"BERLIN -- Two decades ago, Germany revived its moribund economy and became a manufacturing powerhouse of an era of globalization.
Times changed. Germany didn't keep up. Now Europe's biggest economy has to reinvent itself again. But its fractured political class is struggling to find answers to long-term headaches and short-term crises, leading to a growing sense of malaise.
Germany is expected to be the world's only major economy to contract in 2023, with even Russia experiencing growth, according to the International Monetary Fund.
Germany's reliance on manufacturing and world trade has made it particularly vulnerable to recent global turbulence: supply-chain disruptions during the Covid-19 pandemic, surging energy prices after sanctions on Russia, and the rise in inflation and interest rates that have led to a global slowdown.
At Volkswagen, Germany's biggest carmaker, top executives shared a dire assessment on an internal conference call in July, people familiar with the event said. Exploding costs, falling demand and new rivals such as Tesla and Chinese electric-car makers are making for a "perfect storm," a divisional chief told his colleagues, adding: "The roof is on fire."
Germany's manufacturing output and its gross domestic product have stagnated since 2018, suggesting its long-successful model has lost its mojo.
China was for years a major driver of Germany's export boom. A rapidly industrializing China bought up all the capital goods Germany could make. But China's investment-heavy growth model has been approaching its limits for years. Growth and demand for imports have faltered.
Instead of Germany's best customers, Chinese industries have become aggressive competitors. Upstart Chinese carmakers are competing with German incumbents that are lagging behind in the electric-vehicle revolution.
More broadly, the world has become less favorable to the kind of open trade that benefited Germany. The shift was expressed most clearly in then-President Donald Trump imposing tariffs not only on imports from China but also those of U.S. allies in Europe. The U.K.'s 2016 decision to leave the European Union and Russia's reunion with Crimea in 2014, leading to EU sanctions, also signaled a shift toward a more-hostile environment for big exporters.
Germany's long industrial boom led to complacency about its domestic weaknesses, from an aging labor force to sclerotic services sectors and mounting bureaucracy. The country was doing better at supporting old industries such as cars, machinery and chemicals than at fostering new ones, such as digital technology. Germany's only major software company, SAP, was founded in 1975.
Years of skimping on public investment have led to fraying infrastructure, an increasingly mediocre education system, and poor high-speed internet and mobile-phone connectivity compared with other advanced economies.
Germany's once-efficient trains have become a byword for lateness. The public administration's continued reliance on fax machines became a national joke. Even the national soccer teams are being routinely beaten.
"We've kind of slept through a decade or so of challenges," said Moritz Schularick, president of the Kiel Institute for the World Economy.
In March, one of Germany's most storied companies, multinational industrial-gas group Linde, delisted from the Frankfurt Stock Exchange in favor of maintaining a sole listing on the New York Stock Exchange. The decision was driven in part by the growing burden of financial regulation in Germany. But also, Linde, whose roots go back to 1879, said it no longer wanted to be perceived just as German -- an association it believed was depressing its appeal to investors.
Germany today is in the midst of another cycle of success, stagnation and pressure for overhauls, said Josef Joffe, a longtime newspaper publisher and a fellow at Stanford University.
"Germany will bounce back, but it suffers from two longer-term ailments: above all its failure to transform an old-industry system into a knowledge economy, and an irrational energy policy," Joffe said.
Finance Minister Christian Lindner said in an interview that it is important to remember that Germany is still a global leader. "We're the world's fourth-largest economy. We have the economic know-how and I'm proud of our skilled workforce," he said. "But at the moment, we are not as competitive as we could be."
Germany still has many strengths. Its deep reservoir of technical and engineering know-how and its specialty in capital goods still put it in a position to profit from future growth in many emerging economies. Its labor-market overhauls have greatly improved the share of the population that has a job. The national debt is lower than that of most of its peers and financial markets view its bonds as among the world's safest assets.
Still, more German businesses are complaining of the growing density of red tape. BioNTech, a lauded biotech firm that developed the Covid-19 vaccine produced in partnership with Pfizer, recently decided to move some research and clinical-trial activities to the U.K. because of Germany's restrictive rules on data protection.
Energy costs are posing a challenge to sectors such as chemicals. Sanctions on Russia have exposed Germany's costly bet on Russian gas.
German politicians dismissed warnings that President Vladimir Putin of Russia used gas for geopolitical leverage, saying Moscow had always been a reliable supplier.
Energy prices in Europe have declined from last year's peak as EU countries scrambled to replace Russian gas, but German industry still faces higher costs than competitors in the U.S. and Asia.
German executives' other complaints include a lack of skilled workers, complex immigration rules that make it hard to bring qualified workers from abroad, and spotty telecommunications and digital infrastructure.
One problem Germany can't fix quickly is demographics. A shrinking labor force has left an estimated two million jobs unfilled. Some 43% of German businesses are struggling to find workers.
Germany's fragmented political landscape makes it harder to enact far-reaching changes. In common with much of Europe, established center-right and center-left parties have lost their electoral dominance. The number of parties in Germany's parliament has risen steadily.
Chancellor Olaf Scholz and his Social Democrats lead an unwieldy governing coalition. The Free Democrats want to cut taxes, while the Greens would like to raise them. Left-leaning ministers want to greatly raise public-investment spending, financed by borrowing if needed, but finance chief Lindner rejects that. "We need fiscal prudence," he said.
Senior government members accept the need to cut red tape, as well as for an overhaul of Germany's energy supply and infrastructure. But party differences often hold up even modest changes. This month, the Greens lifted a veto of Lindner's proposal to reduce business taxes only after they extracted a promise of more welfare spending. As part of the deal, the government agreed to pass another law drafted by one of Lindner's allies, Justice Minister Marco Buschmann, to trim business regulations.
Scholz recently rejected gloomy predictions about Germany. He cited the inflow of foreign investment into the microchips sector by companies such as Intel, helped by generous government subsidies. He said planned changes to immigration rules, including making it easier to qualify for German citizenship, would help attract more skilled workers.
But the government's approval ratings have tanked, and the far-right populist Alternative for Germany party has overtaken Scholz's Social Democrats in opinion polls.
"The country is being led by a bunch of Keystone Kops, a motley coalition that can't get its act together," Joffe said.” [1]
It was a mistake of Lithuanian elite to make our Lithuanian economy dependable only on the West, and particularly on Germany. This why our roof is on fire too. According to our geographic position we have to return to intermediary role between the East and the West.
1. Germany's Shrinking Economy Sparks a Struggle for Solutions. Pancevski, Bojan;
Hannon, Paul; Boston, William.
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 29 Aug 2023: A.1.
Komentarų nėra:
Rašyti komentarą