Anti-nuclear movement, helping the German economy go wrong

This week we have witnessed the incredible announcement by German Chancellor Angela Merkel saying Germany will abandon nuclear power totally by 2022, when it will shut down the last 3 remaining nuclear plants that will be in service on that date. Germany has a total of 9 nuclear plants providing energy to the grid as of now, accounting for 23% of the energy mix. Merkel's bet is to replace nuclear power with renewable energies, a move that is expected to harm the German industry greatly by increasing its energy bill. In fact this will be the second most important factor to hit Germany's industrial competitiveness in a row, the first one being the actual exchange rate of the euro against its clients' currencies. 

Neckarwestheim nuclear plant

Even though Germany is the world's 4th biggest economy and Europe's number one, it is not bullet-proof. The last thing the German industrial sector needs is its energy bill rising non-stop or being unpredictable. Because let's face it, whether you are pro-nuclear or anti-nuclear you know shifting from nuclear power to any other source of energy is an expensive move. 

In the case of Germany, the shift will be made towards renewable energies, which are expected to add up to 35% of the total energy mix in 2022 (up from 13% today). In a country where the industrial sector takes more than 50% of the total energy used, the main problem with renewable energies will not be their price, but its unpredictability causing blackouts. The sun not shining, the wind not blowing or simply a specially cold winter day could cause a blackout on peak-hours. When renewable energies are used to cover domestic demand, this unpredictable behavior can be covered with some natural gas power plants, which are fast enough to be plugged into the grid when needed and disconnected shortly afterwards. But industrial demand is far bigger and more important, so that could mean said natural gas plants have to be on most of the day to avoid power disruptions, which would probably kill Merkel's objective of slashing carbon emissions by 40% in 2022, meaning she would have hurt German industry for nothing.

So what are the reasons for such a sudden rush in leaving nuclear energy behind?

The tsunami reach on the global economy

On previous posts we have done a brief analysis on the devastating effects of the earthquake-tsunami combo on the Japanese economy. To have a more general and complete view of the events, one has to look at the other side of the story too, the collateral effects the damage suffered by Japan will have on the global economy. Over the last days we have heard words of relief from Japan's government and from analysts saying that the bite on Japanese GDP will not be as big as thought on first instance. But, no matter how fast the world's third biggest economy can recover from the disaster, the weight of said economy makes it impossible to dismiss the effects it  will have in the coming months (and is having as of now) on the march of the global economy.

Countries affected

The first wave to affect the global economy was a logic fund repatriation, specially from Japanese banks and insurance companies in need of liquidity to begin with reconstruction tasks at home. This initial repatriation made the yen go higher instead of immediately falling as expected, but this is not something to fear specially for the rest of the world. What some people are fearing is that Japanese mutual funds, hedge funds and instruments alike began to massively withdraw their positions over the rest of the world to take their money back home. If this movement is done gradually no significant damage would be done, Japanese money would simply be substituted by somebody else's money. But if this repatriation was to be done massively it would pose an important threat, specially for emerging markets. Emerging markets usually rely on bigger economies' capital to fund their growth, to the point where a runaway of Japanese money could partly derail short-term growth expectations for some emerging markets. I am not talking China, Russia or Brazil here which are exposed but big enough to not notice a heavy change. I am talking about smaller markets like South Korea, Singapore, Hong Kong, Taiwan, Malaysia, Thailand, South Africa or Chile.