the six months of being on the defensive in the Donbas. The Kharkiv successes provided the narrative that providing money and weapons to Zellensky have been worth it. It does not matter that this latest victory may not be what it is proclaimed to be. For the moment, we are hearing no end of it…

The war of words is quite pronounced. The Ukrainian version of the story is they have succeeded in this counter-offensive, having taken back that 1000-2000 sq km from the occupiers in a short time. They are ecstatic to have accomplished this. And just in time too, with the Kherson attack failing and there is this meeting in Ramstein airbase in Germany among western defence ministers deciding if the participating countries wanted to send more weapons to sustain the Ukrainian war effort.

Of course, there are counter-narratives from the Russians. One statement was made by a Russian commander who said that if one believes the Ukrainian story, they did not know how the Russian military operates. The claim is that the Russian military knew of an Ukrainian effort building for days, and when their own army was pulverizing the Ukrainians in the south, they did not want to deploy troops against this smallish Ukrainian force. And since the Russian army’s defensive doctrine is based on mobile reserves in the rear, it is thought that the Ukrainian attack would soon be subdued as Russia moves men and resources into Kharkiv oblast.

As a matter of fact, the last time I read about such a defensive strategy was in the Yom Kippur war, when the Israelis similarly stationed lightly armed units along the Suez Canal even though they were expecting the Egyptians to attack in Sep 1973, as they were relying on armoured reserves just about 100 or so km behind the front. That kind of defence is very manpower-efficient and worked well in the 1973 war. We all know what happened when the much-trumpeted initial success of the two Egyptian armies were overwhelmed by an Israeli crossing of the Suez Canal and eventually forced them to surrender.

It too early to predict how the battle will proceed in the Kharkiv area and whether the Zellensky boast is a little too confident. But there is no question that the Ukrainians have secured a temporary media win.

What will happen next is easy to predict. This battle zone is close to the Russian border. It is not even as far as the Israeli armoured reserves were from the Bar-Lev line of static forts manned by light infantry along the Suez Canal when the Egyptians captured that in Oct 1973. And the counter-attack by the Russians has already begun. Missiles are being launched by bombers on the war zone. It is apparently not to recapture territory, but to continue to destroy the Ukrainian military, since the 9,000 soldiers of the Kharkiv task force would be an elite formation. We should be seeing a reversal of that Ukrainian success soon enough. Is that in doubt, given it is a mere 9,000-man force? Who has the greater military strength with close logistical support in that region, given time to react over vast territories? Pro-Russian sources have actually described it as a deliberate Russian trap. Then there is a third narrative on this Kharkiv battle that seems to be quite comprehensive and less propagandistic. It is written by a San Francisco based analyst under the pseudonym, Big Serge, in the independent media, Substack.com.

 

“Ukraine Counterattacks! Please Remain Calm Big Serge Sep 10

In the last 72 hours or so, the pro-Russian side of the internet has been sent into a tailspin of panic over a new Ukrainian counteroffensive which is currently being launched in the Kharkov region, with the intention of compromising the Russian army grouping at Izyum. The panic was triggered by claims that Ukraine was advancing unopposed, encircling - or perhaps even capturing - the city of Balakliya - and on the verge of cutting off supply lines to Izyum.

If you will indulge me, I would like to revive a bit of optimism.

My view is fairly simple: Ukraine cannot and will not reach meaningful objectives - what we call “operational depth” - and has in fact thrown much of its carefully crafted premium reserves into a dangerous position. I believe it’s highly likely that these top rate Ukrainian formations are about to be savaged - but this is still an important learning moment for Russia.

Let’s just get straight into it, starting with an overview of the geography of this area, why Izyum is important, and why Ukraine has very poor prospects of reaching meaningful operational objectives. I

zyum: Gateway to the Donbas

A modest city with a prewar population of perhaps 50,000 people, Izyum was always slated to be a focal point in this war, due to its location at a critical intersection. The topography of northeastern Ukraine is dominated by a few critically important features which determine patterns of movement. These include the crucial E40/M03 highway, which connects the metropolis of Kharkov and the urban agglomeration of Slovyansk and Kramatorsk, which are the largest and most important cities in the western Donbas. The region is furthermore shaped by the Severodonetsk River - alternatively called simply the Donets (from which the Donbas, or Donets Basin, draws its name) - which snakes lazily around the plain.

The Donets forms a geographic barrier between the Donbas to the south and the Kharkov region to the north, while the E40/M03 highway forms the main arterial for transit between Kharkov and the urban centers of the western Donbas. Izyum is a strategically crucial city because it is where the highway crosses the river; as an added cherry on top, the Oskil River - a major tributary of the Donets - confluences with the Donets less than five miles to the east of Izyum, meaning the city essentially sits directly on the intersection of all the most important geographic features of the region. A highly simplified map of the area looks like this:

 

 

Capturing Izyum was a major objective for Russia in the early weeks of the war (as I argued in a previous piece, this was a major reason for the pinning move on Kiev), because it not only interdicts and complicates supply to Ukrainian forces in the Donbas, but it also gave Russia an early position on the Donets river.

It is obvious why Ukraine would want to dislodge Russia from Izyum. This would simplify and secure lines of communication to Slovyansk and greatly complicate the Russian push in the Donbas by freeing Ukraine’s northern flank. To achieve this, they are attempting a thrust toward Kupyansk, with the aim of cutting the line connecting Izyum to Belgorod in the north. This operation, I believe, is doomed to spectacular failure.

Operational Depth

The panic that set in on the Russian side (on the internet, at least, for there is no evidence that the Russian armed forces panicked) was due to the perception that Ukraine was advancing unopposed towards the east, rapidly approaching Kupyansk and doing… something, to Balakliya. Whether that something is encircling, capturing, or merely screening remains to be determined, as conflicting reports abound at the moment. It is prudent, however, to think about what it means to “advance.” This is a highly contextual question, which depends entirely on the level of resistance being offered and the proximity to operational goals. Here, we can introduce a notion in military theory that we call “Operational Depth.” Please note, this is not a specific distance - it’s not 20, 50, or 100 km, but it could be any one of those depending on the situation. We’ll define it like this:

     Operational Depth refers to the level of advance wherein the attacking force is no longer attacking the enemy’s frontline elements, but is instead directly assailing the enemy’s ability to sustain itself in combat.

What this means in practice is that instead of fighting the enemy’s deployed combat units, the attacking force finds itself directly attacking the enemy’s lines of communication, supply depots, command centers, reserves and assembly points, and all the other facets of the rear area. In short, this is the phase where an offensive is exploited. Rather than simply fighting the enemy’s forces, you begin to destroy his ability to sustain and deploy forces altogether.

Now, there are a few major factors which lead to the inevitable conclusion that Ukraine cannot reach operational depth in this counteroffensive - furthermore, in the absence of such a success, they will be savaged and suffer horrific losses. Let’s run through the issues here.

Izyum: The Non-Salient

In military parlance, a “salient” simply means a bulge in the frontline, where one side has achieved some level of penetration at a particular point. A salient is a classically vulnerable position - a glaringly obvious operational focal point, because simultaneous attacks at the base of the bulge can easily cut it off and trap the forces inside. Essentially, a salient is a position where a force is already encircled on 3 sides, leaving only the exit to be snapped shut. In the opening phase of the war, Izyum was indeed a salient. Russia had captured an exposed position which jutted out into Ukrainian territory, and there was talk of a Ukrainian counteroffensive to take advantage of this. Furthermore, the only safe supply line to Izyum ran through Kupyansk, making this a vulnerable position indeed. Here’s a map from Ukraine War Mapper from early May, for reference:

This is a Salient

 

However, throughout the following weeks, Russia took control of the territory directly to the east of Izyum, including the town of Lyman. This concretized the Russian flank and secured additional lines of communication into Izyum, creating redundancies for the highway from Kupyansk. Behold the map in August:

The window of opportunity for an easy encirclement or interdiction of supply to Izyum ended when Russia cleared all the Ukrainian forces from the north side of the Donets river. Supply lines to Izyum are now shielded from the south by the Donets, and from the west by the Oskil.

Because Russia has redundant supply lines to the northeast of Izyum, for Ukraine to reach operational depth, they must cross the Donets and Oskil rivers. Even suppressing Kupyansk is not enough to disrupt Russia’s ability to project force here. The Oskil river - which, incidentally is more than a kilometer wide in places - presents a major barrier that will prevent Ukraine from exploiting their early advances. They have more or less advanced into a wall, and already the map presents an unfolding catastrophe for them. Courtesy of Rybar:

This is a Salient with Ukrainians inside

In short, the Ukrainian advance has been too slow and lacks a clear path to reach operational objectives. Already, Russia has begun to deploy huge reserves to this theater, and fear is beginning to show among the more operationally aware Ukrainians. One Ukrainian journalist at the front had this to say:

   “There is heavy fighting near Kupyansk, worse than Balakleysky. We are taking heavy losses. The enemy is transferring a bunch of reserves by air. The “Wagnerites” have already arrived in the city itself. The sky is filled with aircraft. Hearing about all this, a haunting feeling of an ambush arises in the soul. What if this all really turns out to be a strategic level ambush?”

I do not believe this is an “ambush” per se by the Russian army. The word ambush implies that the Russian forces were already in position, drawing the Ukrainians into a specific maneuver plan where they could be attacked from prepared positions. That’s not what’s happening at all - Russian forces are coming in fresh from reserve and were not pre-deployed to the sector. What the operation reflects instead is Russia’s preference to wage a high-firepower, mobile defense. Frontline positions are, relatively speaking, thinly manned, which powerful mobile reserves are held back. This is a flexible, firefighting approach which allows the Ukrainians to advance into vulnerable positions so that they can be destroyed.

For Ukraine, one of the basic problems is that Russia has such an enormous advantage in firepower - aircraft, tube artillery, rocketry, and tanks - that any offensive must reach operational depth quickly in order to disrupt Russia’s ability to bring this firepower to bear. In the Izyum sector, this simply isn’t possible. Lacking the ability to operationally compromise Russian forces here, Ukraine will find itself in a good old fashioned shootout against an enemy with vastly superior firepower - not only that, but it is in fact Ukraine that now faces operational complications, having blasted their way into a salient with no prospects for crossing the Oskil in force and exploiting.

What Happens Now?

It seems probable to me that Ukraine’s advance has reached, or is nearing its culmination, as Russian reserves flood into the area, Russia missile strikes attack the Ukrainian command post in Chuguev, and Russian aviation and artillery begin to lay it on thick. The choice Ukraine now faces is whether to continue to funnel forces into the salient that they have created for themselves - in other words, Ukraine now gets to decide the scale of its losses. According to Ukrainian insider channels, they are currently planning to double down and feed more reserves in, promising a correspondingly larger defeat.

I don’t like to make concrete predictions about dates or casualty numbers. There are far too many unknowns for anyone to actually think they can predict such specifics. But regarding the general trajectory, I am confident predicting that Ukraine’s offensive is nearing the high water mark and will soon become a mass casualty event for the Ukrainian army. It may take a few more days for the situation to stabilize entirely, but that point is rapidly approaching and many of Ukraine’s best units face destruction.

However, I would be remiss if I did not make an appropriate critique of Russia’s conduct of this operation. There are still important lessons to be learned.

Future Conduct of the War

While the actual counteroffensive is turning into a catastrophe for Ukraine, the fact that they were able to launch this operation at all has important implications, specifically in regards to Ukrainian manpower.

Russia has been fighting an economy of force operation that aims to destroy the Ukrainian army through attrition. Ukraine’s ability to launch two counteroffensives (Kherson and Kupyansk-Izyum) suggests two important reasons to modify Russia’s force deployment.

1) The Deficiency of Tripwire Defenses

Many sector’s of Russia’s front are thinly manned, with forces being held in reserve to wage a mobile defense. The actual troops at the front amount to a string of token forces who are there primarily to try to slow the enemy while reserves are brought forward. While holding a mobile reserve is the correct approach given the force deployment that Russia has made, this is problematic because it allows the Ukrainians to make temporary gains. In an operational sense, this isn’t a catastrophe. Russia has the firepower and mobility to crush these offensives. The problem is that it allows Ukraine to temporarily retake settlements, which exposes the civilians in these areas to reprisal killings, such as occurred in Bucha. In the current example, we can look at Balakliya.

In and of itself, these city does not have major operational value, but it does have Russian civilians in it who would be exposed to Ukrainian revenge if the city was temporarily recaptured. Russia must reconsider its force deployment so that it can more firmly hold settlements at the frontline for the sake of these civilians.

2) Ukrainian Force Generation

Ukraine’s meta-strategy so far is predicated on a two-tier army. The lower tier consists of poorly trained cannon fodder who man defensive belts and slow down the Russian army with their bodies, by forcing an exchange of artillery shells for their lives. This is the army that Russia is attriting at horrific loss ratios in the Donbas. The first tier Ukrainian army are the forces that are being trained and equipped by western handlers. The Ukrainian scheme is to delay Russia by trading their conscript cannon fodder while they assemble the first tier forces for counteroffensives.

Ukraine has demonstrated that, even if they haven’t competently used these first tier forces, they still have the capability to assemble real strike packages with western help, so long as the lower tier army is able to buy time. This calls into question the Russian strategy of attrition, because it means that Russia is attriting soldiers that Ukraine doesn’t care about. It is probably unwise to allow the west to build yet another army in the rear for yet another wave of counteroffensives. Russia should evaluate ways to deny Ukraine access to its manpower pool and raise its force deployment to that effect. Nikolayev, Dnepropetrovsk, Zhaparozhia, Odessa, and Kharkov must be taken from Ukraine to that end, and the Russian army must become serious about destroying Ukrainian infrastructure and logistics to prevent Ukraine from continuing the buildup of first tier forces in the rear.

Russia continues to attempt to win the war with a light hand - bare minimum force deployment and precision strikes, sparing critical infrastructure. While the defeat of the current counteroffensives demonstrate that it is still well on the path to victory, the mere existence of these counteroffensives suggests that Russia must raise its force deployment - taking advantage of its significant powers of force generation - and deny Ukraine access to its population pools, or else victory may well be slower and more costly than necessary.”

 

I cannot claim that I am familiar with the geography of the Kharkiv region as Big Serge above. I can see his argument that with the Oskil River at its back, it will be difficult for the Ukrainian force of 9,000 men to take it further than what they have admirably accomplished. Once the Russians start to retaliate, Big Serge is right to say that it will be a matter of when the Ukrainian army will have to cut losses.

Since the Yom Kippur war is already history, we can make certain comparisons between this and the current Ukrainian counter-offensive, as follows:

1) Yes, I do think that the Russians don’t have enough manpower to effectively garrison all the territory they have taken (120,000 sq km). Remember, they have not mobilized their army. This is still just a “special military operation” run by 200,000 men, that’s it. I have also said so some weeks ago in a previous Weekly.

2) If you have a limited number of soldiers, you have to choose where to fight. Assuming that they knew that there was a force of 45,000 in Kherson and 9,000 in Kharkiv, and that the area around the Crimea or on the road to Odessa is more important to them that an area so close to the Russian border, it seems obvious that the Russians will prefer to focus on Kherson directly and wait for the Ukrainians’ small attack force to get over-extended in an easy-to-defend area next to the Russian border. On the other side, the Ukrainians tried to do too much, attacking the Russians in the south as well as in the northeast, almost at the same time, just because they were under pressure to show results ahead of the Ramstein meeting of western defence ministers looking to evaluate the Ukrainian combat report card.

3) The Ukrainian intelligence that the outskirts of Kharkov had Russian troops transferred to Kherson was a good enough reason to launch their attack there and it was predicated on achieving a media victory. And they did.

4) Now that the battle has been joined, it’s beginning to look like Yom Kippur 1973. There was a large Egyptian force attacking the Israeli’s lightly defended force along the Bar Lev line, with 200,000 Arab soldiers and they were spectacularly successful in the first week.

5) When the Israelis launched their counter-attack, the Egyptians were soundly defeated. The Egyptian 2nd and 3rd Armies in the Sinai were quickly surrounded, when their tanks were wiped out by superior Israeli firepower. Eventually, lacking supplies, these armies surrendered.

6) While the Kharkiv battles have not reached this scale of engagement, and we are actually observing a minor action that pales in comparison to the Yom Kippur battles, in both territory or manpower involved, nor has the Ukrainian action been defeated yet, the military outcome is likely to be the same. The Ukrainian force is in too deep for them to be successfully supplied to sustain action against a far superior army close to their logistical bases in their motherland. Very difficult for the Ukrainians to eventually win this one.

7) With that said, even if the same were to happen to the Ukrainians soon to be trapped outside Kharkiv, they have achieved the real objective which the Kyiv government wants – to be able to offer the narrative that they can take territory back from the Russian invaders.

8) The above is a PR victory for Kyiv. The war will now go on longer than if Ukraine’s supporters come to believe that the Russian military cannot be defeated even temporarily by what’s left of the Ukrainian army. Weapons and money will keep flowing to Kyiv, which in the long run, will spell disaster for the rump state of Ukraine.

9) In the Oct war, Israel won a decisive military battle in the end but Egypt (not Syria though) drew first blood. That was enough to convince both sides to sit down and talk peace, and within a few years, they got that done.

10) While I think that Ukraine cannot win the final battle against Russia, perhaps this smallish success outside Kharkiv may be a catalyst to a peace process. I hope so. If it doesn’t, it would be because the win was just too small for the Russians to take it seriously.

 

In the meantime, there is jubilation in the west that Ukraine is still in the war. It is actually quite sad because that is nominally true but in fact, the country has been devastated and eventually will have to come around to peace, with or without their lost territories. Nobody, not Ukraine, not the EU, not the US nor Russia, can keep this up forever.

And in that order of things, Ukraine is already a failed state, unlikely to recover for decades to come. The US and Russia would not collapse over this war, but the fourth player might. That’s Europe.

Its currency, the Euro, with that of the UK, Sterling, cannot recover from multi-decade lows if the war and its accompanying sanctions do not end.

Consider this comment by German left wing politician Sahra Wagenknecht this last week who spoke during a debate at the Bundestag. Germany’s government is the “stupidest” in Europe for managing to embroil itself in a fullblown “economic war” with its top energy supplier, Russia, left-wing politician Sahra Wagenknecht said on Thursday.

Speaking in the Bundestag, the former co-chair of the party Die Linke (The Left) urged an end to anti-Russian sanctions and the resignation of the country’s vice chancellor and economy minister, Robert Habeck.

While describing the ongoing conflict in Ukraine as a “crime,” Wagenknecht said the anti-Russian sanctions are “fatal” for Germany itself. With energy prices out of control, the country’s economy will soon “just be a reminder of the good old days,” the MP warned, as she urged cancelling the restrictions and engaging in talks with Russia.

“We really have the stupidest government in Europe,” she told the parliament, calling for Habeck to resign.

“The biggest problem is your grandiose idea of launching an unprecedented economic war against our most important energy supplier.”

“The idea that we are punishing Putin by impoverishing millions of families in Germany and destroying our industry while Gazprom is making record profits – how stupid is that?” Wagenknecht wondered.

 

Actually, I am wondering about the same thing.........

 

 

 

Wai Cheong

Investment Committee

The writer has been in financial services for more than forty years. He graduated with First Class Honours in Economics and Statistics, winning a prize in 1976 for being top student for the whole university in his year. He also holds an MBA with Honors from the University of Chicago. He is a Chartered Financial Analyst.