By Geoffrey Smith
Investing.com -- The economic damage from a prolonged war in Ukraine could be worse than that from the pandemic, Volkswagen (DE:VOWG_p) Chief Executive Herbert Diess warned in an interview published Thursday.
“The threat of this war for Germany and Europe is huge,” Diess told the Financial Times, pointing to the risk of "huge price increases, scarcity of energy and inflation."
Such fears have already been reflected in a sharp drop in the euro's value since Russia invaded, as market participants bet that the hit to the economy would derail the European Central Bank's plans to normalize monetary policy as the pandemic ebbs.
Diess's warnings come a couple of days after VW, Europe's largest carmaker, was forced to suspend production of some models in Germany, such as the Porsche Taycan, due to a shortage of components. The group usually receives supplies of electrical wiring and harnesses from Ukraine.
VW has already stopped production at its own factory in Kaluga, southwest of Moscow, and in Nizhny Novgorod. It's one of many global automotive groups to cease production in the wake of U.S. and EU financial sanctions that make the reliable import of parts to their facilities all but impossible. However, VW's Russian operations are minor compared to those in the rest of Europe, where it is the biggest private-sector employer in Germany.
Diess said that he was in favor of "maximum sanctions" on Russia, but also urged a quick resumption to negotiation.
"For a society like Germany, depending on Russian energy, raw materials . . . if you imagine a scenario where we cut off business relations with Russia, which we probably would have to do if this conflict (doesn't stop), you could not buy energy any more and this would lead to a situation that might impact Europe and Germany considerably,” Diess said.
His arguments echo those of Chancellor Olaf Scholz, whose government earlier this week refused to go along with the U.S. and U.K. in banning Russian energy imports due to the lack of short-term alternatives.
Diess's wish for negotiations got some satisfaction on Thursday as the Foreign Ministers of Ukraine and Russia met for talks in Turkey, the highest-level contact between the two countries since Russia invaded over two weeks ago. Newswires reported that the ministers would discuss, among other things, the possibility of a meeting between their respective presidents, which would mark an even bigger step toward a diplomatic resolution of the war.