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Germany Weighs Measures Against U.S. Over Nord Stream Threat

Bloomberg logo Bloomberg 6/26/2020 Patrick Donahue and Brian Parkin

(Bloomberg) -- Germany is preparing to strike back against the U.S. if President Donald Trump follows through on his threat to kill off the Nord Stream 2 gas pipeline with additional sanctions.

Chancellor Angela Merkel’s administration is considering pressing for coordinated European Union action, according to two German officials familiar with the discussions. An economy ministry paper seen by Bloomberg News said such measures by the U.S. would be new and could hit significantly more German and European companies and banks as well as state agencies.

Anna Sophie Eichler, an Economy Ministry spokeswoman, said at a news conference Friday that she is unaware of any counter-sanctions being considered by the German government.

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a close up of Angela Merkel wearing a blue shirt: Day Three Of The World Economic Forum (WEF) 2020 © Bloomberg Day Three Of The World Economic Forum (WEF) 2020

Angela Merkel

Photographer: Jason Alden/Bloomberg

The 1,200-kilometer (745 mile) pipeline under the Baltic Sea, designed to pump Russian gas directly to Germany, has triggered deep division between EU member states. But the prospect of a direct U.S. intervention in the 27-member bloc’s energy interests should prompt a collective response, said the officials, who asked not to be identified.

The new German strategy adds the possibility of further escalation between the transatlantic allies, with the U.S. this week announcing potential tariffs on $3.1 billion of products from Germany and other European countries. Trump has also reiterated his intention to cut the number of U.S. troops in Germany and renewed a threat to hit the German auto industry with a new set of levies.

Flashpoints between the two sides are multiplying as Trump’s reelection campaign runs into trouble and the Covid-19 pandemic threatens to get out of control in the U.S.

On Friday, EU diplomats are holding talks over whether to maintain a ban on U.S. travelers when external border controls begin to lift last week. The officials are aiming to draw up a list of which countries’ nationals will be allowed in and may use infection rates as one of their criteria, which would potentially see the U.S. excluded.

In a Twitter post, German Health Minister Jens Spahn pointed to new infections in the U.S. as a sign that the pandemic has yet to peak.

Read More: Trump Ignores Virus Spike as U.S. Cases Surge to Record Level

The Europeans though are trying to ease the friction over digital taxes after the U.S. pulled out of talks aimed at finding a global agreement on how to tax internet giants like Facebook Inc. and Inc. In a letter to U.S. Treasury Secretary Steven Mnuchin seen by Bloomberg News, France, the U.K., Italy and Spain offered to initially limit the tax to automated digital services like search and social media, while excluding retailers like Amazon.

Trump has been ramping up his attacks on Germany since Merkel helped to derail his plans for a Group of Seven summit at Camp David this month and Nord Stream, owned by Gazprom PJSC, is a longstanding target. He told a rally last week in Tulsa, Oklahoma that Germany is “delinquent” on defense spending and dispatching “billions” to Vladimir Putin.

“We’re supposed to protect Germany from Russia, but Germany is paying Russia billions of dollars for energy coming from a pipeline,” Trump said. “Excuse me, how does that work?”

U.S. sanctions signed by Trump that targeted pipe-laying vessels in December threw the pipeline’s completion into disarray. While German officials said the project would merely by delayed, new measures proposed by U.S. senators could put Nord Stream in permanent danger, the German officials said.

But any response, including sanctions, would have to be weighed carefully, one official said. With Trump’s poll numbers sagging four months ahead of the U.S. presidential election, he could follow through on previous tariff threats -- notably on German autos, the official said.

Read More: Why World Frets About Russia’s Nord Stream 2 Pipeline: QuickTake

German Economy Minister Peter Altmaier issued a warning over the legality of the new measures earlier this month, signaling that imposing them could bring a new low to transatlantic relations.

“The German government has long had the view that sanctions with extraterritorial effects are in conflict with international law and that they’re not a contribution to advancing international cooperation,” Altmaier told reporters in Berlin on June 12. “This position hasn’t changed.”

Bundestag lawmakers on the economic affairs committee discussed potential retaliation in a June 17 meeting. The committee chairman, Klaus Ernst of the anti-capitalist Left Party, said parties were in agreement that such measures violated international law.

“The government is called upon to develop and put forward proposals for a measured, clear reaction on behalf of Germany and the European Union,” Ernst said in a statement after the closed-door meeting.

Pipeline Timing

German industry is concerned that the new raft of sanctions may prompt counter sanctions in Europe, which it opposes on the strength of U.S.-EU trade ties and traditional allegiances, Michael Harms, the managing director of the BDI lobby’s East European Committee, told reporters last week. Some 670 companies from 25 nations have worked on the pipeline, according to Harms.

Gazprom, which has vessels docked off Germany’s Baltic coast, is set on completing the pipeline in the face of U.S. resistance. It made a request with authorities in Copenhagen to operate so-called DP3-class vessels in Danish waters.

The Akademik Cherskiy, a vessel that Russia could use to build the remaining stretch of the gas-export link, arrived at a German Baltic port last month after a two-month voyage from the Sea of Japan.

The German ministry paper said it was unclear how the Russians planned to proceed with some 150 kilometers remaining for the pipeline but it would need to resume work this summer to complete the work by early 2021.

(Updates with ministry spokeswoman in third paragraph)

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