This is an audio transcript of the FT News Briefing podcast episode: ‘Germany’s tank dilemma

Marc Filippino
Good morning from the Financial Times. Today is Tuesday, January 24th. And this is your FT News Briefing.

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Investors are tiptoeing back into the market for Chinese property bonds. Germany is under pressure to send its Leopard tanks to Ukraine, but Chancellor Olaf Scholz is resisting.

Ben Hall
And I think there’s huge frustration about the, the mealy-mouth explanations from Berlin.

Marc Filippino
Plus, a European Union ban on Russian diesel is about to go into effect. It could be painful for Europe. I’m Marc Filippino. And here’s the news you need to start your day.

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Some foreign investors are returning to the Chinese property market. They’re once again starting to buy bonds issued by the country’s highly indebted real estate developers. Chinese developers were at the heart of a real estate implosion sparked by a government crackdown on high debt levels. But Beijing’s been easing up and China’s high yield dollar bond index has recovered almost 50 per cent from its record low in November. Still, there’s been no rebound in bonds from developers who have already defaulted, including China Evergrande.

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The EU is about to lose its main source of diesel fuel. Early next month, sanctions on Russian refined fuel imports take effect and that includes diesel fuel. The move is meant to pressure Moscow, but there’s concern it could backfire. Here’s the FT’s Tom Wilson.

Tom Wilson
Russia has been the main source or the biggest source of diesel importing to Europe for decades. And that twenty . . . even this month, about 25 per cent of Europe’s diesel is coming from Russia. So getting rid of that overnight, which effectively happens on the 5th of February, is a big move.

Marc Filippino
So if Europe stops importing Russian diesel, can Russia still sell its diesel elsewhere?

Tom Wilson
So that is the big open question. Since the embargo on Russian crude oil, which came in at the start of December, Russia has been able to sell its crude oil to India and China, albeit at a big discount. We don’t know yet whether Russia and China will be willing to buy Russian diesel. Historically, they have it because they have their own refining capacity and basically if they don’t, so if we don’t see Russian diesel barrels that used to come to Europe flowing to India and China instead, then we’ll basically see that diesel will have to come off the market, which will mean the markets, the global market of diesel, will become tighter and prices will go up, particularly in Europe.

Marc Filippino
And who might be most affected by that, Tom?

Tom Wilson
Everybody would be affected in Europe. I mean, certainly those that drive diesel vehicles, but also diesel is the key fuel of the industrial economy. So it’s really the, the driving fuel of construction of heavy vehicles. And so you could see a rise in diesel prices in Europe would immediately have an inflationary impact on lots of parts of the economy.

Marc Filippino
Now, is there a chance that the impact could be minimal?

Tom Wilson
On the positives are that Europe is going into this bend relatively well prepared. So over the last six months with an eye on this 5th the February date, European oil and diesel traders have been massively increasing their imports of Russian diesel into Europe. So storage tanks are full across the continent, which should provide a bit of breathing space.

Marc Filippino
Tom Wilson is the FT’s energy correspondent.

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So in Berlin last week, protesters gathered in front of the chancellor’s office and chanted “Free the Leopards!”

(people chanting “.. now! free the Leopards now!”)

They’re referring to the country’s prized military tanks and they want Germany to send them to Ukraine. So far, Chancellor Olaf Scholz has been dragging his feet. To talk about why, I’m joined by our Europe editor, Ben Hall. Hey, Ben.

Ben Hall
Hello.

Marc Filippino
How hopeful would Germany’s Leopard tanks be to Ukraine’s war effort?

Ben Hall
Well, it is a state of the art modern heavy battle tank. But perhaps most importantly, it has the advantage of availability. There are about 13 European armies that operate a total of 2000 Leopard tanks. So that means that Ukraine could draw on far greater pool of tanks than it could if it needed American ones, let alone French or British Challengers, which are in far shorter supply. So it provides Ukraine with more options for supply and for maintenance and support.

Marc Filippino
So Ukraine wants these tanks. They need these tanks. Why won’t Germany send them?

Ben Hall
I think the primary reason is history. It’s gonna be difficult for any German chancellor to send German tanks to Ukraine to once again kill Russians following the second world war. They fear, above all, that any decision to send Leopard tanks will be seen as a German-led provocation to Moscow and that Moscow might lash out and might embroil Nato in the war in Ukraine and Germany is deeply concerned about that escalation risk, or at least Olaf Scholz is. That said, his coalition partners, the Greens and the Free Democrats are in favour, as are the main opposition party, the Christian Democrats, as are several of Germany’s Nato partners. And I think there’s huge frustration about the, the sort of prevarication, the mealy-mouth explanations from Berlin and a sort of sense that eventually Berlin will come round, but it will take weeks, if not months. And by that time, more Ukrainians will have been killed.

Marc Filippino
I see. So time is of the essence. And Ukraine’s been pressuring its Western allies for more tanks right now. Why is that?

Ben Hall
Because Ukraine needs Western armour and not just former Soviet designed tanks. It has captured over 500 from the Russians since the war started. We don’t know how many of them were actually in combat ready or wrecked and how many they’ve managed to mend. And it has got about 240 Soviet designed tanks from Poland and the Czech Republic. But it’s also losing quite a lot in battle, and it will eventually run out of spares and ammunition for Soviet designed tanks because there are few sources of them. So it needs to start using Nato’s standard equipment, as it has done with artillery. So this is an inevitable process, but Ukraine needs the, needs to get a move on now. It thinks there may be a window for a renewed offensive, a counter offensive this spring. And it’s also, obviously needs firepower to fend off another Russian attack.

Marc Filippino
Ben, what happens if Germany doesn’t send the tanks?

Ben Hall
If Ukraine is not given Leopard tanks, it may well find it harder to retake territory in so-called combined arms manoeuvres — infantry, tanks and artillery working together to retake land occupied by the Russians. That said, there are military experts and America’s top brass that were indicating tanks aren’t the be-all and end-all, and that infantry fighting vehicles might actually be more important for the Ukrainians in the coming weeks and months, since it could take several months for tanks to actually join the fight and for Ukrainians to be properly trained on how to use them.

Marc Filippino
That’s the FT’s Europe editor, Ben Hall. Thanks, Ben.

Ben Hall
Thank you.

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Marc Filippino
You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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